Verizon (NYSE:VZ) may have been the first to launch its 4G LTE network more than a year ago, but customers haven’t taken to the new high-speed technology in meaningful numbers yet. Earlier, the company’s CFO Fran Shammo had said that only about 5% of its total subscriber base use an LTE smartphone right now. In a bid to increase LTE adoption, Verizon is now planning to only introduce phones that support the high-speed network this year. Moreover, it has also decided to increase its target year-end LTE coverage to 260 million Americans from the earlier 250 million target. Verizon is currently well ahead of AT&T (NYSE:T) and Sprint (NYSE:S) in terms of LTE deployment with coverage in almost 200 markets across the U.S and plans to add another 200 by the year’s end.
Why LTE is being widely promoted
Verizon has been aggressively spending on its LTE infrastructure, rapidly rolling it out in new markets to maintain its lead over rivals AT&T and Sprint as well as making sure the outages do not recur. Its capital expenditures have been rising over the last few years, owing to the rapid deployment of LTE as well as 3G network upgrades, and we do not see it coming down anytime soon. It will therefore be looking forward to an increased adoption of its LTE network as a way of recovering at least a part of the huge capital expenses it has incurred.
Moreover, an increased adoption of 4G will reduce dependence on its 3G networks, which are under great strain due to the heavy data usage of smartphones such as the iPhone. Also, LTE as a network technology not only supports higher speeds but is also more efficient than current 3G networks at handling data, reducing maintenance and handling costs.
LTE to come of age in 2012…
However, the adoption rate for LTE has been sluggish so far, the reasons for which are many. Firstly, LTE networks have not been widely deployed yet. Secondly, LTE handsets are not only bulky and highly power-inefficient but also much pricier than their 3G counterparts. This is because the current handsets use separate app processors and baseband chipsets since the technology wasn’t mature enough to provide an integrated low-cost solution. Thirdly, being based on a nascent technology, LTE networks are also more prone to outages, as we have come to see with Verizon’s in recent times.
Verizon says that it plans to cover 400 markets across the U.S. with LTE by the end 2012, so widespread availability of LTE should not be a concern then. Mobile semiconductor leader, Qualcomm recently announced the availability of a 28 nm Snapdragon processor with integrated LTE capabilities that will ensure sleeker and cheaper handsets that do not consume huge amounts of power. (see Qualcomm Gives The Wireless Industry A Reason To Celebrate)
Helping Verizon increase ARPU levels
Verizon is also slowly bringing down the prices of its LTE smartphones. The latest Droid 4 offering from Verizon is available for only $199. In addition, the wireless carrier is currently promoting an LTE data plan that offers twice the usual monthly data allotment for half the price.
As for the outages, we see them as initial hiccups inherent in any early stage adoption of a nascent technology that will be overcome as customers increasingly use LTE.
The launch of the iPhone 5 with LTE capabilities later this year will help further drive 4G adoption. Although the iPhone 5 may be available on competing LTE networks as well, Verizon’s greater LTE coverage should help it attract more iPhone buyers. Higher LTE speeds will see subscribers increasingly using data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for Verizon over the coming years.