Qualcomm and Teleepoch
Enter Into a 3G CDMA Subscriber Unit License Agreement, October
6, 2007
MTN chooses Cambridge Broadband
Networks for multi-service wireless network in Rwanda, October 6,
2007
Brazilian government to
publish 3G bidding rules soon, October 6, 2007
KTF 3G service suffers
from technical problems, October 6, 2007
Argentina’s Personal
lunches 3G service in Rosario, October 6, 2007
Russia has it's first 3G
network, October 6, 2007
AT&T could drop Alcatel-Lucent
as 3G mobile network supplier, October 6, 2007
Enea Extends License Agreement
with ZTE for 3G Handsets, October 2, 2007
LG to unveil premium handsets
in Brazil, October 2, 2007
KTF 3G subscribers doubled
in less than 3 months, October 2, 2007
3G policy in India will
be non-uniform, October 2, 2007
- previous news
|
|
3G: the waiting game
November 18, 2003 - source: OVUM
W-CDMA is here. Since March of this year, consumers in several European
countries have been able to purchase working terminals, and try the video
telephony and streaming services that have been positioned as the ‘new’
application enabled by 3G. Outside Europe, the picture is even better.
Subscriber growth in Japan to NTT DoCoMo’s (W-CDMA) FOMA service
has increased greatly over the past quarter. Subscribers passed the half
million mark in June 2003, and the user base doubled in just two months
between April and May. And these numbers pale beside those recorded by
operators offering CDMA20001X services in Japan, Korea, and North America.
However, our focus in this article is W-CDMA, the technology chosen by
almost all of the GSM community.
Both NTT DoCoMo and ‘3’ in Europe had a vested interest in
launching W-CDMA services as early as possible. And both have experienced
a number of problems. These technical hitches and glitches are the main
reason why W-CDMA 3G is still a ‘waiting game’ for nearly all
network operators, and why we are unlikely to see any real commercial
uptake before 2005. Consumers and enterprise users have shied away from
the clunky handsets and the all too apparent teething pains of the young
standard. In order to trigger uptake, operators have resorted to price
cuts, resulting in fears for the profitability of the wireless sector
just as it emerges, blinking and bruised, from the bust after the boom.
Technical issues
The technical problems being encountered in W-CDMA are varied. Perhaps
the most crucial factor is the effect these have on the performance and
aesthetics of the mobile handset. For the consumer, the handset is crucial.
But there are considerable challenges in building a viable 3G handset.
Extra processing power, battery life, and memory are all required. And
all these requirements are to be packaged in a form factor that is sexier,
more colourful, and with more ‘under the hood’ than its best-in-class
2.5G predecessors.
Handset design problems are compounded by the constantly evolving nature
of the standard. The W-CDMA standard known as Release ‘99 actually
comprises a number of different versions, with modifications occurring
as bugs are found and Change Requests (CRs) submitted to fix them. While
all of these versions are supposed to be backward compatible, there are
no assurances that this is the case. As each handset and equipment vendor
supports a different version of Release ‘99, most operators’
networks are not compatible with each other.
The fact that the standards keep changing makes generating test scripts
and conducting conformance testing well-nigh impossible. Test scripts
must also be revalidated if a CR is approved which potentially impacts
the specification pertinent to that test script. Collectively, these problems
mean that a seamless service offering across different networks (ie roaming)
is unlikely for some time. This makes a mockery of the ‘universal’
component of the UMTS mandate.
Still little consumer interest in packet data
Technical issues aside, one of the major issues facing the proponents
of 3G is the absence of any real customer demand. At present, operators
are riding a wave of SMS. This is propelling them towards revenue targets
that were supposed to be met by packet data, specifically GPRS. GPRS has
been on the scene now for three years, and has yet to make its mark. In
the first quarter of 2003, SMS contributed 15.6% of Vodafone Germany’s
service revenues; packet data contributed just 0.8%. Other operators are
not faring much better.
