Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their views on hot topics across the wireless industry.
LTE initial network build activity has been particularly strong in North America, South Korea and Japan. Success by early adopters when it comes to network rollout and performance, device offering and subscriber adoption has compelled operators around the world to commit to LTE. By the end of the first quarter, more than 60 commercial LTE networks had been installed, while in the year-ago period fewer than 15 had been completed.
Upgrading to LTE will impact various parts of the telecom network at different rates, including the radio access network and the voice and packet-carrying core networks. LTE mobile RAN equipment revenues eclipsed $2 billion in 2011 and are on track to more than double in 2012 and beyond. So far, LTE has benefitted a handful of vendors. As LTE adoption spreads, we see new vendors gaining traction not only in the RAN segment but in all parts of the network and ecosystem. The stakes are high.
LTE manufacturers making big bets
Significant opportunities will emerge for vendors to differentiate their offerings. We expect that technology and service leadership, trust and adaptability could even become more pivotal in the mobile broadband world than in the voice arena for the following reasons:
–Technology is evolving at a faster pace with LTE than it did with 3G. LTE requires both technology leaders and followers to introduce new solutions and solve capacity problems more quickly.
–Initial data shows that predicting user behavior in the mobile data world is becoming more difficult and that user behavior is quite different when devices are used only for voice. This drives the need for a deep understanding of end-user behavior and the ability to adapt quickly to changes.
–Additional devices will need to be supported in the LTE world – smartphones, super smartphones, tablets and machine-to-machine modules. Each device will have a different impact on the network.
–Users are becoming more aware of key performance indicators in the network. This raises the bar for operators and vendors to deliver excellent throughput/latencies anywhere, anytime in the uplink/downlink.
–While 3G was a coverage/voice-focused technology, LTE will be capacity-focused, supporting a different ratio of hardware to software. We expect that there will be opportunities for operators to offer different service levels after coverage build outs. These differing service levels will require network intelligence to enable customization.
–LTE will create opportunities for new business models, charging models and service offerings. These opportunities benefit both vendors with strong RAN solutions, as well as those with strong portfolios covering the intelligent portions of the network.
–In the longer term, opportunities will arise for new vendors from the Wi-Fi or femto space to enter the public access small cell market, as operators begin to complement the macro layer with small cells in high-traffic areas.
–There are two types of LTE: FDD and TDD. In contrast to TD-SCDMA, which the ecosystem did not ultimately get behind, LTE TDD will be used around the world. Eventually this technology will represent a significant portion of total LTE revenue. Revenue shares will be impacted, as vendors have different strengths and weaknesses with FDD and TDD.
–Voice networks will change with the introduction of LTE for operators that implement Voice over LTE. Initial build outs indicate that the vendor landscape will differ from the traditional circuit-switched technology landscape.
Vendors benefitting from LTE build outs
Vendors, including Ericsson and Alcatel-Lucent, with strong footprints in the North America and Asia Pacific regions where the majority of networks are being deployed are benefitting from LTE build outs (Figure 1). In the short term, we believe these companies will continue to benefit. However, we anticipate that investments in North America will slow down after initial installations are completed (Figure 2). Thus, it will be important for these vendors to have diversified global portfolios.
Today, vendor revenue shares in the evolved packet core market are similar to that of the total packet core market (Figure 3). However, during the transition to LTE, two well-known vendors – Juniper Networks and Alcatel-Lucent – who had not significantly participated in the total packet core market entered the evolved packet core market. If these vendors are successful in the EPC market, the wireless packet core landscape could change dramatically.
VoLTE is expected to launch commercially in several regions of the world in the second-half of 2012, most notably in North America and South Korea. To prepare for these launches, significant telecom capital spending has recently occurred to ready the networks. VoLTE-related spending revenues approached $90 million during the first quarter – more than double the amount in the prior quarter. Nokia Siemens, Alcatel-Lucent and Ericsson are among the vendors benefitting most from this spending. VoLTE-capable equipment is based on a nearly decade-old technology called IP Multimedia Subsystem. After many years of failing to live up to industry expectations, the market is beginning to grow rapidly thanks to the emergence of VoLTE in mid-2011.
Surging data traffic, equipment sales yet to come
Driven mainly by smartphones and tablets, global mobile data traffic expanded at the rate of 130% per year between 2008 and 2011. This explosion has had a mixed impact on mobile equipment markets. For example, while data traffic growth has benefitted the wireless packet core market (revenues almost doubled from 2008 to 2011), overall mobile RAN revenues from 2008 to 2011 were about level, as sales declines in older technologies – i.e., GSM/CDMA/WiMAX – offset increases in LTE/HSPA. Significant efficiency gains from the deployment of new equipment and a highly competitive vendor landscape contributed to mobile RAN market flatness. Another significant market is also embarking on a major transition – wireline and wireless voice core equipment. Sales of IMS equipment are finally being propelled by VoLTE, yet overall market sales are declining because the gains of a miniscule market cannot yet offset the declines of a massive legacy market. The revenue will, in time, be replaced.
Looking forward, we believe we have not yet scratched the surface when it comes to realizing untapped opportunities and innovations throughout the ecosystem. We can look forward to seeing new business models and services delivered when the network performs in ways previously unknown. Growth of new technologies will be spurred and applications will be invented as new devices come to market. We envision that LTE will continue to create tremendous opportunities for the entire ecosystem.
Stefan Pongratz is responsible for Dell’Oro Group’s Mobility RAN market research program. Prior to joining Dell’Oro Group, Pongratz was with Anritsu Company for 10 years, where he was most recently a senior product manager responsible for portable spectrum analyzers and cable and antenna analyzers used to verify base station quality. During his tenure at Anritsu, Pongratz also held positions in engineering and manufacturing management. Pongratz graduated cum laude with a B.S. in Electrical Engineering from the University of California Irvine. He also holds a Master of Science in Electrical Engineering from Santa Clara University, and an M.B.A. from University of California, Davis.
