LTE Asia article series.pdf

7/29/2019 LTE Asia article series.pdf

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November 2012

The Delta Insight

LTE Asia article series

Authors:

Mar Pages - Principal - [email protected]

James Ong - Manager - [email protected]

Amit Arora - Manager - [email protected] Arlorio - Senior Associate - [email protected]

Part One: Considerations on timing, benefts and

learning from early VoLTE adopters


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Introduction

With the advent of Long-Term Evolution (LTE) technology, mobile operators across emerging

and advanced markets are riding a wave of change. Together with providers in the United

States, Asian players are leading what will likely become a new era of data connectivity and

technological advances.

As a leading player in the telecommunications advisory eld, Delta Partners has its nger

on the pulse of the industry through client engagement, leadership events and industry

conference participation. This article, the rst in a series of four discussing in greater depth

some of our views on key LTE issues, covers the developments in VoLTE. The choice of topics

presented is not intended to be exhaustive, but represents our view on what factors could

have the most signicant impact on the wireless industry in the short to medium term.

The four topics we cover in this series are:

1. VoLTE: Are we ready, technically and strategically, for a new era of IP communications?

Voice over LTE has been commercially launched by Metro PCS, a regional operator in

the United States, and also in South Korea, where all operators now offer the service.

However, some other players like Docomo, are intentionally delaying the launch since

they have historically led the rest of the world in mobile technology advances, their

rationale for giving the lead to Korea is rather interesting.

2. Changes in pricing paradigms: Although LTE is still in its infancy, some pricing trends

can already be observed. We discuss regional differences and offer guidance on optimal

pricing based on strategic intent and the constituencies of each operator.

3. Korea awakening: Related to the rst article, South Korea has emerged as the leader

in LTE, overtaking Japan from the standpoints of both consumer sophistication and

technological advancement. Is this lead sustainable? We discuss the drivers behind this

rapid social and technological shift.

4. Samsungs entry into the LTE equipment race: From our discussions with operators

and vendors, it has become clear that Samsung has decided to enter the LTE equipment

race with some substantial bets. How likely are they to succeed? What is the thinking

behind this move and what pitfalls might they encounter? Given the stated ambitions of

this electronics giant, we attempt to gauge the feasibility of their aggressive targets.


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Does VoLTE mark a turning point for mobile voice?

Telcos operating in developed and emerging markets alike have bemoaned the steady decline

in mobile voice revenue as markets become saturated and subscribers show greater interest

in over-the-top (OTT) services such as Skype and Viber. Some estimates have projected a

potential compound annual growth rate of negative 2-3 percent in voice revenue between

2012 and 2020.1

In rolling out LTE networks to meet a burgeoning data tsunami, mobile operators have

found themselves facing another conundrum subscribers have taken for granted seamless

voice handovers on 2G and 3G networks and are demanding the same from LTE 4G networks.

In lieu of deploying fully enabled VoLTE networks, mobile operators have to date deployed

interim measures such as dual-mode operation and circuit-switched fallback (CSFB) solutions.

These are more easily implemented over existing legacy networks, but are not withoutshortcomings. Dual-mode operation results in much poorer handset battery life and radio

interference, while CSFB entails longer call setup times and truncated data sessions during

handover. One major development, however, is that the industry has generally agreed to

converge towards VoLTE, forgoing alternatives such as voice over LTE via generic access

(VoLGA). This will help accelerate standardisation, which in turn will facilitate deployment.

Exhibit 1: Options for providing voice in an LTE world

Mobile operators are asking three key questions about LTE voice

1. When is the right time to deploy VoLTE?

2. Will VoLTE offer any benets versus 3G voice and OTT voice applications?

3. What key lessons can be drawn from early VoLTE adopters?

1 Telecom Asia The Future of Voice

Source: Alcatel Lucent, Qualcomm white papers, Rohde & Schwarz

LTE voice options

Active dual-modeoperation(Dual Radio; SV-LTE)

Circuit SwitchedFall Back(CSFB)

Voice over LTE viaGeneric Access(VoLGA)

Voice over LTE with SingleRadio Voice Call Continuity(VoLTE with SRVCC)

Deployments Verizon, Sprint AT&T, 3 None (abandoned) SK Telecom, LG Uplus

Description For CDMA2000 operators to

connect concurrently toboth networks

Voice completely onto the3G/GSM network with LTEonly for data

Dedicated hardware tointerwork GSM/3G and LTEnetworks

Full VoLTE functionalitywith handover to 2G/3G andconcurrent voice/data

New networkequipment

None None VoLGA Access NetworkController (VANC)

Security gateway / AAAserver

IMS core IP Short Message Gateway

Legacy networkupgrades

None All MSCs in LTE coverage None None

Strengths Good voice quality Concurrent voice & data

Less impact on network Supported by LTE phones

Excellent voice quality Concurrent voice & data

Excellent voice quality Concurrent voice & data

Weaknesses Poor battery life Radio interference

Some delay in call set up Truncated data session

No longer supported Needs IMS

3GPP compliance Yes Yes No Yes (Pushed by GSMA)