Yet in many ways, the move to GPRS is more important than that to 3G.
Much of the packet data architecture is re-used for W-CDMA. The billing
system and service platforms enabling the delivery of packet data services
will form the basis of the systems used for 3G. Most importantly however,
GPRS offers the chance to get customers used to using and being charged
for packet data. Here lies the real ‘revolution’, with 3G an
evolutionary next step. And the lack of GPRS uptake is telling.
On one side, the problem has been an unstable network and first generation
handsets. On the other, the problem has been operators’ inability
to pitch compelling services to users in a price framework with which
they are comfortable. Initially, operators offered free GPRS-based services
because they were unable to bill for them. Since then, customers have
been faced with a bewildering array of payment options, ranging from per
bit and byte, to flat-rate charging, to monthly access fees and event-based
billing. Confusing, to say the least.
The delay in GPRS uptake has knock-on effects for 3G. The initial crop
of 3G handsets have been poor: they are heavy, cumbersome, and have poor
battery life. In short, they do not compare well to the current best-in-class
2.5G handsets, which boast considerable stamina, as well as sexy colour
screens and applications running on a GPRS network that is now relatively
stable.
Analysis of pricing
What has been the effect on consumer uptake?
In the UK, 3’s initial contract tariffs represented a gamble that
customers would be willing to pay £60 per month for a considerable
amount of usage: this embodies the heavy-usage ‘data nirvana’
scenario that was common currency in 1999 and 2000. However, usage of
above even £30 represents a tiny percentage of the consumer market
in the UK – most heavy users are business subscribers.
The fact that these few heavy users are nearly all tied into contracts
with their existing supplier (although some heavy users prefer the freedom
of pre-paid) made the 3 tariffs even more ambitious. By point of comparison,
it was not until residential broadband services reached the ‘sweetspot’
of £30 per month in the UK that customer numbers began to boom.
And, for the most part, broadband Internet services are truly unlimited.
This view has been vindicated by events. Subscriber growth at 3 UK has
been limited: the operator had gained only 20,000 subscribers by end May
2003, compared to 90,000 at its sister operation in Italy. Further, some
of the 20,000 subscribers boasted by the UK operator were ‘friends
and family’ of the operator’s employees, who pay nothing for
three months free usage.
In Japan, DoCoMo (while showing increased growth) has been adding only
tens of thousands of users to its FOMA service. In contrast, its PDC operation
normally records additions in the hundreds of thousands, while rival KDDI
routinely adds half a million subscribers to its cdma2000 1x network.
What is a fledgling 3G operator to do?
Both NTT DoCoMo and 3 have responded to poor consumer demand by cutting
prices. DoCoMo has cut its data prices by as much as five times when compared
to its 2.5G i-Mode offering. Unfortunately, subscribers have only been
using four times as much data! The net effect (illustrated in Figure 1)
is deeply worrying.
Figure
1 Comparison of NTT DoCoMo’s W-CDMA and 2G ARPU (Source: NTT
DoCoMo)
In the UK, 3 has slashed voice prices, and now claims to offer as much
as three times as many cross-network ‘anytime’ minutes for the
same price as competing networks. Other UK operators’ share prices
have taken a hit as a result. Further, there has been the first suggestions
of a price war as Orange started to offer an enormous bundle of off-peak
minutes in early July.
3’s move is dramatic. It could lose money on the tariff alone. This
is because of termination charges: if a Video Talk 750 customer spends
her entire minute allowance calling friends on other networks at peak
rates, 3 has to pay out £104 in termination fees. The user pays
the operator £35 per month for this tariff. The termination charge
implications are detailed in Figure 2.
Figure
2 Interconnect implications of Video Talk tariffs (Source: Hutchison,
Interconnect@Ovum)
This situation is hypothetical and extreme. However, those attracted
by this offer are likely to be early adopters and heavy users – many
will call friends and colleagues on other mobiles. Further, 3’s penetration
is small: it does not have the subscriber numbers that would enable it
to keep more calls on its own network.
