4G: Worth the wait or a slow burner?

Today marks the one year anniversary since O2 and Vodafone began offering 4G services. Paul Withers asks the market what the operators have achieved and brought to the market

It’s now almost a year since both O2 and Vodafone launched their 4G networks, and both have employed contrasting strategies, with differing results and opinions dividing the industry.

EE was given a 10-month head start in launching 4G after it was given the green light by Ofcom in September 2012 to roll out the technology on its 1,800MHz band. Following the completion of Ofcom’s 4G spectrum auction in February 2013, O2 and Vodafone followed with their own launches on August 29 of last year. Three then launched 4G in December.

O2 began its roll out in London, Leeds and Bradford, reaching up to five million people, before a further 10 cities – Birmingham, Newcastle, Glasgow, Liverpool, Nottingham, Leicester, Coventry, Sheffield, Manchester and Edinburgh – followed before the end of last year. O2 had planned to make 4G available to two million people per month.

Coverage

As of June 30, it had amassed more than two million 4G customers, achieving a feat EE only managed in January of this year. It is available in 217 towns and cities, covering 43 per cent of the UK population outdoors. The cheapest O2 Refresh tariff with a 4G-ready device started at £32 a month.

Vodafone’s 4G network only initially went live in London but by the end of the year had launched in the same 13 cities that O2 had gone live in.

Subscriber uptake has been much slower – the operator had 900,000 4G customers at the end of June but still covers 263 larger cities, towns and districts, as well as thousands of smaller communities, with population coverage sitting at 40 per cent.

Growing interest

In contrast, EE doubled its 4G base in the first half of this year and maintains it is on track to exceed its target of six million subscribers by the end of the year. In Q2 alone, it added 1.3 million 4G customers, which it said was the best quarterly 4G performance ever by a European mobile operator.

EE had made 4G available in 250 towns and cities, as well as 2,500 villages and small towns, covering 73 per cent of the UK population.

Customer popularity hasn’t been the only thing that has differed between O2 and Vodafone – 4G strategy and pricing appear have both been big differentiators in how successful they have both been.

At launch, O2 focused on promoting 4G alongside its own-branded digital loyalty scheme Priority (Moments, Sports, Tracks etc), offering discounts and offers at thousands of high street and online retailers. In Q2, Priority was used 1.3 million times by customers, who were able to take advantage of more than 2,000 offers.

Vodafone has focused its strategy around bundled content. At launch it offered Sky Sports Mobile or Spotify free on all 4G tariffs for the first six months. A free six month subscription to Netflix was added on July 1.

Sweeteners

Fluctuating pricing and tariff allowances appear to have had a big part to play in both of their successes too. At launch, airtime plans on O2 Refresh started at £32 a month. At the time of print, the cheapest plan was priced at £17 a month with a free Nokia Lumia 635 with 500 minutes, unlimited texts and 500MB of data.

Vodafone’s tariff prices in contrast have remained largely unchanged. At launch, contracts with a 4G-ready device started at £34 a month but now the cheapest deal is priced at just £2.50 lower at £31.50 a month, with a free Moto E or Nokia Lumia 635 on offer with unlimited minutes, texts and 4GB of data.

With this in mind, we spoke to dealers and analysts on the progress O2 and Vodafone’s 4G networks have made over the past year. Subjects such as charging a premium for 4G, criticism of strategies, weak marketing and different levels of subscriber uptake were hot topics and provided interesting opinions.

Here’s what they had to say….

Paul Hooper, managing director, Uplands Mobiles

“Our customers are seeing the benefits of 4G. With the work done by EE in the 10 months before O2 launched 4G, awareness and demand has been created and is something we’re having more conversations about with customers. They want to know when the coverage is coming and what the differences will be. 4G is more about the type of customer. O2 still has a leading data network and is still the network of choice for businesses, and that is where the improvement in numbers comes. It’s great to watch lots of content on 4G but that’s not a driving force for O2. While it is putting a lot of money behind its consumer offering, its major focus has been gaining the business community. It’s not just about speed, but more about the quality of what you can do. Devices are getting better so if you are going to store data in the cloud, it will be a poor experience if you can’t access the data quickly and that has been a strength on O2’s network.”

Jason Yeomans, CEO, PMGC Technology

“4G seems to be quite heavily coveted but I don’t think it has had the revenue effect the networks thought it would because most of them are almost giving it away for free. I’m not sure it is being perceived as being that special because of that, which is a shame because it really is. Those that have used Vodafone’s 4G network will notice a massive difference in the experience they receive. It is key for us in some of the solutions we have launched recently, primarily our cloud-based remote working solution Weightless Office. The industry needs to mature as we keep giving things away for free and I’m not sure how the networks can sustain profitability when they do that. We have to have something that is the feather in our cap and something that is of value to the customer, and 4G is a great opportunity to do that. Yet again we see it as something we can give the customer for free so I agree with Vodafone’s approach to continue charging a premium for it.”

