Verizon Wireless set to alter mobile landscape with LTE launch

The domestic wireless industry is set for a change in the coming weeks as Verizon Wireless (VZ) throws its mighty weight behind the launch of its LTE network.
(Sure, the launch won’t be the first domestic LTE launch, that distinction being held by MetroPCS Communications Inc., but it will be a significant move as the broadest LTE deployment not just domestically, but also across the globe.)
Verizon Wireless has said it plans to cover more than 100 million potential customers in 38 markets and dozens of airport locations with LTE service by the end of the year, with most observers expecting the launch to occur as soon as next week. The carrier’s advertisements are claiming a launch in December.
Verizon Wireless has already begun hyping the launch under the 4G LTE tag line and commercials that are beginning to roll out. Those advertisements seem to stress the improved network speeds of the LTE service, which the carrier has said will include downlink speeds of up to 12 megabits per second and up to 5 Mbps on the uplink.
(The advertisements also seem to indicate that coverage will be ample in rural barns and that throwing bolts of lightning is a safe hobby.)
While the initial launch is expected to focus on wireless modems, industry observers have said they expect the carrier to announce a handful of more consumer-friendly devices sporting LTE capabilities at the upcoming Consumer Electronics Show in Las Vegas in early January, including smart phones and tablet devices, with one analysts saying the show will be a “Verizon Wireless event.”
Many think that if any carrier can pull off this sort of launch it’s Verizon Wireless, a carrier known in the industry as being very network focused.
“Verizon’s launch of LTE is going to the largest scale and scope of LTE out there,” noted Dan Hays, partner at global management consulting firm PRTM. “This will set the benchmark for the level of effort and complexity in operating an LTE network.”
Hays noted that unlike a number of carriers that have already launched LTE or are looking at LTE, Verizon Wireless has taken the brunt of network deployment onto its own shoulders.
“They have not gone the managed services route,” Hays noted. “Their competitors will look to see how this shakes out and try to learn from any issues Verizon Wireless has with both the technology as well as with how they manage the network.”
Hays added that Verizon Wireless’ network deployment is also fairly aggressive in that the carrier said it plans to cover at least 70% of its current CDMA network in its initial LTE launch markets on its way to covering nearly all of its legacy network coverage by the end of 2013. Hays also noted that the December launch of the LTE network could play into the coverage benefits as in most parts of the country – especially in the population-dense Northeast – foliage will be missing from the trees, a nuisance that does impact network coverage.
Bill Ho, VP of consumer services for Current Analysis Inc., also pointed out that this network management could be more intense due to the open access provisions imposed on the 700 MHz spectrum Verizon Wireless is using for the service.
“Verizon will have to have the back end systems and pricing models in place to handle these wholesale customers,” Ho explained.
On the topic of the 700 MHz spectrum, which Verizon Wireless paid nearly $10 billion for during the Federal Communication Commission’s Auction 73 in 2008, Ho added that Verizon Wireless will be looking at pricing models that will allow the carrier to expedite the return on that investment as quick as possible.
“Verizon will sort of be setting the precedent when it comes to pricing of these faster networks and they will want to have models that allow for both quick consumer adoption on the low end as well as tiers on the high end that will allow it to get a return on the network costs in exchange for allowing customers to really use the network,” Ho said.
Public perception of 4G
Hays noted that one challenge for Verizon Wireless, and for the whole mobile industry going forward, will be how they position these new networks to consumers.
“Verizon will have to fight to differentiate their 4G experience from competitors that are using different technologies and different capabilities,” Hays said. “So far the advertising does not really outline how they are different and I think we are going to see a sea change coming in first half of next year on how wireless carriers advertise and position their 4G experiences.”
One way Hays said this could happen will be in the industry establishing a standard for determining network speeds, which to this point has been bouncing around between theoretical laboratory speeds and real-world speeds seen at a consumer’s device.
“If you look back to the PC industry in the mid-90s, clock speeds of processors began to change as chip makers came out with dual-core processors. This forced the PC industry to adopt new benchmarks for an apple-to-apple comparison,” Hays explained. “We might not get that level of third party benchmarking in wireless, but I think we will see speed and drive tests be much more in the forefront.”
