HONG KONG-For debt-choked Western operators, third-generation (3G) profits have proven to be a mirage, and if the technology can be made viable, it will likely happen first in Asia.
At the ITU Telecom Asia event held in Hong Kong last month, all the ingredients for successful mobile networks were on display. These ingredients include vast and fast-growing markets in China and India, lower spectrum costs than the West, rapidly evolving handset technology and the drive to roll out national networks, plus customers in some countries who just love using data.
So Asia is a 3G test lab, with the results yet to be determined. Unless, that is, we accept the predictions of the UMTS Forum. Chairman Dr. Bernd Eylert said operators will make up US$1.1 trillion in global revenue between 2002 and 2010, when 3G will comprise more than 25 percent of mobile subscribers in Asia.
The UMTS Forum also broke down 3G revenues for Asia in 2010: 28 percent of 3G revenue will be voice, 36 percent a customized selection of infotainment, 14 percent mobile intranet/extranet access, 13 percent multimedia message services (MMS), 4 percent from enriched voice (includes video conferencing), and mobile Internet and location-based services at around 2 percent each. When customers pay for games, or other content, 10 percent will be collected by mobile operators, said the forum.
In the short term, many subscribers will get their mobile data from current data networks, which Eylert thinks will remain important, growing from 16.3 million worldwide users currently-mainly CDMA 1x users with many fewer General Packet Radio Service (GPRS) customers-to almost 200 million users by 2004,
He added that GPRS and 1x services can “stimulate demand for UMTS rollouts.”
Striking a note of caution, Paola Tonelli, chairwoman of the Operators Group at the UMTS Forum, warned that on the evidence so far: “Users will not be willing to pay much for mobile data.” GPRS and CDMA 1x may point the way to data services, said Tonelli, “But while they are successful in Asia, they are not in Europe,” she added
Nevertheless, Tonelli cited South Korea, with 12.9 million CDMA 1x subscribers expected by the end of this year, Japan, with 35 million i-mode subscribers and Hong Kong with 90,000 GPRS users. What we can learn from Asia, said Tonelli, is that to achieve mass market penetration of mobile data, operators must price correctly, have suitable handsets available and have a lot of services.
Hutchison bullish for the long-term
Hong Kong’s excitement for 3G services varies, depending on the operator. Agnes Nardi, managing director of Hutchison Telecommunications (HK), said the Hutchison Whampoa group is preparing for its global launch of 3G, for which it has W-CDMA licenses in the United Kingdom, Italy, Austria, Sweden, Denmark, Ireland, Israel, Australia and Hong Kong.
“We are about to do 3G and there are a lot of lessons we have learned. It does not matter what technologies we adopt. It is applications and services that drive end-user demand,” she said.
Countering the somewhat negative perceptions of consumer demand, Nardi said: “In the 1980s, we asked people if mobile phones would be useful to them, most people said ‘no,’ because unlike mobile phones, the fixed line (in Hong Kong) service had a fixed monthly tariff, with no charge per call. Also, they did not want the boss to be able to call them at any time. But now, only 15 years later, 85 percent of people feel insecure if they leave their homes without a mobile. So it is a natural step for people to keep in touch with a faster mobile service, particularly in Hong Kong, where Internet penetration is high and people are ready to adopt new services.
“We are launching W-CDMA in nine countries around the world, so there will be synergy in sourcing handsets, developing content and roaming. We also have a cdmaOne network, but we will do the UMTS first,” Nardi added.
In October 2001, Hutchison 3G HK was officially awarded one of the four Hong Kong 3G licenses, which lasts for 15 years from the date of issue. Leveraging its strategic partnerships with NTT DoCoMo and NEC, Hutchison 3G HK said it is equipped with a solid foundation and capability to build a successful 3G business in Hong Kong. However, just this week, the operator admitted any Hong Kong launch would follow Hutchison’s European launches during the second quarter at the earliest, a postponement from its original first-quarter launch plan in Hong Kong.
