LTE Price Elasticity – Q3 2015

London, October 2nd 2015-  Quantum Web has performed a price elasticity analysis of LTE prices offered by four of Europe’s main operators:  Orange, Telefonica, TIM and T-Mobile.  We concentrated on prices (ie Euros) of 1GB data between Q2 2014 and Q2 2015 and our analysis reveals wide differences in consumer responsiveness across the markets.

The rest of this note explores our findings in some more detail, however, in summary, consumers are more responsive to changes in LTE pricing offered by Orange and less responsive to changes in LTE pricing offered by T-Mobile.  In other words, demand for LTE data is more elastic in France and less elastic in Germany (Graph1).

Graph 1. LTE Price Elasticity, Q2 2014-Q2 2015

LTE Subscribers and Cost Q2 2014- Q2 2015

orangeOrange in France raised its charge for 1GB of LTE data from €10 to €10.66) between Q2 2014 and Q2 2015.  During the same period, ,  its base of LTE subscribers rose by 3.6 million, to 5.6 (Graph2).  This means that PED (Price Elasticity of Demand) equals  89.57.  In other words, demand for LTE data is perfectly elastic. Consumers have a wide choice and are able to switch to alternative operators.


Graph 2. LTE Subscribers, Q2 2014-Q2 2015


Orange is an interesting case and it may seem curious that increasing their LTE data prices should coincide with such a strong increase in LTE subscribers.  The reasons for this have to do with more than a simple trade-off between price and data.  The market in France is highly competitive and operators have to enhance their propositions in order to maintain and grow their base.  ?Orange, for example, offers unlimited voice, SMS and MMS plus selected international destination as an extra to its LTE subscribers.


telefonicaIn Q2 2014 Telefonica had 1.2 million LTE subscribers million and charged €22 for 1GB of LTE data.  By Q2 2015, Telefonica’s LTE subscribers had risen by 1.3 million (112%), passing 2.5 million, while the cost of 1GB had fallen by 51% to €10.71.  This gives a PED equal to 2.21, which means that the demand for LTE data is elastic and for any1% drop in price of LTE the number of subscribers rose by 2.2%.


telecom italiaTelecom Italia had the fastest growing LTE subscribers among its incumbent counterparts, tripling its LTE customer base between Q2 2014 and Q2 2015.  .Pricewise, the cost of LTE exhibited a stiff increase (+73%).  Based on the pricing analysis results, the PED of Telecom Italia stood at 4.62, which is the second highest score among the main European incumbents.
Raising prices so markedly is very much a counter-intuitive pricing policy compared to the overall trend in LTE pricing. Telecom Italia pricing strategists undoubtedly understand the market supply and demand have cleverly optimised LTE tariffs and while at the same time managing to expand their LTE customer base by 330%.


Deutsche-telekom-logoAt the end of Q2 2015, T-Mobile with over 7 million LTE subscribers is the biggest incumbent in Europe.   T-Mobile’s LTE subscriber base rose by 64% between Q2 2014 to Q2 2015.  Over the same period, the cost of 1GB data offered by T-Mobile in Germany declined sharply, by 60%.  This gives PED equal to 1.06 (Graph3), which means that demand for LTE is less volatile than in other markets. A A1% decline in prices of 1GB LTE data goes hand-in-hand with a 1.06% increase in subscribers from Q2 2014.


Graph 3. LTE Cost per GB, Q2 2014-Q2 2015




Tariffs exclude VAT and include recurring and non recurring costs. For the purpose of this analysis we extrapolate residential, double play postpaid tariffs Subscribers’ figures are reported by each company’s KPIs results.


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