Verizon’s ambitious LTE plan will it succeed?

After the announcement of the HTC Thunderbolt, Verizon Wireless has announced it is going to offer its 4G technology, LTE in 147 US cities by the end of this year. That is an impressive roll out compared to the initial 39 markets they launched in December of last year. The speed they are offering is 5~12 Mbps on the download which is 3 to 5 times faster than the current 3.5G HSPA network. But in the field it’s probably going to be 2 to 3 times faster.

P1000561

Verizon is attempting to cover one third of the market each year. So by the end of 2012 or early 2013 its 4G LTE network will probably be nationwide 100%. So the information leaked by Boy Genius Report last year was mostly true. This is quite ambitious because it took 4~5 years for 3G to roll out 100%. The budget required is also quite high. It is around $9 billion a year so it will accumulate to a cash-out of almost $30 billion in the span of 3 and 1/2 years. Then there are the huge marketing budgets involved, which are mostly subsidies, and this will cost them more than the network.

After the Smartphone Wars broke out in the US, subsidy per handset has gone up to almost $160 a device compared to the usual $90 prior 2008. The operators will probably run out of money by the end of this year so they will be in a situation where promoting LTE will push down their profits considerably. If Verizon is the only LTE operator in the US this will not be much a problem and Verizon will be able to control the amount of subsidy allocated between 3G smartphones vs. 4G LTE but if any of the other operators want to get a chunk of the LTE business it’s going to be war and almost a game of chicken. Profit levels of operators might almost fall to 70% of the current level and they will most likely end up agreeing for a cease fire at that time. So smartphone growth and LTE growth could come to a halt when that happens, probably during 2012.

 

Feb 25 2012