Verizon’s LTE Network Leaps To The Fore As iPhone 5 Pre-Orders Start

With Apple’s (NASDAQ:AAPL) iPhone 5 finally available for pre-order, U.S. wireless carriers will be getting ready to promote one of the key features that differentiates this new-generation iPhone from the previous ones – LTE support. The new iPhone not only has a faster A6 processor but also sports a LTE compatible baseband that will finally bring the super-fast 4G speeds of LTE to millions of iPhone lovers stateside.

It is here that Verizon (NYSE:VZ) has an opportunity to market its vastly superior LTE coverage and increase adoption of a technology that has so far lagged the pace at which the carrier has rolled it out in the U.S. Having started its LTE buildout in late 2010, Verizon currently has an LTE network that covers more than 230 million Americans, or about three-fourths of the U.S. population. In comparison, AT&T (NYSE:T) has an LTE coverage of about 80 million POPs and Sprint (NYSE:S) has only just launched its first LTE markets in July.

See our complete analysis for Verizon here

LTE adoption slow so far

However, despite the huge lead in LTE coverage, Verizon has so far managed to convert only about 12% of its postpaid base to LTE. There are many reasons why LTE hasn’t seen a wider adoption. Firstly, without AT&T and Sprint’s support, LTE networks are not widely deployed yet. Secondly, LTE handsets have for the most part not only been bulky and highly power-inefficient but also much pricier than their 3G counterparts. Thirdly, being based on a nascent technology, LTE networks are also more prone to outages as we have come to see with Verizon’s over the past year.

However, most of these deterring reasons are gradually fading away.

Verizon plans to cover 260 million POPs across the U.S. with LTE by the end 2012. AT&T and Sprint are also ramping up their respective LTE rollouts, with AT&T planning to cover 150 million POPs and Sprint 123 million POPs by the year-end. So, widespread availability of LTE is becoming less of a concern as months pass by. Also, LTE baseband technology is gradually maturing, making more power-efficient designs possible. Mobile semiconductor leader, Qualcomm recently announced a 28 nm Snapdragon baseband processor capabilities that significantly cuts down on battery drain and makes sleeker and cheaper handsets possible. (see Qualcomm Gives The Wireless Industry A Reason To Celebrate) In fact, the availability of this 28nm baseband design was what finally led Apple to come out with an iPhone with LTE capablities, which until last year was deemed to be too much of a design compromise.

Why LTE needs more promotion

With LTE technology maturing, Verizon will look to increase its adoption in order to start recovering at least a part of the huge capital expenses it has incurred. 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.

An increased adoption of 4G LTE will also help Verizon reduce dependence on its 3G networks, which are increasingly burdened by 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 3G at handling data, thereby reducing maintenance and handling costs.

Helping Verizon increase ARPU levels

Verizon has therefore been aggressively marketing LTE, introducing only those phones that support the high-speed network this year. Moreover, it increased its target year-end LTE coverage to 260 million Americans from the earlier 250 million. It even ran a limited period LTE promotional scheme earlier this year that offered early adopters twice as much monthly data allotment as 3G for half the price.

With the LTE-capable iPhone 5 launched, Verizon will now look to further drive 4G adoption by touting its industry-leading LTE coverage. Other national carriers, AT&T and Sprint, will look to mask their LTE disadvantage by promoting their respective strong points such as the wider HSPA+ network and unlimited plans respectively. But this also gives Verizon’s 4G network a chance to finally get going since promoting iPhone 5’s LTE capabilities will help Verizon increase awareness about LTE in general and increase sales of other LTE-capable devices as well. Eventually, as more subscribers use LTE, the higher 4G speeds will see subscribers increasingly use data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for Verizon over the coming years as users upgrade to higher tiered data plans.

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