LTE

CDMA2000

Data only

VoiceLTE

3G/GSM

Data only

VoiceLTE

3G/GSM

2G/3Gvoice

VoLTE

LTE

3G/GSM

2G/3Gvoice

VoiceData

VANC Data


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1. When is the right time to deploy VoLTE

Operators that have launched LTE have largely reported smooth migrations, with customers

generally still satised with the CSFB LTE voice solution. This has resulted in a general

mindset that VoLTE is not an immediate priority, and issues such as ofoading and small

cells should take precedence because of their higher potential for disruption. According to

a recent survey2, a majority of mobile operators see VoLTE as an initiative that is still about

two years away.

Exhibit 2: Operator timeframes for VoLTE

In our view, it will be some time before we see large-scale VoLTE deployment, with operators

delaying rollouts until a tipping point is reached to ensure it is effective and efcient. Four

factors will be key to this decision:

a. A minimum level of LTE coverage to reduce the amount of CSFB support required.

b. The need for IP multimedia subsystem (IMS) specications to be better dened to

make them as comprehensive as those for 3G circuit-switched voice (e.g. traditional CS

services such as SMS and USSD).

c. A critical mass of VoLTE-enabled handsets and hence a limited number of remaining

2G/3G subscribers.

d. Deployment of a fully enabled IMS core network.

In some developed markets such as South Korea however, operators are choosing to lead

on VoLTE deployment precisely because LTE has reached nationwide coverage, and LTE

competition has evolved beyond network coverage to the delivery of enhanced services.

VoLTE services are seen as tools for differentiation and SK Telecom and LG U+ have both

launched HD VoLTE ahead of KT Corp. Additionally, as we will discuss in the next section,

Koreans are very high data users and spectrum optimisation is a key concern for all

operators.

2 Radisys

Source: Radisys survey

100 100 10089

74

63

Wi-Fioffload

Small cells FDD/TDDLTE

Newmobiledevices

LTEAdvanced

VoLTE

Sources of disruption for mobile operators in APACover next three years(%)

When will VoLTE happen?(%)

22%

56%

22%

Alreadyhappening

Within 1year

Within 2years

> 3 years Never


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On this note, one key driver encouraging deployment is that VoLTE is viewed as a technology

that improves the efciency of radio spectrum usage. Japans NTT DoCoMo claims that

VoLTE is three times more spectrally efcient than 3G voice3 and hence can potentially

result in freed up spectrum that can be assigned to other uses, such as LTE data or widebandvoice. In addition, a full migration to VoLTE enables the potential for legacy 2G (or even 3G)

networks to be switched off. This happened sooner than expected in South Korea, where 2G

networks were deactivated earlier this year.

2. Will VoLTE offer any benets versus 3G voice and OTTvoice applications?

OTT voice providers currently offer services for free or very cheaply, but with the potential

for poorer audio quality compared with 3G switched voice, less handover stability and

longer call setup times as they rely on the integrity of data connections. OTT voice services

also generally fare poorly in not providing full support for ancillary voice services such as

emergency calls, caller identication and voice mail. VoLTE looks set to maintain or even

extend these competitive advantages. For example, SK Telecom claims that its HD voice

has a call setup time up to twenty times shorter than that of 3G voice.4 The operator is

also able, through QoS Class Identiers (QCI), to prioritise voice trafc over OTT voice for

a superior user experience. Under LTE QCI standardisation, voice has the top QCI of Level

1, whereas other TCP-based trafc, where OTT will belong, falls under QCI Level 6. LG U+

claims its HD voice reaches a Mean Opinion Score of 4.72, 23 percent higher than that of

CDMA2000 EVRC voice.5

It should be noted that HD voice is not new or for that matter, limited to LTE networks. HD

voice is estimated to have been launched in 45 networks across 35 countries over GSM, UMTS

and LTE networks.6 For consumers, however, HD voice benets such as increased clarity

are a much more digestible idea than the rather abstract VoLTE, and so Korean operators

have chosen to cleverly couple the two concepts. It is likely, though, that VoLTE/HD voice is

simply viewed as one of the many plates of armour that mobile operators are deploying in

defence against OTT providers. For now, however, the ability of such value-added services

to incrementally monetise VoLTE investments remains uncertain SK Telecom offers HD

voice at the same rate of KRW1.8 per second as its 3G voice service.7 We explore this topic

further in our second article in this series on LTE pricing.

Nonetheless, VoLTE is merely a forerunner for a suite of IP services loosely grouped under

the Rich Communication Suite (RCS) umbrella dubbed joyn. RCS is being mooted to provide

new features such as real-time multimedia sharing, enriched messaging and presence-

enhanced services that are likely to be easier to monetise beyond voice services. The key

touted benets of RCS include inter-operator QoS control (e.g. removing the dependency

Skype has on end-to-end Internet connection quality) and native operator support (e.g.

removing the need for user accounts and passwords).

