Analyst Angle: A market perspective on LTE's rollout

Editor’s Note: This article is an excerpt from RCR Wireless News’ May Special Edition, “Enabling the Mobile Revolution – Mobile Chips, Devices and Accessories.” The 80-page special edition is available here.
Long Term Evolution or LTE, a next-generation 3G technology that uses ODFMA (Orthogonal Frequency Division Multiple Access) access technology in the air interface, is making waves in the cellular industry. The all-new 3GPP standard not only promises to unify UMTS and CDMA2000 but to also deliver on throughput, latency and jitter metrics comparable to wired broadband networks. The higher LTE data rates are a direct result of support for higher bandwidth (up to 20 megahertz), higher-order modulation (up to 64 QAM) and MIMO (up to 4×4) while lower latencies and jitter are derived from architectural improvements in the LTE radio access network), called E-UTRAN, and the core network called enhanced packet core.
Contrary to the HSPA RAN, LTE RAN has only one node type, eNodeB, which is the result of a fundamental design philosophy of minimizing the number of nodes. In its attempt to further reduce latencies, while supporting legacy HSPA NodeB functions, the LTE eNodeB also inherits most of the HSPA radio network controller functions. Consequently, the eNodeB in LTE can autonomously deal with functions such as single cell radio resource management decisions, handover decisions and scheduling users in both uplink and downlink directions in its cells.
In order to counteract the high peak to average power ratio problem inherent in OFDMA technology, LTE specifies the use of a low-PAPR, single-carrier FDMA modulation (called DFTS-OFDM) in the uplink. High-PAPR OFDM signals pose challenges for handset power amplifiers operating in the linear region which would need to back off from the saturation power level by the amount of PAPR.
The first wave of LTE infrastructure is based on the 3GPP Release 8 specification, frozen in late 2008, and supports peak data rates of up to 300 megabits per second in the downlink and 75 Mbps in the uplink. The peak spectral efficiency (bps/Hz) for Release 8 stands at 15 in the downlink and 3.75 in the uplink. Release 9 specifications, frozen in December 2009, support incremental improvements in uplink and downlink data rates. Release 10, currently in the works, and beyond are currently part of LTE-Advanced technology and is being evaluated as a potential candidate for the next generation IMT-Advanced technology. LTE-Advanced is proposing peak downlink speed of 1 gigabit per second and uplink speed of 500 Mbps in low-mobility and downlink speed of 100 Mbps in high-mobility environments.
With native support for time-division duplex mode, in addition to frequency-division duplex, most broadband wireless access, i.e. WiMAX operators will choose to switch to TD-LTE to benefit from the LTE economies of scale.
Contrary to popular belief, as an IMT-2000 standard Release 8 and Release 9 LTE are 3G technologies. If LTE-Advanced ends up becoming an IMT-Advanced standard as proposed, only then would Release 10 and beyond qualify as 4G technologies.
LTE operators
LTE is fast gaining operator traction globally. In just over a year since March 2009, when 26 operators originally committed to deploying LTE, there are currently over 100 credible operator commitments. The key drivers are its higher spectral efficiency (lower cost per bit) coupled with higher capacity, resulting from the availability of wideband spectrum, relieving their increasingly congested 3G spectrum. The end-to-end quality of service capability of LTE is also driving operators in developed regions, such as Europe and North America, to adopt new business models and offer stronger value propositions to their subscribers by combining LTE’s wired-broadband-like performance with an IP multimedia subsystem platform for delivering differentiated, premium value added services. These next-generation services will enable operators to capture higher average revenue per user, reduce churn, and offset declining voice revenue. In the past, operators in developed regions have been largely unsuccessful in adopting new business models such as application portals, content, one-off services and even proprietary devices. LTE, coupled with IMS technology will provide operators a completely packet-based capability (called all-IP) that will provide the opportunity to deliver innovative next-generation services on a standardized platform more effectively and at a lower cost than third parties.
Beginning in late 2010, LTE is forecast to become the fastest growing cellular technology, reaching 87 million subscribers in 2014 registering a CAGR of 250%.
While HSPA, CDMA2000 and TD-SCDMA operators are all moving towards LTE, CDMA2000 operators in developed regions remain under significantly higher pressure as a result of their aging EV-DO Release 0 and Revision A networks unable to compete with their HSPA counterparts. Verizon Wireless, for example, is scheduled to be the first major CDMA operator to launch a commercial LTE network during the fourth quarter of 2010, in 25 to 30 U.S. markets covering a population of 100 million people. Japan-based KDDI Corp., another major CDMA operator, has also announced its own plans for LTE in the 2011/2012 timeframe. However, as a result of its existing WiMAX network, KDDI is not under the same pressure to move to LTE as in the case of Verizon Wireless.
In December 2009, TeliaSonera became the first HSPA operator to launch a commercial LTE network in Norway (Oslo) and Sweden (Stockholm). Other major global HSPA operator commitments for LTE in 2011 include TIM in Italy, Orange SA in France, NTT DoCoMo Inc. in Japan, AT&T Mobility, Orange U.K., T-Mobile Germany, and Vodafone Germany .Those will be followed by over 100 other operators that have announced plans for launching commercial LTE networks by 2013.
