Verizon Makes Big LTE Push

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Although Verizon ( VZ) was in the forefront when it launched its 4G LTE network more than a year ago, customer adoption of the new high-speed technology has been slow.

Speaking at an investor conference Monday, Verizon Wireless' CFO Fran Shammo said that only about 5% of its total customer base use an LTE smartphone. Verizon is currently well ahead of AT&T ( T) and Sprint ( S) in terms of LTE deployment with coverage in 196 markets across the U.S. It has also been actively promoting its LTE technology through the launch of cheaper smartphones and plans. We believe LTE adoption rates will pick up from here.

See our complete analysis for Verizon here.

As a nascent technology, LTE has had numerous shortcomings. Current smartphones that support LTE are not only more expensive than their 3G counterparts but also bulkier and highly inefficient in terms of power. That's because the the chipset technology had not matured enough to provide integrated cellular modems with LTE capabilities.

Moreover, the chipsets were built with a 40nm manufacturing process that made power-efficient designs with LTE difficult. In addition, Verizon's LTE technology has been plagued by numerous outages, the latest of which occurred only last week.

But with the launch of Qualcomm's ( QCOM) latest integrated baseband chipsets last week, the answer to the first two problems has finally arrived. Not only are the baseband chipsets integrated on the core Snapdragon processor but they are also built on a 28nm manufacturing process that conserves space and power, thereby removing two of the most significant bottlenecks that could have come in the way of mass 4G adoption.

Verizon is also slowly bringing down the prices of its LTE smartphones as an increasing number of customers adopt LTE. The latest Droid 4 offering from Verizon is available for only $199. In addition, the wireless carrier is currently promoting an LTE data plan that offers twice the usual monthly data allotment for half the price.

Promotions and better chipsets aside, Verizon will now have to fix the bugs that have been causing the frequent LTE outages. Unmitigated problems with the LTE network will hinder widespread adoption as well as tarnish Verizon's long-standing 3G reputation. However, we see the recent outages as initial hiccups inherent in any early stage adoption of a nascent technology. Thankfully, the outages haven't come at a time Verizon's LTE network is being used widely, giving Verizon enough time to identify and sort out the issues.

Verizon has been aggressively spending on its LTE infrastructure, rapidly rolling it out in new markets to maintain its lead over rivals AT&T and Sprint as well as making sure the outages do not recur. Its capital expenditures have been rising over the last few years, owing to the rapid deployment of LTE as well as 3G network upgrades, and we do not see it coming down anytime soon. Verzon is looking forward to increased adoption of its LTE network to recover at least a part of the huge capital expenses it has incurred.

The launch of the iPhone 5 with LTE capabilities later this year will help further drive 3G adoption. Although the iPhone 5 may be available on competing LTE networks as well, Verizon's greater LTE coverage should help it attract more iPhone buyers. Higher LTE speeds will see subscribers increasingly using data-intensive applications on their smartphones. This will drive data revenues, thereby increasing ARPU levels for Verizon over the coming years.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.