3 NTT - LTE Voice Roadmap presented at the LTE Asia conference

4 SK Telecom - SK Telecom LTE 2.0 Innovation5 LGU+ - Go To Market Strategy6 Global mobile Supplier Association

7 Telecom Paper


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LG U+, for example, is looking to cloud-based games, real-time screen sharing and in-car

infotainment services to augment its stable of IP services. Some of these, for example

concurrent voice and data such as sharing a photo during a call, would not have been possible

on an interim CSFB-based network.

New to mobile operators? Perhaps, but certainly not to OTT providers. The jury is still out

on whether delivering such services, albeit with QoS controls, is sufcient to counter the

extremely compelling proposition of free.

Exhibit 3: Comparison of operator versus OTT mobile voice

3. What key lessons can be drawn from early VoLTEadopters?

a. Device availability is key: In August 2012, SK Telecom, LG U+ and MetroPCS

Communications raced to be the rst to launch VoLTE. While the initial response to the

superior quality has been positive, take-up is likely constrained by device availability.

True VoLTE handsets are currently limited to the Samsung Galaxy Note 2 HD and some

Optimus LG handsets, although NTT DoCoMo, which does not yet offer VoLTE, has a

suite of exclusive devices for its LTE service that serves as an example for other large

operators to follow.

b. Spectrum fragmentation matters: During LTE rollout, LG U+ experienced the

implications of spectrum fragmentation. In using the less popular 850MHz band for LTE

together with SK Telecom, it faced the uphill task of developing an entire ecosystem in

terms of network and devices.

Nonetheless, with Samsungs foray into the LTE equipment space, Korean operators

have the benet of being able to leverage Samsungs ability to deliver across the entire

value chain. This synergistic partnership enables operators to close ecosystem gaps in

Note: Assuming fairly ubiquitous VoLTE network with little dependency on CSFB

Source: NTT Docomo, Delta Partners analysis

Voice performance and service availability comparison(%)

3G voice VoLTE OTT VoIP

Performance

Quality

Handover performance

Call set-up

Billing / security

Services

E.164 (normal) numbering

Emergency calls

Caller identification

Priority calls

Voice mails


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terms of devices and equipment while Samsung benets from showcasing the success

of early adopters.

In rolling out its LTE service, KT Corp learned the hard way about the ramications ofshutting down its 2G CDMA network in order to re-farm the 1800MHz spectrum. Although

it nally prevailed in the High Court against the objections of 160,000 CDMA users, the

nine-month delay for a court decision coupled with the negative public relations fallout

has likely cost KT Corp dearly. KT Corp is now in third place in the LTE race, having been

overtaken by LG U+ and SK Telecom in terms of subscriber numbers.

Exhibit 4: Mobile subscribers and market share in South Korea

c. Value extraction may be delayed: In South Korea, VoLTE also appears to be a defensive

measure. Given that HD Voice is charged at the same price as 3G voice, the objective with

HD voice is to maintain or stem the decline in voice ARPU rather than stimulate growth.

The same situation is likely to be seen in other markets as mass-market subscribers are

unlikely to see the value in paying more for HD voice. Once operators launch a fuller

suite of IP services, however, value extraction may become more feasible.

Despite these challenges, the Korean market has seen tremendous success in LTE

uptake, and some of this traction is likely to spill over onto VoLTE.

In conclusion

VoLTE does promise benets for most operators in terms of technical superiority and reducing

dependence on legacy networks, but it is only likely to be deployed as part of a more holistic

LTE/RCS strategy in the next one to two years. Early adopters have had to struggle with

evolving technology standardisation, device availability and spectrum fragmentation, but

these hurdles will diminish with more deployments. Operators encouraged by the success of

LTE in South Korea would do well to note the unique circumstances of that market and gauge

the ability of their own markets to perform in a similar fashion.

Source: Korean Communications Commission, Delta Partners analysis

4.92.0 3.3

21.9

15.4

6.7

26.8

17.4

10.0

SK Telecom KT LGU+

LTE Non-LTE18%

Mobile subscribers in South Korea (Aug 2012)(million)

Mobile market shares in South Korea (Aug 2012)(million)

50%

35%

15%

48%

20%

32%

SK Telecom KT LGU+

Non-LTE market share LTE market share

11%

LTE as % of total

subscribers

33%


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Delta Partners is the leading TMT advisory and investment irm in emerging markets. With more than 160 proessionals, the irm

operates across 50 markets in the Middle East, Arica, Central & Eastern Europe, Emerging Asia and Latin America. Delta Partners

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Advisory: Delta Partners advisory proessionals partner with C-Level executives in telecom operators, vendors and other TMT

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players in the region. Delta Partners actively leverages its close link to its private equity arm to access the investor community as well

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Delta Partners delivers tangible results to its clients and investors through its exclusive sector ocus on telecom, media and

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Copyright 2012 Delta Partners FZ-LLC. All rights reserved.

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