Industry Trend Analysis - LTE Tracker: Europe Still Lagging Behind - AUG 2017

BMI View: Our first edition of the LTE Tracker highlights that while LTE remains a developed markets technology, Europe is lagging behind its peers. The UK is an exception, because, as in the US, a single operator has driven the technology and led the market. This has been lacking elsewhere, a clear hindrance to demand.

Where available, we have been tracking LTE subscriptions as reported by a wide range of operators. We will provide recurrent analysis of LTE penetration, as we believe it remains a key step for operators wishing to follow a connected strategy, where they will look to add more connected devices onto a single bill in order to deepen their relationship with end-users. In this round-up, we highlight that Europe continues to lag behind its peers in other developed markets, making it likely it will be late in developing and launching 5G and other consumer Internet of Things (IoT) services.

Strong In Developed Markets, Less So In Europe
LTE Penetration (%), Q117
Source: BMI,operators

The data highlight several trends:

  • LTE remains a developed market technology. Vodacom in South Africa is likely to be the leader in emerging markets, with a rate of 13.7%. Low penetration can be explained by a lack of LTE coverage, and of networks in certain cases, even if the cheapest smartphones are LTE-enabled. Operators in those markets have not rolled out extensive LTE networks, preferring to leverage their 3G networks for data access.

  • The US still leads the way. This is thanks to Verizon's strategy of rolling out the technology quickly, driving its competitors to do the same, and the strong demand for data services, such as video. US operators have also leveraged innovative plans, such as shared data. Canadian, Korean and Japanese operators have also benefitted from being in technologically advanced markets, driving demand for the latest services, while China's strong position is thanks to government policy requiring operators to roll out networks quickly.

Europe stands in the middle of these two poles, and is itself fragmented between different countries. However we expect the regional penetration rate to be below 50%:

  • In Germany and Italy, LTE penetration is low. This is because of the historical structure of these two markets, where prepaid and MVNOs have been the main way to access services, and neither is conducive to strong data uptake. This is changing however, with the introduction of more favourable data packages, such as O2 Free plans and Vodafone More4More in Germany, and a stronger move towards postpaid and convergence in Italy.

  • In France and Spain, there is a distinction between incumbents and challengers. Incumbents Orange and Telefonica have both moved towards a premium and converged strategy, but their large customer bases mean that they retain large numbers of legacy low-end subscribers on their networks, accounting for low penetration. Challengers are approaching or have gone beyond the 50% mark, thanks to converged strategies and network investments in both markets, as they look to offer some level of differentiation from the incumbents.

  • The UK leads Europe. This is because EE, the operator with the highest LTE penetration by far, has always had an LTE-first strategy, following the merger of the Orange and T-Mobile UK operations. This has not changed after BT acquired it, and, as with Verizon in the US, it has led other operators to catch up if they did not want to fall too far behind. More broadly, it shows that one key reason for Europe lagging behind its peers is the lack of a clear regional leader, which would have driven demand and forced its competitors to follow suit.