(PCS) LTE Shaping Future for Telecom

In a technology driven world, it has become a prerequisite for the telecom companies to upgrade its mobile technology with the high-speed networks. Currently, the Telecom industry is focusing on the next-generation technology (i.e. fourth generation [4G]), which is based on Long Term Evolution (LTE).

LTE has become the life-blood for operators across the world. It is an evolution of GSM and Universal Mobile Telecommunication System (UMTS) standards.

Significance

Introduced in mid-2009, LTE became a standard technology in the U.S. in 2011. It is the fastest wireless network technology and uses radio spectrum allowing more data transfers with the same bandwidth used by any 3G or other devices.

LTE has the capability to handle larger traffic without incurring extra cost. It provides a downstream rate of at least 100 Mbps and upstream rate of at least 50 Mbps.

LTE, the biggest growth driver in the telecom industry, is facilitating the companies to boost market share not only this year but also in future.  As the demand for mobile is rising in leaps and bounds, operators providing EV-DO, CDMA, GSM, HSPA and WiMAX services, are rapidly shifting to the high-speed LTE networks given stiff competition and change in overall dynamics of the telecom industry.

Let’s discuss how the U.S. carriers are gradually adapting to this new technology:

LTE is spreading rapidly throughout the U.S. market, making each of the carriers well positioned in the competitive environment. The LTE technology was first deployed in Las Vegas when MetroPCS Communications Inc. (PCS) launched services in September 2010, followed by Verizon Wireless in December 2010.

Verizon Wireless, a joint venture between Verizon Communications (VZ) and Vodafone Group plc (VOD), leads the industry in LTE deployments with more than 190 markets, covering more than 200 million people as of December 2011. The company plans to expand the reach of its entire nationwide 3G footprint by the end of 2013.

Verizon is also seeking to deploy 4G services to rural areas using tower and backhaul assets, and the 700 MHz spectrum. On the other hand, MetroPCS has deployed 4G networks in majority of metropolitan cities by the end of 2011 and is currently focusing on introducing “4G LTE for All” services over the short term.

The second U.S. wireless provider AT&T Inc. (T) joined the league in September 2011 covering 15 markets by the end of the year. In addition, the company expects to cover 11 new markets with 74 million Americans in 2012 and the entire American populace by 2013.

Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier, is yet to introduce its LTE networks. Initially, the company will enter into the LTE arena only in four markets namely Dallas, Atlanta, Houston and San Antonio by mid-2012. The coverage will likely touch more than 120 million by the end of this year and 250 million by the next.

Leap Wireless International Inc. (LEAP) is the fourth carrier to launch LTE services in Tucson, Arizona in December 2011. The company plans to deploy LTE networks to two-thirds of the existing CDMA network over the next two to three years. With this, Leap will expand its LTE coverage to 25 million people by the end of this year.

Other wireless operators such as U.S. Cellular Corporation (USM) is also seeking to deploy 4G LTE technology, which is expected to commence early this year. The company will first initiate services in six cities including Iowa, Wisconsin, Maine, North Carolina, Texas and Oklahoma.

Apart from the U.S., LTE is also being well adopted by other countries as the best opportunity to drive revenue growth going forward. The countries, who adopted this technology, are as follows.

Canada Going LTE

Canada adopted its first LTE network in Ottawa in July 2011. Rogers Communications Inc. (RCI) was the first carrier to deploy services in the region, followed by three largest cities – Toronto, Vancouver and Montreal.

In September 2011, BCE Inc. (BCE) tapped the largest opportunity through the introduction of LTE in some urban areas. Telus Corporation (TU) expects to roll out 4G to urban Canadians in the first half of the year using the advanced wireless services (AWS) spectrum, which was bought from Canada’s auction process in 2008.

Notably, the rural and remote Canada deployments depend on the 700 MHz wireless spectrum, which is expected to be auctioned in 2012 or 2013.

LTE Elsewhere

South Korea: South Korea emerges as a strong winner as it is the first nation to deploy LTE to all its carriers. SK Telecom Corp Ltd (SKM), KT and LG U+ have started deploying its networks in the country. SK Telecom leads the 4G technology with the initial launch in July 2011.

The company will expand its deployments to 28 cities by this year including six metros and nationwide coverage in 82 cities by year-end 2013. KT will increase its LTE coverage to 84 cities by the end of April 2012 and LG U+ plans to expand its national reach by the first half.

Spain: The country’s two largest mobile operators – Vodafone and Telefonica S.A. (TEF) – launched LTE technology with the limited capacity through their German units. Vodafone Germany launched its network in December 2010 and Telefonica’s O2 in July 2011.

The next LTE roll out is slated in Spain and Italy for Vodafone while for Telefonica, the roll out will take place in Hamburg, Berlin and the Ruhr.

China: China is still in the early stages of LTE deployments. None of the major companies has launched its high-speed networks yet. The initial experience of LTE is expected this year when the world’s largest telecom operator, China Mobile, will launch the network. The other major operators including China Unicom (CHU) and China Telecom does not have any plans to launch services until 2013.

China Mobile had set up Time Division Long Term Evolution (TD-LTE) technology in six major cities as part of an ongoing LTE trial. The company completed the first phase of the trial and the second is scheduled to be completed in June this year. China Unicom will continue to focus on its 3G offerings, which are on the rise. China Telecom would not deploy LTE until and unless the technology becomes full-fledged in the country.

Bottom Line

The LTE deployments will allow the global carriers to take advantage of the new and unused spectrums while expanding their abilities to deliver the strongest and the most advanced networks. In addition, we believe that enhancing network capabilities will lead to deployment of new opportunities, economies of scale and will open up markets that were previously inaccessible.

We believe the ongoing efforts to upgrade the existing network infrastructure would create an opportunity for more subscriber growth, leading to higher average revenue per user. This will likely boost future wireless revenue for the telecom operators in the near future.

Currently, we are maintaining our long-term Neutral recommendation on the stocks mentioned above. The companies, except SK Telecom, China Unicom and Telefonica, retain a short-term Zacks #3 Rank (Hold). SK Telecom and China Unicom hold a Zacks #2 Rank (Buy) while Telefonica has a Zacks #4 Rank (Sell).

BCE INC (BCE): Free Stock Analysis Report

CHINA UNICOM (CHU): Free Stock Analysis Report

LEAP WIRELESS (LEAP): Free Stock Analysis Report

METROPCS COMMUN (PCS): Free Stock Analysis Report

ROGERS COMM CLB (RCI): Free Stock Analysis Report

SPRINT NEXTEL (S): Free Stock Analysis Report

SK TELECOM CO (SKM): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

TELEFONICA S.A. (TEF): Free Stock Analysis Report

TELUS CORP (TU): Free Stock Analysis Report

US CELLULAR (USM): Free Stock Analysis Report

VODAFONE GP PLC (VOD): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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