Joao Sousa, partner at Delta Partners, comments how operators can improve the use of LTE in the region.
The Asia-Pacific region dominates the global LTE scene, both in terms of current LTE users as well as expected new LTE users. Operators in South Korea or Japan have advanced LTE ecosystems in place and are actively considering the next evolution of technology (5G). Vendors and regulators in Europe, US and South-East Asia are already discussing the opportunities related to launching 5G or even 6G networks.
On the other hand, GCC operators are still in the early days of exploring the 4G opportunity. According to GSMA, in 2014, LTE penetration reached 47% of mobile connections in Japan, 45% in US and 13% in Europe while in the GCC countries it barely exceeded 6% (except 15% in Kuwait).
Some of the potential factors for low LTE uptake in the GCC countries could be identified as follows:
Availability of affordable LTE handsets for prepaid customer base: Low iPhones penetration within smartphone users in GCC (12%-23% in UAE and KSA vs 47%-53% in US and Japan) could be considered as one of the factors playing a role in the LTE adoption gap between the GCC countries and developed markets. There is a significant correlation between LTE device penetration (e.g. iPhone) and postpaid customer market share. In GCC, majority of the user base is prepaid, thus availability of entry-level LTE handsets is critical for the LTE take-up.
Prices of data offers: Prices for 1GB of data in PAYG (pay as you go) packages in the GCC vary from $8 to $26 and are 27% higher than prices observed in the developed markets. This difference is even more apparent when we look at the ratio of 1GB price and voice ARPU(43% in US and 54% in Japan compared to 137% in UAE and 181% in Saudi Arabia). This factor will become increasingly relevant as entry-level LTE devices become available.
Lack of low frequency spectrum: Apart from Qatar, where operators were awarded 800MHz, 1800MHz and 2600MHz to provide LTE services, all other GCC operators use only high frequency spectrum (1800MHz, 2300MHz and 2600MHz) for their 4G networks. High frequency bands work well for capacity in densely populated areas; however, they have poor reach,which makes rollout outside of the city centres economically nonviable. Moreover, even in the densely populated areas, high frequency bands result in poor indoor customer experience.
Underdeveloped fixed-line infrastructure: Having proper fibre infrastructure in place is critical to establishing high capacity transmission links between LTE sites and backbone network. Without fibre transmission, backhaul becomes a bottleneck in the whole network, limiting the LTE site capacity and performance. Penetration of fixed broadband, which can be used as a proxy for the quality and availability of fixed line infrastructure in a given market, is lower in GCC countries than in developed world (ranging between 30% and 77% of households) suggesting a gap in fibre infrastructure’s availability in the region.
Shortfall of disruptive LTE players: In all GCC countries, only existing operators were awarded with LTE licenses.
Other factors including lower-income expats and weekend tourists that acquire local SIMs also explain penetration gap in most GCC countries.
In order to reduce the gap in LTE uptake in GCC markets operators and regulators should work together to address some of the structural challenges. Regulators should introduce a clear roadmap of spectrum releases, focusing on lower spectrum bands (800-850MHz and even 450MHz). Meanwhile, operators should consider re-farming currently owned lower frequency bands with the view to over time migrate all customers to LTE. Countries watchdogs should work closely with operators on defining and implementing national fibre plans. Telcos should price their data packages with a long-term view, taking into account the expected rather than current capacity and utilisation of the LTE network. Finally, operators should team up and work with device vendors and distributors to ensure greater availability of entry-level LTE smartphones.
Operators, regulators and LTE device vendors need to team up to deliver the full benefits of LTE to all mobile customers in GCC countries.