Whisper It But 3G's Happening
By Steve Wallage, Thu Aug 07 14:30:00 GMT 2003

3G has, so far, been a quiet revolution. But that doesn't mean it's not a revolution.

To hear the world's media, you could be forgiven for thinking that 3G is still an age away. To listen to the sensationalized stories of the problems of 3G, you may think that most major technology shifts are quiet and easy affairs. Well, there are a number of problems still to be overcome, and few analysts are brave enough to predict who is going to make money from 3G and how they are going to do it. Yet, the 3G revolution has been quietly going on, and more and more operators are (often quietly) introducing their first 3G services.

The Early Adopters

The CDMA Development Group (CDG) has estimated that the cdma2000 global subscriber base passed the 50 million in May 2003. There are over 55 commercial networks in 29 countries on six continents. Asia-Pacific is the most important market, and by mid-July, KDDI had over 8.5 million users. The North American market also now has over 20 million users.

While cdma2000 dominates early adoption, W-CDMA is gearing up quickly. Most analyst firms expect W-CDMA to overtake cdma2000 within the next 3-5 years. Nokia has stated that it believes that, during the second half of 2003, approximately 20 operators worldwide will introduce W-CDMA either as their main radio technology or as a complementary enhancement to their existing GSM network. According to the UMTS Forum, there were already eight commercial networks in operation by the start of July. Five of these were operated by Hutchison 3G, but the most well known remains the NTT DoCoMo FOMA network. This had 560,000 users at the end of July, and its disappointing take-up has been widely reported. However, NTT DoCoMo has recently re-iterated its belief that it will hit 1.46 million subscribers by the end of 2003.

To see the next wave of W-CDMA commercial launches, one only needs to look at Vodafone. By March 31, 2004 (the end of its financial year), it plans to offer commercial 3G services in eight European countries. It also plans to offer some limited US services - possibly San Diego and Washington - by the end of 2003. Vodafone also hopes to be behind the Middle East's first commercial 3G network - with the Bahrain Mobile Telecommunications Company planning an early 2004 launch.

Forecasters are starting to become more bullish. IDC estimates that the 3G market in Japan will reach 69 million subscribers in 2007. Strand Consult believes that there will be over 6.8 million 3G subscribers in the UK alone by the end of 2005. It believes they will spend over 16 a month on 3G mobile services.

Matti Alahuhta, the president of Nokia Mobile Phones, has said that mobile device manufacturers should be delivering large volumes of 3G models to 3G operators by mid-2004.

There are two other reasons to support this optimism. First, the regulatory pressure which is having a clear effect on mobile operators, who are ensuring deployments meet national guidelines. Second, that whatever its problems, 3G is the best overall solution. It has mass industry and standards support, and the investment decision has already been made.

Alternative technologies are either too far off (such as 4G), complementary rather than competitive (such as Wi-fi) or have other problems (such as EDGE). Investment analysts Bear Sterns argues that, "investing too much attention on EDGE will likely hinder operators in the long term" because it does not work well in urban areas where the interference levels are high.

Some Bad News is Good News

Some of the supposed bad news on 3G will actually help the industry in the longer term. 3G license withdrawals such as Group 3G or MobilCom and Quam, will ease competitive pressures. License write downs - such as the 2.2 billion that Deutsche Telekom wrote off for its UK license - put the operators in a stronger long-term position. Network sharing will also reduce costs for the operators. Delays are no bad thing if it ensures that the commercial launch meets expectations. The whole TMT industry has been bedeviled by hasty launches. T-

Mobile has stated that its launch is, "dependent on when networks and handsets are of sufficient quality to offer the Group's customers a good service". Of course, when delays keep happening then credibility is lost. But there is immense pressure on an operator like T-Mobile in Germany to hit its stated launch deadline. The company is working feverishly hard to meet the promised deadline. T-Mobile is currently conducting a 3G trial using up to 1,000 employees and other 'internal clients', and this is to be extended to selected business customers shortly.

The handset vendors know that it is critical they keep their side of the bargain with the functionality, reliability and availability that is required. To that end, Nokia has already conducted the mobile industry's largest ever field pilot and testing program, using close to 20,000 Nokia 6650 phones in practically every W-CDMA network in the world.

Quiet launches can also be no bad thing. The fanfare accompanying the launch of new mobile services has often led to massive over-expectation. Take Austria's Mobilkom that launched its commercial 3G service in April. It has made the upgrade from GSM and GPRS to 3G as seamless as possible. Customers can simply take their existing Mobilkom SIM cards and insert them in their new 3G phones.

There is some suggestion that Vodafone's European V-Ps, who have been busy catching planes to Tokyo to see what J-Phone is up to, will push 3G as part of Vodafone Live! rather than a separate service.

The Hutchison And Other Worrying Factors

A clear concern for operators is the strategy of Hutchison 3G. Already, in the UK, the operator has felt compelled to allow new customers to return their phones within a fortnight if they didn't like them, halve the price of its handsets to 199, and market its 25 monthly tariff package as offering up to three times the minutes of rival GSM packages. In Australia, its users actually tend to have a lower than average ARPU.

Arguably, Hutchison 3G could still accelerate the launch plans of other operators. It already has over 100,000 users in Italy and, after a painful start in the UK, claims to be selling 3-4,000 subscriptions a week through just retailer Carphone Warehouse. The worry is how aggressively it will chase its still public aim of two million European subscribers by the end of 2003.

Other worries include 3G variants, handover and the 3G handset functionality and availability.

Take the different 3G offerings. In Japan, the fourth 3G entrant, Multimedia Research Institute Corp, will use TD-CDMA against cdma2000 (KDDI) and W-CDMA (NTT DoCoMo and J-Phone). Deutsche Bank believe that most European W-CDMA trials are using the March 2002 version of the standard while the December 2002 version includes key handover changes and most commercial launches are based on the March 2003 version.

Still, don't bet against the tidal wave of commercial launches over the coming year. Just don't claim to know who are the long-term winners and losers.

Steve Wallage works and writes for the451. Steve has more than 13 years of experience as a technology analyst specializing in telecommunications.