China Mobile, a 3G TD-SCDMA operator, has a different perspective on LTE. As the only TD-SCDMA operator globally, it lacks the UMTS economies of scale, requiring it to heavily subsidize the device cost to its subscribers. With a very limited choice of mostly tier-two TD-SCDMA chip suppliers, timely support for higher data speeds (e.g. TD-SCDMA HSDPA) also presents a cost challenge.
However, in 2011, China Mobile will field a TDD version of LTE, dubbed TD-LTE. Since most suppliers of the more commonly adopted FDD LTE chipsets will also support the TDD mode used by China Mobile, it will benefit from the FDD LTE economies of scale.
Potential challenges
Despite all the opportunities that LTE presents, it would be remiss to ignore its challenges. One of the biggest challenges operators face is transitioning to a converged all-IP network that is required by LTE – for both voice and data; something that requires major capital outlays for core network and backhaul upgrades. As a result, most operators will initially choose to use LTE for data only and rely upon their legacy GSM/UMTS or CDMA2000 networks for voice that would necessitate tri-mode handsets (e.g., GSM/GPRS/EDGE + UMTS/HSPA + LTE) adding to the cost and complexity of these devices. Another operator challenge includes higher capacity requirements in the backhaul, often orders of magnitude greater, to support higher data throughputs as well as the organic growth in mobile internet subscriber base. Multi-vendor interoperability is yet another challenge that early LTE adopters will need to contend with.
In late 2009, several major global operators announced an One Voice initiative to enable seamless routing of calls between circuit-switched GSM/UMTS and CDMA2000 networks and IP-based packet-switched LTE network. It is called Voice over LTE and uses IMS for routing calls between the CS and PS networks.
LTE chipsets
As result o
f broad-based industry agreement tow
ards establishing a transparent framework for licensing IPR related to LTE which includes provisions for reciprocity and an understanding on reasonable maximum royalty rates, LTE will foster more innovation and competition in the chip sector as compared to the WCDMA/CDMA licensing regime that resulted in an oligopoly of large UMTS/HSPA chipset suppliers and a virtual monopoly (by Qualcomm Inc.) in the case of CDMA2000.
The LTE client chipset supplier landscape can be broadly broken down into two categories; suppliers of multi-mode chipsets, dominated by existing WCDMA/CDMA suppliers; and single-mode chipset suppliers that are predominately WiMAX converts.
The major 3G multi-mode merchant market suppliers currently sampling LTE are Qualcomm and ST-Ericsson both of whom have announced their respective first-generation chipsets targeted primarily at smartphones. Qualcomm has also announced an LTE-capable Gobi PC module in early 2010. ST-Ericsson, for its part, is working on a second-generation multi-mode LTE chipset based on a high-performance floating point vector processor it inherited from the NXP acquisition.
The single-mode LTE ecosystem is much larger and includes several startups. The noteworthy ones are Sequans Communications, Altair Semiconductor and Beceem Communications Inc. Sequans’ LTE baseband, announced in early 2010, was recently chosen by China Mobile for its TD-LTE USB dongles. Sequans will also benefit from its strong relationships with cellular infrastructure suppliers Motorola Inc. and Alcatel-Lucent, both of whom are backers of its LTE development program. Israel-based Altair announced its first LTE FDD/TDD baseband processor during the second quarter of 2009, followed by a TDD MIMO RF transceiver in during the third quarter of last year. The company is also scheduled to announce its multi-band LTE FDD RF transceiver later this year. Beceem announced its LTE solution in early 2010, becoming the first global multi-mode WiMAX/LTE baseband chipset targeted at the BWA market.
As voice-centric devices, LTE handsets will exclusively use multi-mode chipsets. However, data-centric USB dongles and PC cards/modules could use either multi-mode or single-mode LTE chipsets based on operator preference. Similar to China Mobile’s single-mode TD-LTE dongle, TeliaSonera, the first European LTE operator has also chosen to go with single-mode LTE dongles supplied by Samsung Electronics Co. Ltd. that uses its own LTE chip, codenamed Kalmia. Similar to the aforementioned WiMAX converts, as a result of South Korea’s long standing commitment to WiMAX (called WiBro), Samsung has been a supplier of WiMAX chipsets to the market.
Smartphones will be amongst the largest users of multi-mode LTE chipsets. The below chart depicts smartphone shipments market share by air-interface technology through 2014 . While HSDPA will remain the dominant 3G technology in unit shipments, beginning in 2011 LTE is forecast to become the fastest growing cellular technology, reaching 22 million units in 2014 growing at a CAGR of 165%. LTE smartphones will lag USB dongles by 12-18 months.
Thus, while LTE presents its own set of initial challenges it provides tremendous long term opportunities for both mobile and fixed wireless operators. Through its spectrum flexibility and technological adaptability LTE not only promises to unify the currently disparate CDMA2000 and UMTS/HSPA mobile networks but also consolidate BWA networks under its purview, thus potentially establishing itself as a single, worldwide standard while benefiting both operators and consumers from its combined economies of scale.
Satish Menon is a senior wireless analyst for Forward Concepts (www.fwdconcepts.com). Menon has an extensive background in telecommunications and wireless and has authored a number of market studies on smartphones, netbooks and smartbooks. Menon earned his Bachelor’s degree in Electronics and Communication Engineering from REC, Trichy, India and his Master’s degree in Computer Engineering from University of Southern California.