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S E C T O R R E P O R T

The LTE Business Case: Operator and Vendor Strategies

April 2008

Chris White Lead Analyst Dr Matt Lewis Research Director ARCchart Ltd 27 Holywell Row London EC2A 4JB United Kingdom Tel: +44 20 7456 9669 Fax: +44 20 7456 9660 Email: [email protected]

ARCchart is an independent research and consulting firm focusing on all aspects of the wireless communications

sector. Based in London, ARCchart’s depth and breadth of analysis provides a global perspective on wireless

technology and industry developments. Combining original thinking with exceptional knowledge and experience,

ARCchart assists clients in making sound commercial decisions about technologies, market strategies and

competitive positions. With strong roots in the tracking of M&A activity across the communications space,

ARCchart’s strategic advice covers all aspects of the wireless value-chain - ranging from semiconductors and

WLANs to network operators, handsets and mobile applications. ARCchart is an affiliate of London-based

investment bank ARC Associates.

This report draws upon research and analysis conducted by all the ARCchart information groups. Use of this report by any third

party for whatever purpose should not, and does not, absolve such third party from using due diligence in verifying the report’s

contents. Any use which a third party makes of this document, or any reliance on it, or decisions to be made based on it, are the

responsibility of such third party. ARCchart, its affiliates and representatives accept no duty of care or liability of any kind

whatsoever to any such third party, and no responsibility for damages, if any, suffered by any third party as a result of decisions

made, or not made, or actions taken, or not taken, based on this document. ARCchart does not make investment

recommendations, in this report or otherwise, and nothing in this report should be interpreted as an opinion by ARCchart either

on market forecasts or on the prospects of specific companies.


Executive Summary 3G LTE (Long Term Evolution) is still technically a pre-standard technology and is not likely to see the light of

day until 2010 at the earliest, yet it is seeing unprecedented interest from vendors and operators alike. The

question is: can operators who are only just starting to see returns from their 3G licenses really justify

investing in what is essentially a new replacement technology?

This report examines the technical and market dilemmas faced by operators and vendors in their migration to

LTE, examining the LTE business case in the context of a converging communications world. The report looks

at the risks associated with the upgrade to a totally new technology and the progress made by the principal

vendors and standards bodies involved.

The report goes on to discuss the key technologies involved in LTE like System Architecture Evolution (SAE),

OFDM and multiple-input and multiple-output (MIMO) and the specific timing and logistics involved in rolling

these technologies out. The report also analyses the spectrum issues faced by mobile operators and the

specific issue of IPR and how operators and vendors are working to prevent it becoming a barrier to launch.

The report profiles operators such as NTT DoCoMo, Orange and Verizon, outlining their mobile broadband

strategies and their expected moves to LTE.

The technical benefits of upgrading to LTE are sound. These include 100 Mbps of downlink and 50 Mbps of

uplink, reduced latency and increased spectral efficiency. The systems architecture should also allow for

significant savings as it will be all-IP. What all this means is more efficient delivery of existing voice and data

applications as well as the potential to compete on certain levels with the fixed-line environment; be it mobile

TV, videoconferencing or VoIP.

The mobile industry has been searching for consensus over the best technology route to follow. Making the

wrong decision is potentially disastrous as a technology without critical mass will accrue none of the benefits

of mass production and may prove incompatible with the rest of the industry. At first there were three main

contenders: UMB, mobile WiMAX and LTE. Each had their own specific advantages and each had their own

advocates, but market momentum has now firmly swung in LTE’s favour.

Now it looks like LTE will be the technology of choice for those operators following the CDMA route as well as

the GSM route. Verizon Wireless announced in late 2007 that it would be following the LTE path, despite its

status as one of the flag bearers for CDMA technology. This brings it into line with joint venture partner

Vodafone which also announced its intention to move to LTE.

ARCchart forecasts that the first LTE network will be rolled out in Japan in 2010, but subscriber numbers will

not start to pick up until 2011, when European and North American operators begin to launch their networks.

By 2013, the forecast number of global LTE subscribers is 68.9 million with European operators making up

28.8 million of this number followed by 21.5 million in Asia Pacific and 17.5 million in North America.

