Discussion Papers

Rolf Schwab

LTE in Germany: An analysis of the current market environment and its outlook

No. 394 / March 2015

(Full version only available in German)

Summary

Both coverage as well as technological capacity of the LTE-network in Germany have been steadily improving. Around 86.5% of the population can use LTE connectivity given they have purchased an LTE-enabled device. Such devices have become more and more affordable recently. With them consumers can access the Internet at speeds of up to 150 Mbit/s nowadays. Given this high potential access speed, sufficient coverage and affordability of devices, one would expect that that number of households without a fixed Internet access service would be growing.

The research conducted for the present study clearly indicates that such a trend does not exist in Germany. The vast majority of consumers sees (and uses) LTE access to the Internet as a complimentary means of Internet access. Actual performance and the terms and conditions of data plans for LTE connections appear to curb it. In particular, consumers disfavor the relatively low data allowance on LTE data plans.

Thus, it is not surprising that LTE take-up has not impacted the market for local loop unbundling in Germany. Whilst the number of local loops in Germany has in fact reduced by 400,000 over the last two years, this may be attributed to significant reductions in market shares of TNBs as well as FTTH/B access points by the competitors in the market.

With LTE-Advanced on Deutsche Telekom’s network, consumers can benefit from up to 150 Mbit/s download speed. However, due to LTE being a "shared medium" this is merely theoretical. Recent tests of LTE networks’ performance show that in practice downloads are significantly slower. Depending on the network provider between 15 and 40 Mbit/s may actually be achieved.

Differences in actual bandwidths can be attributed to various factors. First and foremost, the "shared medium" principle limits the bandwidth available for the individual user depending on how many other users are logged on the network in the same cell. The Backhaul connection may further limit the capacity of LTE networks. Today, only Deutsche Telekom have connected almost all their LTE base stations via fiber optic cable. The other LTE providers use directional radio. Telefónica and Vodafone also intend to replace these backhaul connections by fiber optic cable. Thus, one can expect the quality to improve in the near future. In line with improvements in the backhaul connections, also the end-users’ quality of experience is likely to improve.

Comparing Internet access services based on LTE connectivity with ADSL access for at home Internet access, one finds few significant as regards price and download speeds offered. However, LTE access services commonly feature significantly lower data allowances than typical ADSL Internet access services. Buying additional data allowance is often difficult and expensive. Thus, LTE connections can serve as a substitute for fixed access via ADSL only for a small part of the population.

Consequently, LTE Internet access is used complimentary to one’s at home (fixed) Internet access. This also reflects in the demand for LTE (at home) access services. In 2012, when LTE at home was first introduced to the German market, more than 400,000 consumers opted for such a service. Pre-dominantely, these were households that could not purchase a broadband connection at their homes otherwise. In the following two years the demand for such Internet access has been decreasing significantly. Telefónica is the first provider to phase out LTE at home access products from their portfolio. They stopped marketing this service in mid 2014.

Nonetheless, one can expect that with increasing coverage and quality of experience in conjunction with decreasing prices for LTE access and devices mobile usage of Internet access will grow continuously.

Discussion Paper is available for download.

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