Hutchison is basing its strategy on a simple premise: mobile users do
not use all of their allowance. Other operators have relied on this for
some time, and lure contract users to what are perceived as attractive
price plans as a result. However, the actual cost per minute used is much
higher than the user perceives.
Research carried out by Oftel suggests that only a minority of UK users
use more than 250/300 minutes on their mobile per month, with a similar
minority of consumers (not business users) spending in excess of £30/40
per month. In October 2002, the regulator found that on average mobile
customers are spending £19 per month on mobile services including
line rental and text messaging.
Average mobile spend is inflated by a proportion (16%) of higher spending
mobile customers who spend more than £30 per month. Figure 3 illustrates
that half (48%) of mobile consumers actually only spend up to £10
per month.
Figure
3 Average monthly spend of UK consumers (Source: Oftel)
This suggests that while there is a lucrative minority who may well be
tempted by 3’s tariffs, even the lower-priced package (at £25)
is out of the majority of consumers’ reach. This is a deliberate
move by 3, and far from the ‘panic button’ desperation that
some have assumed.
Early indication is that the cuts in the tariffs have had their desired
effect. Carphone Warehouse, one of the UK’s leading mobile phone
retailers, reported that it is selling in the region of 1,000 handsets
on the new tariffs per day. This represents a five-fold increase. 3 is
now estimated to be selling around 15,000 handsets a week, which represents
around 5% of industry-wide sales.
However, there is no evidence that this improvement in performance from
3 will prompt other operators to fast-track their W-CDMA launch. For them,
3G has become a waiting game.
What next?
We have summarised in pretty gloomy fashion the state of the standard
and technology today. However, there are grounds for hope:
- W-CDMA is a step-change. As with the move from analogue to digital
cellular, teething problems will be varied and persistent. It will take
time for the technology to settle.
- The UMTS community recognises that problems with W-CDMA are more widespread
and serious than was originally perceived. Several initiatives are afoot
to address this complexity. Notably, the GSM Association, in conjunction
with 3GPP, is currently defining a subset of options that should have
commonality through various operators’ solutions. It is working
its way through the ‘millions’ of options in Release ’99
to do this.
- Technology advances continue apace. Particularly, microprocessor and
battery performance will continue to develop, delivering efficiencies
and reduced Bill Of Material (BOM) costs.
We believe that operators have more to gain by waiting than by launching
with a technology that is unstable. All indications from the operator
community are that this is agreed. For example, Vodafone has stated that
it does not want to launch W-CDMA until:
- It can guarantee call completion of 95%
- It can deliver average data rates of 200-250 kbit/s (ten times what
it states it is achieving today with GPRS)
- General performance (from battery life to call quality) must be comparable
with its current 2G network, although Vodafone recognises that it might
have to accept slightly less.
In 2Q2003, Vodafone stated that its 3G network was too unstable to launch
commercial services.
The future of WCDMA
Ovum has long held two doubts regarding 3G:
- Will there be consumer demand?
- Will the technology prove too complex?
Now, half way through 2003, we still are not entirely at ease over these
two points. There is an outside chance that, despite the enormous financial
and emotional commitment to W-CDMA, ongoing technical issues delay implementation
until it is effectively overtaken by an alternative.
This is an outside chance. In most cases, operators will look to ‘supercharge’
a few application suites (corporate applications, services delivered via
consumer data portals) and look to leverage the voice capacity gains of
W-CDMA. The days of the ‘hockey-stick’ surge in data revenue
growth are long-gone.
In Europe, the major operators all plan to launch W-CDMA in limited form
during 2004. Notably, this includes Vodafone (likely to be earlier in
its core markets of the UK and Germany), with Orange, mmO2 and T-Mobile
likely to follow through 2H2004.
As the international players roll out the service, the original motivation
behind W-CDMA – that of creating a truly global standard – will
gain more credence.
|
3G Motorola A920
