GENEVA-With the world’s first third-generation (3G) mobile systems due to come online in Japan in less than a year, Europe’s wireless operators are gearing up for an intense round of bidding for the right to be among the first to offer broadband wireless services when Universal Mobile Telecommunications System (UMTS) goes live across the region beginning 1 January, 2002.
Europe’s first UMTS license allocations were made in March 1999 in Finland, the wireless world’s northern light with a staggering cellular penetration rate already in excess of 64 percent. Second in line looks to be Spain, which has taken the lead from other early movers, such as the United Kingdom and Sweden, by announcing a tender process at the end of last year, with winning bidders expected to be decided sometime in March. U.K. regulator Oftel is expected to launch that country’s UMTS auction process in March, with Sweden, France, Germany and Austria not far behind and the rest of Western Europe likely to follow in the latter half of 2000.
Finland’s Ministry of Transport and Communications, along with national regulator the Telecommunications Administration Centre (TAC), chose to award Europe’s first four 3G licenses through a “beauty contest”-or bid evaluation-rather than by auction. Winners included the state-controlled incumbent, Sonera; Radiolinja; Telia Finland; and the Suomen Kolmegee consortium, which is made up of 41 members of the Finnet Group of local phone companies plus Sweden’s Tele2.
Spain will favor the same basic model, with four national licenses up for grabs via a tender that will see existing license holders compete on equal footing with new entrants. Each license will encompass two 15-megahertz allocations in two different parts of the spectrum. But while other major markets like Italy and France also are leaning toward selective tenders based on an evaluation of the best service offering, some countries-including two of Europe’s prime mobile markets, the United Kingdom and Germany-will opt instead for a U.S.-style auction where UMTS spectrum will be awarded to those who can muster the most financial clout.
After a series of administrative snarls, the United Kingdom finally seems ready to proceed with its long-awaited auction of five UMTS licenses in March. Under conditions outlined by the Radiocommunications Agency, the four big players-Vodafone, BT Cellnet, Orange (Mannesmann) and One 2 One-will all get a chance to bid for a next-generation license alongside other would-be operators, with one license exclusively reserved for a player currently not represented in the U.K. market.
In Germany, national regulator RegTP also intends to award between four and six national UMTS licenses via auction, arguing that such a procedure represents the fairest, most transparent and non-discriminatory way of choosing the vanguard of operators that will lead the way to full wireless broadband services into the next millennium. But some, like U.S.-based consulting firm Herschel Shosteck Associates, disagree. Herschel Shosteck Executive Vice President Jane Zweig said that while the high prices generated by frenzied interoperator bidding might be good for government coffers, the one-upmanship generated by an auction process can leave successful bidders in a parlous financial position.
With 3G markets relatively untested, Zweig warns that operators could be seriously overestimating early demand for advanced data and video services. In the United States, for example, a “spectrum price slump” has seen the per-megahertz value of licenses auctioned fall from a staggering US$208 million per megahertz in 1995-1996 to less than US$1 million per megahertz today, leaving winning bidders operating systems from which they never may be able to generate worthwhile returns because of the drastic prices they paid.
While Dan Gardiner, an analyst with U.K.-based consultant Ovum, is less pessimistic about the outlook for Europe, he too warns that rapid growth in demand for services could take several years to develop. “We should begin to see really fast global growth around 2007, with 3G networks accounting for around 1 billion-or over 60 percent-of the world’s wireless subscribers and generating around two-thirds of all mobile service revenues at the end of that decade,” he says.
With an average investment of US$5 billion needed to get a large European operator fully 3G-capable, most telcos will be scrambling to develop new services to justify the hefty outlay for new equipment. “There are several ways a telco can play it,” says Gardiner. “They can try to leverage a competitive edge via coverage, through a fast rollout of 3G services nationwide. Alternatively, they can opt for a selective rollout in major centers, and try to gain an edge through the types of services they provide.”
Gardiner says Ovum’s modelling systems show that the winning formula is likely to be a gradual expansion of service from high-revenue, densely populated centers to less profitable outlying regions. He adds that most operators will need to wait around six years to see a return on their investment in 3G infrastructure.
Contented carriers
With most European operators now engaged in preliminary 3G network design, determining exactly what services will bring in the bucks is proving a major source of headaches. “Mobile operators understand that tapping into the real growth of the next decade will mean transforming themselves from simple vendors of airtime, to information and entertainment content providers,” said Anne Lapasset, a consultant with France’s Institut de l’Audiovisuel et des Telecommunications en Europe (IDATE). “Consequently, we’re seeing a huge amount of activity in terms of cross-industry alliances between telcos, which lack expertise developing services, and broadcasters and publishers, which are looking for a fast, effective way of getting their product onto the customer’s handset.”
She added that the introduction of General Packet Radio Service (GPRS) will do much to help operators sort out the wheat from the chaff when it comes to designing popular-and profitable-services. “There’s a big question mark over the market for online services right now,” said Lapasset. “No one knows what the killer apps will be in a 3G environment. GPRS will give operators a chance to test the water before they take the big plunge.”
Equipment vendors like Motorola and Ericsson agree. With most of Europe’s major telcos set to introduce GPRS within the next 12 to 18 months, Ted Hally, Motorola’s corporate vice president and general manager, GSM Systems Division, predicted user demand for high bit-rate services will take off much faster than many expect. “GPRS represents the key building block in an operator’s move to 3G,” he said. “It gets operators onto a packet-switched system, and will let them climb the learning curve of new technology and new product development before the full commercial launch of third generation in 2002.” Motorola is already trialing GPRS networks with European operators, including BT Cellnet, France Telecom, Telefonica and Deutsche Telekom.
Further north, Ericsson, an early mover in GPRS and even faster technologies such as Enhanced Data Rates for GSM Evolution (EDGE), said operator interest in so-called “2.5G” systems is growing fast. “We’ve seen the momentum build over the last six months or so, and contracts are now rolling in at a rapid rate,” confirmed James Borup, company spokesman.
With e-commerce and online entertainment like music, video clips and computer games expected to be among the first applications to take advantage of faster wireless data rates, Borup said the ordinary consumer, rather than the business community, could prove the real demand driver for next-generation services.
For Samppa Seppala, investor relations manager with Finland’s Sonera, successful 3G services will be all about the when and the where. “In the 3G world, time and location-specific services will be th
e killer apps,” he predicted. “People are not looking to spend hou
rs on the ‘Net, or to watch a movie on their handset. Instead, they’ll be looking for simple, even automatic access to timely, useful information, wherever and whenever they need it.”
Having introduced High Speed Circuit-Switched Data technology last September, Sonera plans to move to GPRS this year.
