Telstra avoids LTE premium pricing trap

There are two main lessons from Telstra’s Long Term Evolution announcement earlier this week: LTE is coming fast and it is coming at a modest price.

The launch of Telstra’s LTE network demonstrates the company’s commitment to keeping a technology and coverage lead over its rivals. While the network will launch with only 30 major CBD and regional sites, it will reach 80 major sites by year-end. The rollout pace is unlikely to slacken in 2012.

While the dongles are good to go, handsets are another matter. All of the device manufacturers have LTE-capable handsets in the pipeline and we expect Telstra to offer a couple of handsets in the near future. But a full range of handsets won’t be available until the middle of next year.

In addition, we can now see the next generation of mobile pricing.

It looks much the same as 3G pricing.

Telstra has not launched LTE as a standalone premium service. The dual mode 3G/4G dongles will be available to all comers and LTE is being smoothly integrated into Telstra’s wider mobile data offering.

This is consistent with the way Telstra chose to launch 3G in the market. 

Though it is not quite true to say there is no LTE price premium.

Telstra’s mobile data allowances are all being raised by a couple of gigabytes per month and the 12GB plan in particular has been boosted to 15GB. But the monthly price of the new 15GB plan has been pushed up by $10.

In other words, lighter users will be better off, while the heaviest users (who would have been most likely to buy a LTE service) will indeed pay more. It’s a clever piece of marketing and a sensible one – after all, new networks do need to be paid for. 

Telstra has avoided the mistake we have seen many European operators make – large price premiums of up to 100 percent for access to LTE.

While this approach brings in the early revenue from road warrior customers, it sets up trouble for the future. Competition will see LTE prices fall rapidly and early adopters locked into high-price contracts of up to two years will be seething as they see prices drop.

Telstra’s competitors will be relieved that the incumbent’s modest price increase signals a desire for a smooth transition. The ball is now with Optus and Vodafone – conform or disrupt?

With months to launch, Telstra’s rivals have plenty of time to think it over but I’m tipping an orderly transition – no-one wants a price war in the lead-up to the 700MHz spectrum auction.