Paul Leonard, managing director, Sprint Communication Systems

“Vodafone has been fairly low-key about the roll out of its 4G network. It has allowed EE to scream and shout about it and has covertly launched it in the background. It has still launched it with a purpose though but for me has been diluted compared to EE. There have been coverage issues on 4G, which everyone seems to begrudgingly accept but there doesn’t seem to be any sort of warning about it. Nobody outlined the implications at launch that when we integrate this stuff, you might find there are issues. Generally, it could have been handled much better. Vodafone made the conscious decision it wouldn’t drive customers to 4G. It’s more of an add-on and the next evolution of mobile rather than a whole new network, whereas O2 saw it from a much different perspective. Vodafone’s 4G growth has been organic and its marketing drive has been gauged compared to others in terms of pushing the lightening speeds of the network. Vodafone sees it as a slow migration process of the customer base rather than a fast one.”

Mark Finlayson, managing director, Next Communications

“We never saw 4G until July 31 (2014) in some parts of the south of England, so that was quite disappointing as we weren’t able to offer it to our customers and talk to them about it. It left us at quite a big disadvantage compared to some of our rivals in the B2B sector. However, since then, the speeds, connection and reliability levels have been impressive, and so far we’ve had very positive responses from the customers that we have been able to sell it to. Its also interesting to see the contrast in customer numbers between Vodafone and O2 as they have roughly the same coverage footprint. In fact, that is really interesting and hard to pin down. This could be due to the fact that O2’s data network was inferior to Vodafone’s prior to launch so O2’s customers were more in need of 4G. It is a fantastic technology but what you will find is most people don’t need it because they will already be satisfied with good 3G coverage.”

Kester Mann, principal analyst, CCS Insight

“There have been two contrasting approaches. Vodafone has very much gone down the content route, bundling in free Sky Sports Mobile, Spotify and Netflix for the first six months, while O2 has focused on its own-branded services such as Priority, Tracks and Refresh tariffs. The subscriber uptake is also interesting, and O2 really seems to be doing well here. However, Vodafone is going with a premium service where the tariffs are priced more towards the high-tier customer segment. Therefore, it looks like the O2 approach of opening up multiple customer segments is working better. Perhaps a rethink is required on Vodafone’s part. It only has around 10 per cent of the 4G market in the UK and as this is its home market, that is very disappointing. Its pricing isn’t competitive enough and in such a highly competitive market such as the UK, where Three and Tesco are offering 4G for free, O2 and EE are reducing prices, the content approach isn’t working and it needs to look at its competitiveness.”

Rosalind Craven, research manager for EMEA, IDC

“4G subscribers in general are growing but a lot of that has been default. O2 has been automatically moving people onto 4G, which is really sensible because the whole idea is when you start using 4G, you’ll start using more data and that is the industry trend. It hasn’t been a smooth road for them though as they are still contending with EE being a long way ahead. It had that head start and has remained really aggressive with its roll out, meaning they will be playing catch up for quite some time. The only thing that might see Vodafone progress is it is now testing VoLTE. The reason O2 is ahead on uptake is probably because it is automatically upgrading customers, whereas Vodafone has remained less aggressive on that front. Vodafone’s marketing has been weak in comparison to EE’s but it has always had relatively low-key marketing compared to O2. The numbers say O2’s tactics have worked better and that is more about the execution rather than what is actually included in the 4G packages.”

Dario Talmesio, principal analyst, Ovum

“O2 has been pushing 4G differently and is the second winner after EE. It’s not surprising it ‘s ahead of Vodafone in terms of customer numbers. Given 4G is still fairly new from a device point of view, bundling so much content into tariffs might have been a bit premature. First you want to foster the adoption of devices and this is what O2 did with its Refresh tariffs, basically financing the devices for consumers. Vodafone hasn’t opened up 4G to its mid-tier segment, so is still working on a premium segmentation. What EE and O2 have done is segmented their offering to get the mid-end tier involved. However, neither of these networks will be competing with EE in the immediate future because they still clearly have a lot of work to do in keeping pace with customer adoption and coverage levels. Having more 4G customers is encouraging but it’s not the only metric a mobile operator should be looking at. When I look at the operator’s revenues, EE has done a decent job, especially compared to Vodafone.”

Carlos Pestana, head of partner sales, Carphone Warehouse Business

“Our customers are loving the experience – it’s really quick and you can see a massive difference. O2’s 4G network got turned on in Bournemouth recently so some of our staff have been using that. It’s been really interesting to see them on their mobiles and getting a faster experience to what they receive on WiFi. Both networks have had challenges. For Vodafone, some of the deployment and getting the sites up and running has been a bit more challenging than it first thought. O2 went through the same sort of pain but the analogy it gave us was to build that faster motorway lane, you have to take one or two other lanes out and slow the traffic down a little bit. I understand that. When EE launched, we saw a lot of areas that were struggling for coverage for quite a while. O2 and Vodafone haven’t handled it as badly – I was expecting a lot more disruption. EE did manage to get a lot of customers on 4G by launching first, but they experienced a lot of issues that enabled O2 and Vodafone to learn lessons.”