RESEARCH STRATEGY REPORT 4G DEVICE AVAILABILITY AND TAKE-UP: CHALLENGES IN EMERGING ASIA PACIFIC STEPHEN WILSON analysysmason.com
About this report This report analyses the constraints on availability and take-up of 4G devices that support different frequencies and different modes. The report also provides recommendations for operators on how to increase the number of 4G devices within their networks. It is based on several sources: interviews with industry stakeholders in emerging Asia Pacific (EMAP) on best practice for increasing smartphone take-up. Analysys Mason s own internal research and forecasts. GEOGRAPHICAL COVERAGE China India Indonesia Malaysia Philippines Thailand DTAC Telkomsel CASE STUDIES KEY QUESTIONS ANSWERED IN THIS REPORT How quickly will take-up of 4G-capable handsets increase across the EMAP region, and what are the limitations to this growth? What are the limitations on device availability for different frequency bands used in the EMAP region (for example, LTE in the 700 and 850MHz bands)? What potential is there for greater supply of TD and FDD-LTE multi-mode handsets? How can operators drive the take-up of 4G smartphones that are compatible with their networks? WHO SHOULD READ THIS REPORT Operator strategy executives seeking to understand how the handset market will evolve and how operators can drive smartphone take-up to boost data revenue. Operator network executives seeking to understand the potential constraints on handset take-up and how this will affect network investment. Handset vendors aiming to establish the technical requirements for handsets from operators in the EMAP region. 2
CONTENTS EXECUTIVE SUMMARY 4G DEVICE COSTS AND TAKE-UP VoLTE, TD-LTE AND FREQUENCY BAND DEVICE SUPPORT CHALLENGES MNO STRATEGIES TO BOOST 4G DEVICE PENETRATION APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 3
Executive summary 4G device adoption is likely to grow quickly in emerging Asia Pacific (EMAP). However, there are still constraints on devices that support LTE using certain high- and low-band frequency combinations, TD-LTE and, in particular, VoLTE. MNOs in EMAP can adopt several strategies to improve the availability and take-up of 4G-capable smartphones. However, they must decide how much they are willing to invest in their LTE networks, particularly because they have relatively little control over the supply of LTE devices in their markets. This report assesses the difference in price between 3G and 4G devices, and considers the extent to which price is a barrier to growth in the number of LTE subscribers. It also examines how quickly the LTE and smartphone market in EMAP has grown. We discuss the fragmentation of LTE, and the challenges this presents for device support for different frequency bands, carrier aggregation, TD-LTE and VoLTE. Finally, we consider the operator interest in TD- LTE worldwide and how this may affect the availability of devices. We recommend that operators in EMAP should concentrate network investment in 4G technology rather than 3G. The report also proposes that LTE-only operators must take an active role in the handset retail distribution market to overcome specific challenges such as the limited availability of devices that support VoLTE. Finally, handset vendors can drive the worldwide availability of multi-mode FDD and TD-LTE devices because operator interest is not restricted to China. Figure 1: Operators are starting to overcome the barriers to LTE device growth Operators have other options to further drive LTE smartphone growth: 1 2 3 PRICE USD6: BOM materials difference for 4G compared with 3G device Observe other markets to examine which spectrum bands are proving popular Use device bundles FUNCTIONALITY VoLTE: All Qualcomm's chipset tiers support VoLTE AVAILABILITY 4Q 2015: Indonesian smartphone vendors ADVAN and Axioo launch 4G handsets Establish own own retail retail distribution strategy and and develop own own-brand smartphones Source: Analysys Mason 4
MNOs 4G network investment may only be effective if there is sufficient 4G device availability and take-up 4G devices in EMAP are becoming increasingly available and more affordable and, therefore, MNOs in the region should concentrate their investments in 4G technology, rather than 3G. Figure 2: Potential challenges around 4G device take-up MNOs face the problem of deciding how much to invest in 4G. In order to justify network investment, 4G handset penetration must increase and the 4G devices available for purchase must be compatible with the new network. If 4G device availability is constrained, it may be better for MNOs to invest more heavily in 3G network roll-out and allocate more spectrum for 3G. Questions also remain around the number of devices that can support less commonly used frequencies, carrier aggregation, TD- LTE and VoLTE. Device availability is a particular concern for LTEonly players because they will struggle to gain sufficient traction without a widespread portfolio of 4G devices to support the appropriate frequencies. If the number of VoLTE devices in the market is too low, LTE-only players will be severely restricted within the voice market and will have to look to alternative voice solutions. AVAILABILITY OF VoLTE-CAPABLE HANDSETS LACK OF 4G COVERAGE PREPAID DOMINANT MARKETS POTENTIAL CHALLENGES AROUND 4G DEVICE TAKE-UP LOWER INCOME LEVELS PRICE PREMIUM FOR 4G HANDSETS It is in operators interests to improve the availability of 4G devices, but they are limited by EMAP s predominantly prepaid markets. More specifically, the prepaid nature of this market limits the use of instruments such as postpaid handset subsidies to drive smartphone penetration. MNOs that want to get the full benefit from network investment in 4G must devise ways to encourage subscribers to move to handsets that support the new technology. SPECIFIC LTE FREQUENCY AND TD-LTE HANDSET AVAILABILITY CHALLENGES Source: Analysys Mason 5