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Without doubt, the most ambitious operator in the LTE space is NTT DoCoMo which is looking to deploy by

2009. NTT DoCoMo’s Super 3G technology is already being tested and the operator is working closely with

infrastructure and handset vendors to ensure it meets its tight timeframes. The company is likely to leapfrog

HSPA+, so it is vital it fills the technology vacuum as rapidly as possible. Most other operators are looking at

2010 or 2011 at the earliest, with many looking to upgrade their mobile networks with HSPA+.

Many operators – like Vodafone and Orange – will continue to adopt a dual strategy of deploying LTE in their

developed markets and WiMAX in developing markets, where subscribers have less access to the Internet.

Some commentators have also seen the move into WiMAX by some of the world biggest mobile operators as

a political move to maintain pressure on the LTE vendors to accede to their demands.

Mobile operators want concessions from the LTE vendors on a number of fronts. Firstly, they want the

standards bodies to move faster before WiMAX gains too great a foothold. Secondly, and more importantly,

they want LTE to be cheaper than its predecessor, WCDMA. Operators like Vodafone and T-Mobile have

been vocal in their criticism of the licensing costs involved in WCDMA which many blame upon the role of

Qualcomm in the IPR process. Operators are determined there should be more clarity in IPR and that

licensing costs should not be prohibitive.

When rollouts begin around 2010, initial launches are likely to be cautious and extended to urban areas where

population density makes the business case strong. Many operators are looking to launch with datacards first,

targeting the high spending business community before the more fickle and low-spending consumer

population.

Although LTE is not a full 4G technology, it is now seen as the logical next step to 4G and over the next 2-3

years will be embraced across the world. Despite this, timing for rollout is going to vary considerably as some

operators choose to augment their networks with WLANs and dual-mode handsets while others choose to

squeeze the most out of HSPA through upgrades and enhancements.

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Table of Contents

A. INTRODUCTION ............................................................................................... 1

A.1 | The evolution of mobile broadband 1

A.2 | Is LTE a 4G technology? 3

A.3 | Specifying LTE 4

| ITU efforts to formalise 4G............................................................................................................. 5

| LTE/SAE trial initiative ................................................................................................................... 5

B. TECHNOLOGY OVERVIEW ............................................................................. 6

B.1 | OFDM 6

B.2 | Advanced antenna systems 7

| MIMO............................................................................................................................................. 7

| SDMA or virtual MIMO................................................................................................................... 8

| Beamforming ................................................................................................................................. 8

| iBurst.............................................................................................................................................. 9

B.3 | System Architecture Evolution 9

B.4 | Rollout problems 12

| Backhaul issues............................................................................................................................. 12

B.5 | Competing technologies to LTE 14

| UMB............................................................................................................................................... 14

| WiMAX........................................................................................................................................... 14

B.6 | Standardization of LTE 16

| NGMN initiative.............................................................................................................................. 17

B.7 | IPR issues 18

| Qualcomm IPR position ................................................................................................................. 19

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C. BANDWIDTH UTILISATION ........................................................................... 21

C.1 | TDD & FDD 21

C.2 | Capacity requirements 22

C.3 | Candidate bands 24

C.4 | The need for harmonised spectrum 25

C.5 | New bands needed 26

C.6 | Spectrum neutrality 27

D. THE BUSINESS CASE FOR LTE ................................................................... 28

D.1 | Introduction 28

D.2 | Why Upgrade To LTE? 29

D.3 | LTE Benefits 29

D.4 | LTE Negatives 31

D.5 | New Applications 32

| Product Classes............................................................................................................................. 32

D.6 | LTE home femtocells 33

D.7 | Lower Costs 34

D.8 | Benefits of all-IP infrastructure 36

D.9 | HSPA as an alternative to LTE 37

| Vendor support for HSPA+ ............................................................................................................ 39

| HSPA+ performance compared to LTE ......................................................................................... 40

| Timing issues................................................................................................................................. 41

| HSPA+ Compared To WiMAX ....................................................................................................... 42

