TeliaSonera rolls out world’s first LTE networks across the Nordics

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Sweden’s TeliaSonera claimed a major PR coup in December 2009 by becoming the first operator in the world to switch on commercial LTE networks. The pan-Nordic operator went live with LTE in two of the largest Scandinavian cities: the Swedish capital, Stockholm, and Oslo, the capital of neighbouring Norway. In both cases the networks use 2.6GHz bandwidth that TeliaSonera acquired in recent auctions in the respective countries.

TeliaSonera intends to ramp-up rollout of LTE across several of its markets over the next few years. It has committed to expand the Swedish network into 25 cities across the country by 2010 and into a further four in Norway. It has also been awarded an LTE license in Finland (where an LTE pilot has already started) and plans to bid for similar spectrum in Denmark and in the Baltic region where it has subsidiaries in Estonia (EMT), Lithuania (Omnitel) and Latvia (LMT).

The operator has not yet revealed usage figures for its initial LTE networks in Stockholm and Oslo, suggesting they have not yet reached meaningful volumes. Uptake is expected to be initially slow on the account of the fact that the new networks are only accessible via an LTE-only Samsung dongle (a version capable of falling back onto TeliaSonera’s GSM and WCDMA networks is expected in the second quarter). Access to the new networks is priced at SEK599 (US$84) per month for 30GB of data in Sweden, and NOK699 (US$120) per month in Norway, though low-cost introductory deals have been available in both markets.

TeliaSonera has inevitably talked up the high-speeds possible using the network, claiming that maximum speeds of 100Mb/s is achievable, making it ten times faster than its Turbo-3G (HSPA) network. However – as the world’s first LTE networks – speeds have been closely monitored and are said to be significantly lower in live tests. A recent independent study achieved peak download speeds in Stockholm of 50Mb/s and 85Mb/s in Oslo, though average speeds were reported to be 16.8Mb/s and 32.1Mb/s, respectively. This is someway short of the advertised 100Mb/s but still significantly beyond what is possible via the operator’s fastest HSPA networks today.

Sweden, in particular, has proved an ideal market for early-stage LTE rollout. According to the latest Wireless Intelligence data, TeliaSonera’s Swedish mobile subsidiary (Telia) had successfully migrated over half (50.2 percent) of its customer base from GSM to its faster WCDMA and HSPA networks by the first quarter of the year. Moreover, almost a quarter of these connections now relate to HSPA, suggesting strong take-up of mobile broadband services. TeliaSonera said that mobile broadband subscriptions across all its markets grew by almost half a million (436,000) year-on-year in the first quarter to surpass the 1 million mark (1,175,000) for the first time. Sweden is thought to be the main driver of this growth.

However, Sweden is also a market where TeliaSonera is set to face early competition in LTE. Last year, Tele2 Sweden and Telenor Sweden – the country’s second- and third-largest operators, respectively – announced plans to jointly build a nationwide LTE network and share spectrum for its deployment. Like TeliaSonera, both these operators acquired suitable LTE spectrum in the 2.6GHz auctions in 2008. The deal created a 50/50 joint-venture known as Net4Mobility that aims to build-out its LTE network to 99 percent of the Swedish population by 2013 – an extremely aggressive target in a country with a small population spread across a wide geographic area. The joint-venture’s first LTE networks are expected to be switched on this year and it claims to be able to offer speeds of up to 150Mb/s in urban areas. The network–sharing model – already widely deployed in WCDMA in Sweden – is designed to keep network LTE build-out costs to a minimum and is expected to be replicated elsewhere in the world. The two other winners in Sweden’s 2008 spectrum auctions, 3 Sweden and Intel, have yet to reveal their plans.

TeliaSonera is also likely to face stiff competition from larger players in Denmark, a market that is currently in the process of awarding LTE licenses. Market-leader TDC said this month that it is confident it will have the licenses in place to rollout LTE as early as June in key Danish cities such as Copenhagen and Aarhus. Such a timeframe is likely to establish TDC as the world’s second operator to commercially launch LTE.

The Nordic LTE rollouts have served to steal the thunder from the more high-profile LTE launches planned elsewhere in the world, most notably by Verizon Wireless in the US and by NTT Docomo in Japan, which have both pledged to go live with LTE by year-end. Verizon Wireless – the US market leader – plans to switch on LTE in 25 to 30 US markets in the fourth quarter. This would make the new network available to a potential market of 100 million, which would dwarf the rollouts seen in the Nordics to date. The firm is not expecting to provide LTE-compatible handsets on the network until the middle of 2011. Verizon Wireless is in a race to launch the country’s first LTE networks with regional rival MetroPCS, which has also set a target of launching a prepaid LTE service by year-end. However, its main rival – AT&T – is not planning to launch until next year.

Joss Gillet, Senior Analyst, Wireless Intelligence:

For mobile operators to fulfil industry expectations via new technology rollouts, high cash injections are required. In the Nordics, as elsewhere, last year’s challenging market conditions have led mobile operators to focus on strengthening cash flows by squeezing capital expenditure. As a result, free cash flows increased year-on-year by around 50 percent at TeliaSonera and Telenor, and by 45 percent at Tele2. In Sweden, average capex declined to around 5-6 percent of total revenues in 2009, compared to the 10-11 percent range recorded in previous years. Moreover, capex priorities may continue to lie elsewhere. TeliaSonera spent two thirds of its capex budget in 2009 at its operations in Eurasia and in fixed-line broadband, while Telenor spent mainly on capacity upgrades and Tele2 invested heavily in Russia.  Investments in LTE in 2010 are likely to be visible in Q2 and Q3 capex figures as several operators in the Nordics prepare for year-end launch. However, the key metric to keep an eye on is operating expenditure, which remained stable at around 70 percent of total revenues between 2008-09 in Sweden. Mobile operators will need to substantially reduce opex, while at the same time allowing for increased infrastructure management costs and the costs of marketing LTE. In the near term, LTE services will be a niche market in urban areas with HSPA expected to migrate to more rural areas and become more mass market, and EDGE used as the ‘fallback’ network. This means that great care will be required with regards to pricing to avoid cannibalisation between mobile and fixed broadband offerings. Swedish operators have already announced that pricing models are to be reviewed to better reflect data consumption per user in an admission that the current flat-rate pricing models are hampering revenue growth and resulting in higher operating expenses. The situation with regards to LTE in Sweden and the other Nordic countries is similar to what is likely to be faced in North America. Even though AT&T and Verizon have managed to more efficiently lower their operating expenditure over the last year (to 60-62 percent of total revenue), opex savings still need to be made in areas such as mobile backhaul.

TeliaSonera Mobile Connections (Nordics), 1Q10
Source: Wireless Intelligence, company data