Tuesday, 20 November 2012

2013's trends #2: 4G in the UK

In my first post about predictions for 2013 I covered wearable computing. In this second instalment I’ll look at “4G” in the UK, another hot topic amongst my clients. Apologies to non-UK readers for the parochialism – perhaps there will be some useful context for your own market within this prediction.

What is it: “4G” is a term used to described the next generation of mobile network. 4th Generation networks offer a number of user experience advantages over their predecessors, foremost of which are greater connection speeds and quicker responses. In the real world this means less time spent waiting for web pages and Internet-connected applications to load and respond and smoother video when using cellular networks.

In the UK we already have a limited 4G service delivered by Everything Everywhere; however it will be summer 2013 before we see the long term networks come on stream from the other UK networks (EE will also ultimately move their network to mirror their competitors). Preceding the network deployments will be a set of auctions for the radio spectrum on which signals are carried.

4G is synonymous with the LTE (Long Term Evolution) standard. In reality, for various technical reasons LTE is not actually a 4th generation standard at all. It will ultimately evolve into one when LTE-Advanced is fully deployed.

My prediction: Because of the complexity of the issue, I have split the prediction 4 ways:
  • Collectively the UK’s mobile operators will pay 5 billion Euros +/- 10% for the 800MHz and 2,600MHz frequencies on offer
  • Although there will be additional bidders besides Everything Everywhere, Vodafone, O2 and 3, the UK market will remain a 4-player one at a network level
  • By the end of 2013 2.5m 4G-connected phones will be in use in the UK; however tariffs will retain the capacity limits in evidence today (e.g. 500Mb of data as standard)
  • There will be a large number of media stories relaying the disgruntlement of buyers of the iPhone 5 and cellular connected iPads who will be unable to use 4G services despite branding to the contrary
Why I think this: Although Ofcom have set a reserve of £1.3B on the spectrum on offer, evidence from recent European auctions suggests that the asset carries a substantially higher intrinsic value. At a lower price a non-trade (e.g. private equity or equivalent fund) buyer could create an attractive business case for that asset. Likewise I suspect that incumbent Telco BT will bid as a cheap price would make the case for a renewed mobile offering attractive.

From a consumer side, the mobile operators will launch a massive marketing campaign and push 4G-ready handsets very heavily. LTE (the 4G standard that will be deployed in the UK) makes better usage of the expensive spectrum asset and therefore it is proportionally cheaper to carry data, voice and SMS traffic on LTE than on its predecessors. The marketing costs around 4G will therefore be a price worth paying. A knock-on effect is likely to be a bounce upwards in advertising spending for 2013.

In terms of the numbers of handsets in service, Deloitte research suggests that 15 to 20 percent of consumers will replace their phone next year. In countries where 4G services have been heavily marketed, as many as half of consumers say they will choose to replace their current handset with a 4G device. In this case as many as 2.5m 4G handsets could be in service by the end of next year. Although these customers will enjoy higher speeds than those restricted to 3G, the large number of consumers using 4G networks before they are fully deployed mean the difference will be less significant in 2013 than marketing messages might suggest.

Vodafone, O2 and 3 customers who have already invested in iPhone 5 or iPad devices in 2012 and 2013 might well expect that their devices will work on the new 4G networks as they are 4G-ready. Unfortunately the 4G networks being deployed by their operator will not support their devices as it operates on different spectrum. This will prove difficult to explain.

Implications: a legion of ill-formed commentators believe that 4G/ LTE will “change everything”. In reality this is an incremental upgrade to today’s 3G networks and the consumer benefits will initially be small. There will also be many comparisons between DSL broadband and 4G. These too are uninformed – physics mean that cellular wireless networks cannot currently approach the capabilities of fixed networks for carrying large volumes of data traffic, particularly given the caps that will remain in place on 4G networks.

Any business that provides a mobile experience for its customers or mobile tools for its employees would be well advised to take hype emanating from the telecoms industry or popular media with a pinch of salt. 4G is an improvement on 3G but in use will only just meet the original promises attached to 3G. Creating bandwidth-hogging experiences that use the technology’s promised capabilities would be ill-advised. Business as usual is the best policy.

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