D.10 | Fixed Wireless Terminals 42

D.11 | Handset Costs 43

E. FORECAST SUBSCRIBER UPTAKE............................................................. 44

F. OPERATOR STRATEGIES............................................................................. 47

F.1 | Invest in forwards-compatible infrastructure 47

F.2 | Invest in HSPA+ in parallel to LTE 47

F.3 | Skip HSPA+ and go straight to LTE 48

F.4 | Roll out datacards in the first instance 48

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F.5 | Deploy in densely populated areas 48

F.6 | Lobby for extra spectrum 48

F.7 | Ensure handset diversity before launch 49

F.8 | Deploy WiMAX in developing markets 49

G. VENDOR STRATEGIES ................................................................................. 50

G.1 | Pool R&D resources 50

G.2 | CDMA vendors must develop multimode chipsets 50

G.3 | GSM vendors use HSPA+ to counter threat Of WiMAX 51

G.4 | Ensure IPR environment is transparent 51

G.5 | Skip HSPA+ 52

H. COMPANY PROFILES.................................................................................... 53

H.1 | Vodafone 53

| Background.................................................................................................................................... 53

| Strategy ......................................................................................................................................... 54

| Reducing costs .............................................................................................................................. 54

| Backhaul ........................................................................................................................................ 54

| Spectrum strategy.......................................................................................................................... 55

| Mobile broadband roadmap ........................................................................................................... 55

| WiMAX: A political pawn! ............................................................................................................... 56

H.2 | T-Mobile 58

| Background.................................................................................................................................... 58

| Strategy ......................................................................................................................................... 58

| WAN upgrade ................................................................................................................................ 59

H.3 | Orange 60

| Background.................................................................................................................................... 60

| Strategy ......................................................................................................................................... 60

| Orange and WiMAX....................................................................................................................... 60

| Orange quad play strategy............................................................................................................. 61

H.4 | NTT DoCoMo 62

| Background.................................................................................................................................... 62

| Strategy ......................................................................................................................................... 62

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| Super 3G handset advances ......................................................................................................... 65

H.5 | Verizon 67

| Background.................................................................................................................................... 67

| Strategy ......................................................................................................................................... 67

I. GLOSSARY ...................................................................................................... 69

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List of Figures Figure A-1: Mobile network generations & deployment timeframe..................................................................... 1

Figure A-2: IMT Advanced VAN Diagram .......................................................................................................... 3

Figure B-1: Flat architecture of LTE & SAE ..................................................................................................... 10

Figure B-2: High-Level NGMN architecture ..................................................................................................... 11

Figure C-1: Relative spectral capacity per technology ..................................................................................... 23

Figure C-2: Next generation services relative to bandwidth............................................................................. 24

Figure D-1: Femtocell ...................................................................................................................................... 34

Figure D-2: Decoupling of revenues from traffic .............................................................................................. 35

Figure D-3: Number of commercial HSPA networks per peak download speeds ............................................ 38

Figure D-4: Examples of terminals that could use LTE.................................................................................... 42

Figure E-1: Global LTE subscribers ................................................................................................................. 45

Figure E-2: Regional breakdown of LTE subscribers....................................................................................... 46

Figure H-1: Vodafone roadmap........................................................................................................................ 55

Figure H-2: NTT DoCoMo roadmap to 4G ....................................................................................................... 64

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List of Tables Table A-1: Comparisons of key evolutionary technologies ................................................................................ 4

Table B-1: 3G LTE specification overview ......................................................................................................... 7

Table C-1: FDD & TDD frequency bands defined in 3GPP (June 2007).......................................................... 21

Table D-1: LTE critical success factors............................................................................................................ 28

Table D-2: Service classes for business requirements .................................................................................... 33

Table D-3: NGMN cost efficiency criteria ......................................................................................................... 36

Table D-4: HSPA comparison to LTE .............................................................................................................. 40

Table E-1: LTE deployment timeframes........................................................................................................... 44

Table H-1: Vodafone data revenues as a percentage of service revenues, 4Q06-4Q07................................. 53

Table H-2: Vodafone current spectrum holdings.............................................................................................. 55

ARCchart Ltd 27 Holywell Row London EC2A 4JB United Kingdom Tel: +44 20 7456 9669 Fax: +44 20 7456 9660 Email: [email protected]

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