Long Term Evolution (LTE) service is scheduled to be commercially available in the major Indonesian cities within the next few months. Mobile consumers are anticipating a big step-up in web-browsing and data transmission speeds as well as the availability of a wider choice of wireless applications and services. We take a look at the impact of LTE service in other markets within the US, Europe and Asia, both on the mobile customer experience and the implications for the network operators.
LTE will reinforce Indonesia’s position as a “mobile-first” market
Currently around 55 million Indonesians enjoy broadband access in Indonesia, 90% of whom are connected to the Internet via a smartphone, tablet device or wireless broadband modem.
The mobile broadband (MBB) user base is increasing at 70% per year in line with the popularity of smart devices and this rapid growth trend is expected to accelerate as nationwide LTE networks are built out by the Big 3 operators in the next few years.
The overall Internet penetration rate in Indonesia (22% of total population) is considerably lower than in comparable Southeast Asian markets such as Malaysia (67%), Thailand (36%), Vietnam (33%) and Philippines (32%).
How does LTE change the customer experience?
The typical effect of customers migrating from 3G to LTE is an increase in average usage volume of between 50% and 100%. This arises as a result of two factors:
- The profound difference in the performance of familiar mobile services such as data downloads, web browsing and gaming
- The availability of new services such as full motion, high definition content streaming and person-to-person video calling.
The immersive nature of LTE-enabled services is evident in all geographic markets and across multiple segments. Over time customers tend to upgrade their data allowance plans in line with their new usage patterns as well as in response to volume discount incentives offered by operators.
The availability of high quality MBB services has also created greater customer choice across adjacent telecoms services e.g.:
- Fixed broadband providers in Japan have been forced to cut prices by over 30% in order to prevent customers from switching to cheaper and more convenient LTE services.
- Meanwhile, in the UK Everything Everywhere has been successful in shifting customer traffic onto their nationwide LTE network and away from the local Wi-Fi hotspots of their major competitors.
Indonesian operators will be required to choose how to balance coverage area, data allowances, line speeds, bundled services and pricing when they launch LTE services. The in-market experience of operators around the world holds some valuable learnings for them..
What are the opportunities and challenges for operators?
Given the step-change enhancement that LTE provides to the customer experience, operators are hoping to claw back some of the pricing power lost after the lengthy deflationary cycle in the wake of the mobile data deluge that occurred from 2008 onwards.
In reality, fundamental market dynamics have largely prevented operators from securing a price premium for LTE services:
- Typically both 3G and LTE services are offered as parallel, like-for-like services to users across the entire coverage area, particularly in the early build-out stages. This overcomes the coverage deficiencies of the LTE network as it is proven and stabilised over time, but renders differentiated pricing harder to achieve.
- Moreover customers are generally unaware of whether 3G or LTE is the active technology at any point in time, which only adds to the unfamiliarity and uncertainty over service pricing in the minds of subscribers.
Further, prevailing broadband price levels in Indonesia are significantly lower than in most SE Asian markets. This complicates the task of the network operators in driving end user tariffs upwards in line with the additional value delivered to consumers through offering LTE service:
In reality the downward pressure on mobile broadband pricing in Indonesia is likely to continue in the near term as operators look to provide entry-level tariff plans in order to accelerate initial conversion and adoption rates.
In the medium to long term, as 3G and LTE services begin to provide truly homogenous coverage, the operators in Indonesia will be challenged to find ways to improve the yield of the blended network by integrating LTE service extensions and offering differentiated service plans which:
- Align with the needs and aspirations of their target business and consumer segments
- Leverage the high perceived value of ubiquitous LTE service for these segments
The Indonesian telecoms market is entering a new phase of technology advancement and customer empowerment with the commercial availability of LTE service – it is an opportunity for the industry to demonstrate both leadership and innovation as the nation progresses towards becoming a truly connected society.