At Asian Telecommunications Industry Exchange (ATIE), also held in Hong Kong in December, Andrew Leung, executive director of Sunday, a 3G licensee, said: “We have not announced adoption of any technology and are still considering what applications are going to justify the price of 3G.”
Many analysts have stated consolidation is necessary in Hong Kong’s small market for operators to be profitable. Making that scenario somewhat more difficult is an amendment passed in 2002 to the Telecommunications Bill in Hong Kong that enacts a competition law giving the regulator Office of the Telecommunications Authority (OFTA) the right to take action over anti-competitive behavior by carriers, fixed or mobile. If OFTA determines a change in ownership of a carrier license could substantially limit competition, it could block the change. But Dr. John Ure, associate professor and director of Telecoms Research Project at Hong Kong University, suggested fixed-mobile convergence could “provide the logic for M&A that has been missing.”
The marketing factor
Any way you look at it 3G is not an easy sale, at least not initially.
Takahiko Kanzawa, executive director of corporate marketing for NTT DoCoMo, related how his company launched 3G W-CDMA, under the brand name FOMA in October 2001, providing 384 kilobits per second (kbps) downlink and 64 kbps uplink and hopes to obtain 90-percent coverage of Japan by the second quarter of 2003. So far, however, there are only 142,000 subscribers compared with 3.3 million subscribers for cdma2000 1x, launched last April by rival operator KDDI.
A key aspect of marketing 3G is to make the handsets similar to 2G in weight and battery life, but with better voice quality, download performance and content. “Using FOMA, you can still have i-mode with higher speed and better content. We are making it easy for subscribers to move from 2G to the 3G format,” said Kanzawa.
According to the Communications & Information Network of Japan, the industry has set specific targets for 3G handset development. DoCoMo has said prices will be cut from US$250-US$400 to US$150-US$280, weight will be cut from 150 grams to 100-110 grams, and battery life will be increased from 55 hours to 125-150 hours. Built-in cameras will be standard; they are already built into 33.7 percent of mobile phones in Japan.
SK Telecom, Korea’s largest operator, has 17 million CDMA subscribers, 9 million subscribers for CDMA 1x after two years of offering 1x, and is now offering CDMA 1x EV-DO, which provides up to 2.4 Megabits per second (Mbps) data speeds. Along with its cdma2000 services, it is planning to launch W-CDMA service as well.
“We don’t believe in launching any service without national coverage,” said Dr. Myung Sung Lee, chief technology officer (CTO).
The adoption of mobile data may be critically dependent on screen size. Simon Bureau, managing director of Vectis International in Korea, compared the Japanese and Korean experience of data services, “Data services were introduced in Japan first, but they had larger handsets and screens compared with Korea. But now the data services have reached 17-percent penetration in Japan, compared with 10 percent in Korea, so the smaller screens may have limited demand.
At ATIE Toshio Obi, professor at Waseda University, predicted that 3G UMTS with bandwidth around 1 Mbps would be superseded from about 2006 by fourth-generatio
n (4G) technology offering 100 Mbps.
The rapid development of bandwidth, display quality and batte
ry life, especially in Japan, is raising the performance of mobile phones toward that of laptops. Within five years, we may see mobile phones with large folding or flexible screens that can surf the Internet just like a PC. If this happens, the mobile Internet would be largely redundant, and that would upset the UMTS prediction, because operators would presumably receive little revenue from content.
Speaking at the ATIE conference, Dr. Ure said it will be a more difficult climate for Hong Kong content developers than for companies in other regions. “Markets are differentiated by the prospects for content. In Hong Kong, there is a small fragmented market for content, whereas in Japan, DoCoMo provides one standard for content,” he said. “As a result, in Hong Kong 2.5G and 3G offer very uncertain markets for content developers. Content developers must look beyond Hong Kong to the regional or global market,” he said. GW
