Where’s the promised savings from 4G LTE?

This year will be a breakout for LTE as sales of the 4G phones are expected to increase ten times over sales in 2011. The estimate, from research firm Strategy Analytics, notes that 2011 only saw 6.8 million sales of LTE smartphones, with tablets and hotspots adding another 5.5 million subscribers. In 2012, expect 67 million LTE handset sales around the world. The uptake shouldn’t surprise as LTE is the hottest mobile broadband tech around, but it raises consumer-focused questions as we transition to new networks: where is the savings from the more efficient networks?
LTE is just getting started
LTE technology is really only just beginning in terms of network rollouts. In the U.S., Verizon debuted its first LTE coverage areas in December of 2010, showing how fast the next-generation wireless service can be; about ten times faster than traditional 3G speeds. AT&T (s t) followed with an LTE launch of its own in five cities by September of 2011. T-Mobile and Sprint(s s) are currently working on similar transitions, while smaller carriers — MetroPCS (s pcs) and U.S. Cellular, to name a few — are already offering LTE service. Essentially, the transition to LTE has only just begun.
The pace of this change is picking up steam, however. Verizon recently said that all of its new smartphones and tablets would offer LTE support, so don’t expect to see any new 3G handsets from the carrier going forward. AT&T, too, is adding more LTE phones to its line up, even though LTE service is only available in 28 markets currently. And the biggest driver may not be a carrier at all. Apple’s new iPad is a hot seller — 3 million units in the first weekend alone — and UBS suggests that half all new iPads sold will be the LTE model.
Clearly, LTE is the future of mobile broadband and that future is fast approaching. Consumers are getting much faster mobile broadband out of the deal, which enables them to do more with their LTE smartphone or tablet. It’s easier ¬†and less time consuming to share large images or videos, stream gobs of online media, download the latest spreadsheet for work or have mobile video chats, for example. That’s great, but is there a cost involved with the transition to LTE?
Who’s paying? Early adopters.
I suggest there is and consumers are heavily subsidizing the 3G to 4G transition. Carriers have accurately said it costs them less to deliver a megabyte of data over LTE than it does over the older 3G networks. And yet, the costs of an LTE data plan are no different than a 3G data plan. Do you want 5 GB of data per month for your 4G tablet? No problem, that’s $50 from Verizon; the same as if you had a 3G tablet. Need 3 GB of data for your AT&T smartphone? That’s $30 regardless of whether your phone has 3G or 4G.

The 3G customers are paying the same for slower service and are less likely to hit their caps due to the slower speeds. So they often wind up paying more for less service. Looking at this situation from a 4G device owner standpoint: By transitioning from a 3G device to a 4G device, you’re getting much faster service for the same price as a 3G users. That’s true, but adds another problem to the mix: Overages that can cost up to $10 per extra gigabyte. With a 4G device running ten times faster on the network, you can use up your monthly data allowance much faster.
Some new iPad owners are finding that out already, tapping most of their monthly data allotment in just days. The overage issue is better managed on the iPad as owners buy the amount of data they want, but nearly all other tablets and smartphones, including the iPhone, are on a set monthly allotment with overages automatically added as needed.
Where’s the promised savings?
Without a doubt, the transition to 4G LTE is on, and not just in the U.S. By 2015, an estimated 200 LTE networks will be in place around the world. Carriers keep promising it will reduce their costs, but will that savings trickle down to the consumer? Based on history, I suspect we won’t see any savings in the form of a lower monthly bill. Instead, the amount of data you get for your $50 will very slowly rise. Just not enough to let you do everything you want to do on the network in a given month, ensuring that the overage “safety net” is there for you.
Image courtesy of Mind of the Geek