LTE Price Premium Over 3G is Collapsing

Long Term Evolution mobile networks promise advantages, but LTE does not always grow revenue, analysts at ABI Research say. Nor does LTE automatically create a “higher priced, premium service” opportunity.

More than 55 percent of the cheapest country tariff plans are 4G plans, compared to just 22 percent  a year ago, according to the research firm.

In other cases, 4G was available at a premium to 3G mobile data plans, but not by much.

“While 55 percent of the 20 cheapest country plans were 4G, 4G tariff plans were only marginally more expensive than 3G tariff plans,” said Marina Lu, ABI research associate.

A year ago, the 4G data pricing was around 20 percent higher than 3G for the equivalent data-plan, but competition is forcing 4G prices lower, ABI Research notes.

“For example, in the French market, a price war was initiated by Free Mobile providing a low-cost 4G package as a competitive response to Bouygues Telecom,” Lu said.

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“Bouygues Telecom had announced that 3G subscribers upgrading to 4G would continue to pay 3G prices,” added Jake Saunders, vice president of ABI Research.

Still, in the 20 markets with the lowest mobile data plan rates, prices did increase 8 percent between the first quarter of 2013 and the first quarter of 2014, ABI Research found.

The other issue is retail bundling. Vodafone, T-Mobile, and Telefonica in Europe now offer unlimited text and voice access for subscribers on mid-tier or high-tier data plans. In some cases, even when the 4G tariff is higher, overall revenue might not be higher because of discounting on voice and texting services.

As you would expect, LTE users consume more data than 3G users, about 1.5 GB of data per month on average, about twice the average amount consumed by non-LTE users.

In developing economies, operators have noted that LTE users can generate average revenue per user seven to 20 times greater than non-LTE users.

In developed markets, operators have found that LTE can generate an ARPU lift ranging from 10 percent to 40 percent. But much depends, as ABI Research notes, on whether markets are competitive, and to what extent competitive.

In many markets, the price premium for LTE seems to have collapsed.