3G strategies risk limiting long-term growth and profitability - report

July 21, 2004

As the pace of 3G deployments accelerates around the world, many mobile operators are at last launching services or committing to bringing services to market. In doing so, operators need to beware of simply following the launch strategies of others, some of which risk serious consequences, according to a new report, 3G Launch Strategies: critical decisions on services and technology, published this week by Analysys, the global advisers on telecoms, IT and media.

By assessing the positioning and impact of anticipated 3G services, this report shows that operators face significant challenges if they are to achieve clear differentiation from services based on 2G and 2.5G networks. This is especially true of managing their businesses to deliver optimised results in terms of the critical measures of revenue per Mbyte, cost per Mbyte and customer usage.

"Early 3G launches suggest that many operators have not yet established a comprehensive, cohesive and robust service strategy," says co-author Alastair Brydon. "Success requires careful management of the mix of voice, small-screen data and high-speed Internet/intranet services, supported by an appropriate deployment of new network technology, principally 3G but maybe also other solutions."

Operators in Japan and South Korea have focused on sophisticated multimedia small-screen 3G services, including extensive video and audio content. "Radical price cuts have been applied in an attempt to stimulate growth of these services," says report co-author Mark Heath. "These have cannibalised the revenue of successful 2G services, and operators are now dependent on substantial usage of new, and in some cases unproven, 3G services."

Most European operators have focused on using 3G initially to offer high-speed Internet/intranet access services for business customers. "While niche Internet/intranet services will generate reliable revenue in the short-term, these alone will not be sufficient to justify the investment in 3G," says Heath. "Operators will have to expand into other segments, while keeping a close eye on the impact that basic access services like this will inevitably have on the overall revenue per Mbyte they generate."

In contrast to Europe, many US operators have used 3G networks to support aggressive fixed line replacement tariffs. "Sprint PCS customers generate seven times the voice usage of most European operators. In the UK, 3 is achieving success with a similar strategy, generating over 400 minutes per month usage with a relatively modest decrease in pricing compared to 2G," according to Heath.

Moreover, the scale of 3G roll-outs is often being driven by regulatory requirements or cost savings, rather than service requirements. According to Heath, "Many operators have launched 3G with high-speed Internet/intranet access, but customers must accept unacceptably slow GPRS service in large parts of the network not yet covered by 3G."

While operators are correct to have been exploring diverse 3G technology options, including W-CDMA, EDGE, CDMA2000 and integration with alternative technologies such as WLAN, WiMAX and Flash OFDM, they must quickly decide upon a cohesive service portfolio strategy to deliver long-term revenue growth and profits before evaluating the most suitable mix of network technologies to deliver these services.

3G Launch Strategies: critical decisions on services and technology shows how an optimal set of mobile services can be defined and assesses the merits of alternative service strategies. By evaluating the effectiveness of current and anticipated 3G services worldwide, it shows how to decide on the timing and pricing of new services, highlighting the need to take positive action without forcing services to market too soon, and considers the best mix of voice telephony, small-screen services (including video on demand) and high-speed Internet/intranet services.