4G device availability and costs are improving rapidly, but constraints on market growth still remain The barriers to rapid 4G device take-up in EMAP are quickly diminishing as handset vendors offer LTE connectivity for multiple price tiers. However, challenges relating to the fragmentation of LTE remain (for example, both FDD and TD-LTE have been deployed in EMAP). In particular, LTE-only operators will need to take a more active role in the smartphone market to overcome specific challenges relating to handsets. In this report, we first examine how quickly smartphone penetration particularly 4G smartphone penetration is growing, and provide more detail about the extent to which handset vendors, including local players, have incorporated 4G connectivity into their portfolios. We also assess the particular challenges around 4G device availability and, in particular, to what extent smartphones support less common frequency bands such as LTE FDD 850MHz, TD-LTE and VoLTE. The most significant and immediate challenge remains the relatively limited supply of VoLTE-capable devices. The final section of the report explores the ways in which operators can take a more active role in driving growth of 4Genabled devices. LTE-only players will need to develop their own retail distribution networks in order to improve device supply. 4G device bundles also provide a useful tool for operators that wish to boost 4G device take-up, and own-brand 4G smartphones can also serve to make the technology more widely available. Figure 3: LTE as a percentage of total subscribers, selected EMAP operators, 1Q 2015 1Q 2016 35% Percentage of active devices or subscribers with LTE 1 30% 25% 20% 15% 10% 5% 0% 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 Maxis (Malaysia) Digi (Malaysia) DTAC (Thailand) Source: Analysys Mason 1 Maxis figures refer to active devices. DTAC and Digi figures refer to active subscribers. 6
Recommendations 1 Operators in EMAP have good reason to focus their network investments and spectrum allocations on 4G rather than 3G even in the short term. LTE device availability and costs have improved significantly in recent times. Many different device vendors have moved towards offering 4G to an increasing number of smartphone price points. This, coupled with strong interest in smartphones, as well as non-prohibitive replacement cycles, can ensure a rapid migration to 4G in many EMAP markets. 2 In order to ensure that device supply will be sufficient, operators must work with their peers in other markets worldwide to ensure that the LTE frequencies and technologies they are using will also be used by other players. There remain variations in LTE device supply, for example, in terms of the number of devices supporting different frequency bands. Operators must be aware of developments in other global markets when purchasing spectrum or pursuing refarming because these changes may affect the supply of devices compatible with their own network. 3 Handset vendors should take account of the growing importance of TD-LTE and drive the worldwide availability of multi-mode FDD and TD-LTE handsets. There is significant and growing demand for TD-LTE worldwide not just in China and India. Handset vendors should help to make devices that are already available in large markets such as China and India available in other markets where there is demand. Handset vendors should make use of software tools that allow for countryspecific customisation of devices when an operator s SIM card is inserted. 7
CONTENTS EXECUTIVE SUMMARY 4G DEVICE COSTS AND TAKE-UP VoLTE, TD-LTE AND FREQUENCY BAND DEVICE SUPPORT CHALLENGES MNO STRATEGIES TO BOOST 4G DEVICE PENETRATION APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 31
About the author Stephen Wilson (Principal Analyst) contributes research to our Fixed Networks and Wireless Networks research programmes. He joined Analysys Mason as a Senior Analyst in November 2012, having previously worked for Informa Telecoms & Media. Stephen has more than 5 years of experience of covering the telecoms industry and specialises in analysing fixed broadband access technologies and strategies, as well as developments in European telecoms markets across fixed and mobile sectors. He has produced reports on DSL acceleration technologies as well as regular updates on European markets, notably in Central and Eastern Europe. Stephen is a graduate in Politics, Philosophy and Economics from St Catherine's College, Oxford University. 32
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