Verizon Wireless Makes the Correct Bet of LTE for Its 4G Future

| Dec 3, 2007 | Wireless Services - U.S., Enterprise Mobility - U.S., Wireless Infrastructure
| Competitive Intelligence Report
| Analysts: Kitty Weldon, Bill Ho, Peter Jarich

Event Summary

On November 29th Verizon Wireless (VZW) announced plans to deploy its 4G mobile broadband network based on the 3GPP’s UTRAN Long Term Evolution (LTE) standard. Working with Vodafone (a VZW parent), trials will begin in 2008 based on equipment from Alcatel-Lucent, Ericsson, Motorola, NSN and Nortel. Beyond LTE network, device discussions include traditional handset suppliers (LG, Samsung, Motorola, Nokia and Sony Ericsson) and consumer electronics vendors looking to embed LTE into their offers.

Analytical Summary

• Current Perspective: Positive on Verizon Wireless’ announcement of LTE as its 4G, mobile broadband technology direction as LTE is the logical 4G choice for the carrier given its expected global scale and roaming opportunities, not to mention synergies with parent Vodafone. And, from a mere marketing standpoint, the announcement of 4G trials helps to combat the (admittedly battered) threat from Sprint’s WiMAX launch. However, the decision to go with LTE is not particularly surprising and it’s still not clear where the company will derive the bulk of 4G service revenues from (lots of narrowband consumer electronics connections, a smaller number of high-speed users, or both).

• Vendor Importance: High to Verizon Wireless, because a successful future 4G business depends on a solid supply of 4G devices and network components. The carrier’s vision of open mobile broadband networks supporting diverse devices and applications is compelling. To earn a return on its 3G and 4G CapEx, it may even be a necessity (targeting multiple, low-cost revenue streams per user). To convert this vision into a reality, however, LTE will need to be embedded in a wide array of business and consumer devices. Convincing manufacturers to support LTE will require them to see eventual demand and to make near-term commitments to the technology. The announcement should help accomplish that (especially by suggesting that Vodafone and U.S. GSM operators may follow its lead).

Market Impacts

Wireless Services
Moderate to high on the wireless services market as the consumer services segment is a key beneficiary. Coupled with Verizon Wireless’ support for open access for devices and applications, innovation could potentially come quickly. Added to this future momentum is the fact that LTE is the same technological upgrade path for GSM competitors, making domestic technological convergence a reality. In the short term, if things go well for Sprint, the carrier will also be launching XOHM WiMAX services and trailblazing concepts and new service structures much sooner than Verizon Wireless will be able to come to market with its own 4G variant.

Enterprise Mobility
Moderate on the enterprise mobility market as the key benefits of the upgrade as stated by Verizon Wireless are in the consumer space (although business devices and applications requiring higher speeds and innovative service options for video and “converged” services are also likely) and real-world services are many years away. U.S. GSM carriers are likely to choose the same upgrade path (LTE) anyway, but may be compelled to make this decision public sooner than they would have otherwise.

Wireless Infrastructure
High on the wireless infrastructure market, because it’s no surprise that VZW is choosing LTE as its 4G technology path. However, now that it’s official, the boost to LTE’s prospects as the leading 4G option stands as a clear blow to UMB. leaving Qualcomm to convince smaller EV-DO operators outside the U.S. on its merits, or sell into GSM/UMTS operators, while signaling that vendors are right to focus their R&D on LTE networks and devices.

Recommended End User Actions

• U.S. mobile users shouldn’t plan for commercial LTE services in the near-term, or even the medium-term. The prospects of 4G are clearly exciting. With trials beginning next year, however, services are unlikely to be available for two or three years; end-users and enterprises can essentially forget about Verizon Wireless’ announcement for the next several years. At the same time, since LTE is a long-term prospect, users need not be concerned about CDMA device availability or network development in the near-term.

• In the meantime, while waiting for LTE networks to materialize, customers outside of Verizon Wireless’ EV-DO coverage need to push the company on expanding its network to deliver true, nationwide coverage. While the operator provides EV-DO service in most major markets, many smaller markets are still stuck with 1X only. With BTS prices falling and VZW interested in moving its voice users to DO (eventually), the company should be motivated to move on this type of expansion.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

Recommended Competitor Actions

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