European LTE rollouts hampered by lack of digital dividend spectrum

Despite operators in the European Union (EU27) being among the first in the world to launch 4G-LTE networks in a variety of bands, the next-generation network technology currently accounts for less than 1% of total mobile connections in the region. The lack of digital dividend spectrum allocation in the 800 MHz band is hampering network coverage expansion as existing spectrum bands used for LTE services (mainly in 2600 MHz bands) do not allow operators to efficiently deploy the new technology outside of the main urban areas.

Based on the current LTE frequency landscape in the region, which includes delays in the allocation of 800 MHz frequencies, we estimate that just under 20% of total mobile connections in the EU27 region will have migrated to LTE by 2017. Germany will remain the largest LTE market in the region over the next five years, as operators there have rapidly deployed the new technology in the digital dividend band in rural areas (under licence obligations); Vodafone, for instance, making it available to 53% of the population as of Q4 2012.

A recent GSMA study explains that, under rural conditions, mobile service provision in the digital dividend band benefits from the larger cell radius and requires a reduced number of base stations for transmission, meaning that good rural LTE coverage can be achieved with relatively low capital expenditure.

Under the European Commission’s Radio Spectrum Policy Programme (RSPP), all 27 EU member states should have made the 800 MHz band available for mobile broadband services by 1 January 2013. However, at the time of writing, only nine countries have confirmed that the digital dividend spectrum has already been assigned, with the remaining 18 countries having announced that they would not meet the deadline, most of them requesting policy derogations. Such delays are hindering LTE network rollouts in these 18 countries, which together represent almost half (48%) of total mobile connections in the EU27 region.

Among the countries yet to assign the digital dividend, eight expect to allocate 800 MHz spectrum during the second half of this year; five will do so during the second half of next year, while three countries do not plan to do so until late 2015. In addition, Bulgaria has announced that it will continue to use the 800 MHz band for military purposes until the equipment is phased out around 2017, while Estonia has not communicated any plans to date.

Among the justifications for policy derogation requests, member states invoked the need for EU and non-EU border coordination, notably to solve intra-frequency interference issues; continuation of analogue or digital TV broadcasting; continuation of military emission and transmission in the 800 MHz channels; operator network investment; and market competition related issues.

As a result, the digital dividend band is unlikely to support a significant share of LTE deployments across the European Union over the next two years. Today, the 800 MHz band is used in less than 10% of commercially launched LTE networks in the EU27 region (mainly in Germany and Sweden). Commercial LTE services will remain largely focused on the 1800 MHz and 2600 MHz bands in the region until 2015, which implies coverage limitations as these bands only allow operators to efficiently cover the main urban areas where data traffic is dense.

Austria is a good example of this. Both T-Mobile (Deutsche Telekom) and A1 (Telekom Austria) launched their respective LTE networks in Q4 2010, followed by 3 (Hutchison) in Q4 2011. All three operators deployed LTE in the 2600 MHz band which is only economically viable to cover Vienna and a limited number of other cities, resulting in only a quarter of the Austrian population being covered by LTE networks to date. This phenomenon has in turn led to low adoption of LTE services by end users; the local regulator (RTR) reported that LTE connections stood at a mere 223 in Q1 2012 and 287 in Q2 2012 for one ‘unnamed’ Austrian operator.

Both operators and regulators in Austria concur that the deployment of LTE in the 2600 MHz band has led to “limited” and “incomplete” network coverage, resulting in a situation where “LTE tariffs are not that attractive to consumers” since they are “much higher than the average UMTS tariffs”. Ultimately, consumers do not see any added value in paying an LTE premium if LTE data speeds cannot be guaranteed on their dongles or smartphones country-wide.

Across the European Union, LTE smartphone portfolios are equally limited to a few compatible devices – such as the Samsung Galaxy SIII – as LTE offers remain mainly dongle-centric. In contrast, the aggressive LTE network rollouts in the digital dividend band in the US fuelled the rapid development of attractive smartphones, with these devices representing two thirds of US operators’ smartphone portfolios.

Operators in Austria tell us that there is a dual coverage-capacity challenge behind LTE deployments in the country and that the situation regarding low LTE adoption rates today is unlikely to change until additional capacity is allocated via digital dividend auctions planned for Q3 this year. Until 800 MHz frequencies are allocated, operators will continue to focus on existing HSPA offers as, under these market conditions, it will take time for 4G LTE services to challenge the level of maturity that 3G/HSPA services currently enjoy.

European Union (EU27) digital dividend assignment plan, as of 1 January 2013
Source: European Commission, GSMA Intelligence