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LTE, or long-term evolution, branded as 4G LTE in the mobile handset industry, is a new standard for wireless communications. LTE is an advanced communication medium that mixes the older communication technologies of GSM and UMTS while using a different radio interface altogether for improvements in capacity and speed. This new product is the most advanced transfer technology in the mobile industry and it is an important introduction as mobile handsets that are LTE enabled have higher average selling prices (ASP) which benefit mobile manufacturers.
With its introduction into the mobile industry just over one year ago, LTE handsets are fast growing as a percentage of overall unit sales. Now at 12% of smart phone sales and 5% of all mobile phone sales (smart phones and feature phone units sold), it is likely that LTE will take over as the preferred mobile phone service in just a few years. The goal of LTE is to simplify the existing network architecture using internet protocol (IP) based technology which reduces latency in data and voice transmissions which has hampered older 3G technology. The first LTE network was launched in Norway in 2008 with Verizon Wireless (55% owned by VZ) launching its first North American LTE network in 2010. LTE services are expected to be launched in China through out 2013.
LTE capable handsets are an important catalyst for mobile handset manufacturers as average selling prices are much higher than non-LTE ready phones. According to IDC, LTE handsets averaged $663 per unit in 3Q 2012 versus all smart phones that were not LTE capable (which averaged $382 per unit). As consumers are becoming aware of the new LTE benefits, incremental demand is rising for the technology as outlined above as LTE hand prices are increasing versus overall smart phone ASPs without LTE, which are declining.
Whilst none of the manufacturers yet break out the number of LTE units sold in their product suites, all major mobile developers including Apple (AAPL), Nokia (NOK), and Blackberry (BBRY) will benefit from the development of the new service which is driving ASPs higher. The network carriers including Verizon and AT&T (T) will also benefit from LTE as mobile consumers demand faster service which will likely give the carriers incremental pricing power in providing this more advanced technology.
© 2013 Market Realist, Inc.