As for the marketing of “4G” services, the industry has indeed gone head-over-heels in pushing the hype. While there is really no “4G” service that can be supported by current commercial technologies, most domestic operators have not shied away from using the term to market their services. Sprint Nextel started this by labeling its WiMAX service as “4G,” a move that was followed by MetroPCS for its LTE launch and then more recently by T-Mobile USA for its HSPA+ network. Verizon Wireless has followed the trend by labeling its LTE service as “4G LTE.”
“4G has already been diminished to almost being meaningless,” Hays noted. “The average consumer is likely to be confused by the technical jargon being used in marketing.”
(Further confusing the situation, Verizon Wireless provides a graphic on its LTE web page showing a speed demonstration between LTE and HSPA+ technology as being offered currently by AT&T Mobility and T-Mobile USA Inc. The comparison shows a much quicker speed for LTE, though in the fine print it notes that the LTE speeds are if it were running at 100 megabits per second using 10 megahertz of spectrum on the downlink compared with the HSPA+ network in its 14.4 Mbps iteration running 5 megahertz of spectrum in the downlink. Not really a fair comparison as Verizon Wireless is nowhere near a 100 Mbps version of LTE. Clearwire Corp. has shown that LTE technology can get close to those speeds in the real world, but that was by using 20 megahertz of spectrum for the downlink. Verizon Wireless also notes that it’s the only carrier with “contiguous 4G spectrum,” an odd assertion since U.S. carriers can use any spectrum, whether 700 MHz, 850 MHz, 1700/2100 MHz, 1900 MHz or 2500 MHz for any service it wants. But I digress.)
Impact far and wide
Despite the marketing issues, Verizon Wireless’ LTE launch will be significant for the domestic industry as it will provide the nation’s current largest operator with bragging rights to the most adva
nced mobile network and could put considerable pressure on its competitors.
Sprint Nextel Corp. was seen as the leader in pushing out next-generation mobile networks when it launched its WiMAX-based services under the Xohm brand in late 2008. Following completion of the merger of its 2.5 GHz spectrum assets with Clearwire Corp., that deployment fell onto the shoulders of Clearwire, which has since expanded the network to more than 60 markets and covering more than 80 million pops.
However, with Verizon Wireless now on deck to launch its version of “4G” to more than 100 million pops, the often-touted two-year time-to-market advantage for Clearwire and Sprint Nextel is set to close. In that time Clearwire and Sprint Nextel have said they have gained real-world experience with operating a next-generation network that new entrants will have to stumble their way through, but have also only managed to attract a couple million customers despite a broad offering of mobile devices.
“Verizon is going to put its substantial marketing muscle and sheer size in scooping up as many 4G customers as possible,” Hays said. “This will put pressure on Clearwire’s subscriber acquisition costs and net adds. I suspect Verizon will also accelerate voice capable devices trying to access a segment of the 4G market that Clearwire has yet to tap.”
While Clearwire has begun trials of LTE services, Hays added that the move by Verizon Wireless could also pressure Sprint Nextel to perhaps make its own move to LTE technology as part of its current network overhaul plans. Though this is somewhat clouded by Clearwire’s current financial situation that is delaying its continued WiMAX network expansion past the 120 million pop mark it has planned for the end of this year. Sprint Nextel has said it would be happy to help fund Clearwire’s continued expansion, though that possibility is tied up in Clearwire’s current ownership structure.
As for its other rivals, AT&T Mobility has already accelerated its LTE launch plans, which will also use 700 MHz spectrum, saying it now plans to begin trialing services next year with plans to launch commercial services covering more than 70 million pops by the end of 2011. The carrier has also aggressively moved to bolster the coverage of its HSPA+ network that it claims will provide a more compelling fall-back solution for customers that might roam outside of LTE coverage when compared with Verizon Wireless’ CDMA fall-back option.
T-Mobile USA has also move forward with bolstering its HSPA+ network both from a coverage and speed stand point as well as with now labeling that service as “4G” for marketing purposes. This move will have to hold over the carrier until it can acquire more spectrum needed to support the roll out of LTE services.