Vecta on 3G

Vecta Consulting

Vecta on Third Generation Mobile

Third Generation or 3G mobile systems follow earlier generations of cellular mobile telephony, like TAC and GSM, which used, respectively, analogue and digital technology to provide a predominantly voice-oriented service.

Third generation systems exploit the increased processing power in handsets and more efficient communication protocols to make better use of spectrum and provide much higher speed data services opening the way to mobile interactive multimedia.

Following the very high operating profits made from earlier generations by mobile telecom operators many governments, especially in the UK and Germany, demanded - and received - very high licence fees for radio spectrum released in 2000 for use on 3G systems. These fees seriously increased the indebtedness of most Telecom players forcing them to shed other assets or merge in order to remain viable as the global telechnology economy shrank in 2001-2. In contrast some governments leased spectrum at very low rates to encourage rollout and takeup of the services. Technical difficulties added further financial pressure by delaying rollout.

3, introduced by Hutchison in March 2003 in both Italy and the UK, suffered from costly handsets and limited network coverage and had to resort to bundling cut-price voice calls to gain market traction while the more established players treat 3G mostly as additional bandwidth rather than a major service opportunity.

Vodafone is now making its belated play.

The so-called 2.5G technologies - GPRS (Generalised Packet Radio Service), HSCSD (High Speed Circuit Switched Data) and EDGE - are incremental enhancements to the second generation systems that allow faster data rates within the existing central infrastructure (they each require technology-specific handsets). WAP ( Wireless Application Protocol) is often included as a 2.5G technology as it increases the functionality of the handset, primarily to access mobile internet-based services.

Second generation mobile systems were limited to data rates of 9.6Kbps over a circuit-oriented connection in which the user paid for every second of use. Packet-oriented "always-on" connections need a different payment model which may turn out to be even more complex than today's confusing menu of mobile voice tariffs. These new models are likely to follow those of entertainment services like Digital TV or information services provided by ISPs.

Third generation technology is more efficient, providing voice calls at lower costs, and more capable, providing higher data rates to and from "always-on" handsets, but actual bandwidths offered are disappointing and:

What will that higher-rate data be used for, and who will pay, and how much?

How will the market be stimulated?

Will it need market concepts like the Video Album that created the market for VCRs?

Or will it need an innovative engine, as developed for the PC industry, that would create a range of "3G-enabled" platforms for a variety of applications?

What will encourage young Jake and Diana to beam their wedding live to their aunt in Australia or their holiday snapshot on the Great Wall to their friends?

How much will younger Charlie pay to download a video clip of his latest pop idol?

Will travelling businessmen phone home to see their children before they go to bed?

How many of these markets are needed at what scale to generate the massive revenues necessary to service, pay off, and generate a return from that debt?

Who will form the new MVNO partnerships that will help the 3G licence owners exploit their investment?

Could there be a killer carrier/content partnership that allows a single dominant global player to emerge?

Will perceived health hazards reduce the market?

Will mobile follow the pattern of disk drives with each new technology generation creating a new global business leader?

Current concerns include system performance, application development, delivery economics, service demand, and cannibalisation by other wireless networking technologies.

Third generation mobile technology is being deployed successfully and profitably but it will take time and all the initial investors will not see the full benefit of their initial confidence. All operators now find it difficult to see how, despite lower 3G operating costs, an attractive return can be made on the heavy investment and some have folded their hands. However larger players are taking the opportunity to reduce their rollout costs, and introduce attractive new services, such as snapshot and clip delivery. Smaller operators are unlikely to survive alone. All must apply the lessons of operational excellence to their skills in customer intimacy and product leadership.

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More info from:

Terry.Moore@vecta5.com

Vecta Consulting Limited, Mulberry House, 2 The Spinney, Broad Lane,
Cottenham, CAMBRIDGE, CB4 8RN
Tel: +44 (0) 1954 250222, Fax: +44 (0) 1954 252333

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