Cover Story: 3G Systems - Are you ready?
01 February 2000
So what preparations have the various industry parties been making in the build up to the biggest mobile race of all? Eoin Licken looks at the field.
In the Olympic Games of mobile network technology, the starting gun on 3G implementation officially sounded last December when the Third Generation Partnership Project approved specifications for the new technology.
Like athletes, the equipment and handset vendors have been training and competing for years already - developing prototypes and arguing over standards - but now the starting gun has sounded for the race to produce equipment for the first live commercial networks. These are due to appear first in Japan in 2001, followed by Europe in 2002.
Meanwhile, operators are faced with a year of choices. Should they apply for 3G licences? Should they upgrade current 2G networks or evolve them into 3G networks? From which companies should they buy new equipment?
Several issues will cause them to think hard before deciding what course of action to pursue. Firstly there are worries about the cost of licences, with more countries likely to follow the UK's lead and auction 3G licences to the highest bidders. Then there are worries about equipment readiness, given that GSM equipment has frequently been late arriving. In addition, the 3G specifications, called 3GPP Release '99, have not fully met their 1999 deadline (some technical tweaking remains to be done by March 2000). Finally, there is the cost of the new infrastructure.
THE OPERATOR
Having secured one of the 3G licences in Finland, the first European country to award such licences, the existing 2G Finnish operator Sonera predicts it can roll out a UMTS network by continuing its current spending level of E180 million (US$180.7 million) per year. As spending on GSM is wound down, the money is being redirected into UMTS, says Pekka Keskiivari, Sonera's director responsible for 3G services. Keskiivari declines to reveal its detailed business plans, but says the network is due to go live in early 2002.
He says it is still unclear whether the standard will be ready or if the timetables will hold. "But if the equipment is ready, we are," he says, noting that most GSM features have been delayed in the past, and that UMTS is a more complicated system. However, he points out, there are currently no warnings of delays coming from suppliers.
THE ANALYST
Consultant Dan Gardiner, author of the recent report Third Generation Mobile: Market Strategies from UK consultancy Ovum, says the research company's $650 million (E643.5 million) estimate for the cost of each UK 3G licence will now rise, given the level of interest in the auction.
Then the supposedly lucky five of the 13 applicants will have to build the networks. "We estimate for a UK operator the infrastructure cost will be around $2 billion," says Gardiner.
EQUIPMENT READINESS AND COST
ERICSSON:
Having been very involved in the battles over air interface standards, Swedish supplier Ericsson says there are now "no major obstacles, even with the standards." The 3GPP Release '99 specifications are "80% ready", according to the strategic product manager of Ericsson's W-CDMA business unit, Hakan Ihrfors. The remaining areas should be sorted out by next month (March), and Ihrfors describes himself as "more comfortable now" than at the equivalent stage of GSM.
Ericsson's goal, according to Ihrfors, is to ship W-CDMA equipment to Japan seven to nine months before NTT DoCoMo's target of fourth quarter 2001 for going live. He says 3G costs will be equivalent to GSM for voice calls, but cautions that higher data rates such as 2Mbit/s will require more base stations, meaning higher costs. "It is like driving a bus full of people compared with a car," he says, explaining that while a 3G network may cost more, it provides greater capacity.
NOKIA:
Nokia's director of 3G network marketing, Ukko Lappalainen, says the Finnish company is developing full 3G systems with first release due in 2001. He expects trials of standard W-CDMA in the first half of 2001 which will mature into commercial networks in 2001/2002. "We expect volume deliveries in the second half of 2001," he says, allowing large commercial networks in 2002. He says he has observed that operators' roll-out plans have become more aggressive during the past 18 months. "They still have a 2002 starting date," he says, "but now they have more aggressive plans for (extensive) coverage, rather than just pockets of coverage."
On costs, Lappalainen says both network equipment and handsets have to be cost efficient, "otherwise 3G will not happen." The price has to be equivalent to GSM prices, he says, with high performance and reliability.
"This is a significant challenge to suppliers," he says, but the potential is also greater. For while there will be greater competition among suppliers than in the GSM world, in which Nokia has built itself a leading market position, the potential market is also larger. Citing Japan, Korea and the Americas, Lappalainen states: "We can gain more ground there."
Unlike many other suppliers, Nokia is not currently supplying pre-standard equipment to operators for trials, but is involving operators in trials it carries out in Nokia sites or with research agencies.
ALCATEL:
Philippe Laine, marketing manager for Alcatel's radio communications division, says the French supplier will have a 3G solution for field trials in 2001. The company is developing 3G network components under agreement with Motorola, under which the radio network controller is developed by Alcatel while the node B equipment is developed by Motorola. Explaining that things are on schedule, Laine says: "There is no particular issue for delivery in mid-2001 of Release '99 UMTS," adding that commercial networks are expected in 2002.
He won't divulge detailed costs, but says: "The idea is to have a cost that is similar to GSM." Whether "similar" means per base station or per customer, he says, is not yet clear, "but roughly it is the same price."
NORTEL:
Canadian supplier Nortel Networks, like fellow North Americans Lucent Technologies and Motorola, hopes to sell more 3G network equipment in Europe than it did in 2G. Nortel's senior manager for UMTS marketing, Todd Etchieson, says it is aiming to build on its CDMA position for 3G.
The company will supply entire end-to-end network equipment but not handsets.
For these, it has a what he terms a "working relationship" with Japanese supplier Panasonic.
Etchieson says that like everybody else, Nortel is implementing 3GPP Release '99, which will be ready for pre-commercial trials in March 2001, with full, commercial launch in August 2001. The company has already performed trials with BT, France Telecom, and Montreal-based Microcell Connexions, and recently announced a trial with Vodafone Airtouch. It has also agreed a pre-commercial trial with the French second operator, Cegetel.
On costs, Etchieson refers to his chief executive John Roth's prediction that the cost of transferring a megabit across a network in five years' time will reduce by an order of magnitude. Thus, while it cost 37 cents in 1999, Roth said it would cost 4 cents in 2004. Etchieson attributes this to increased efficiency from packet transport and to increased capacity with 3G networks.
THE TECHNOLOGY
During the coming year, while various national regulators complete the pieces of the 3G licensing jigsaw and equipment vendors develop the equipment, the immediate focus is on upgrading existing 2G networks with fast, packet-data services that will blur the definitions of 2G and 3G networks. If all goes according to plan, users will be gradually migrated to 3G networks, rather than moved en masse some time after 2001. From a network service viewpoint, it may become difficult for a given user to notice when they switch from a souped-up 2G network to 3G.
These upgrades centre around two technologies: the general packet radio service (GPRS), and enhanced data for GSM evolution (EDGE). Between now and 2002, when the first 3G networks appear in Europe, operators of second-generation networks are expected to implement GPRS to switch data services from circuits to more efficient packets, and to implement EDGE to speed up the transmission of those packets to a theoretical maximum of 384Kbit/s.
Despite being based on existing 2G standards, EDGE has been generally accepted as a 3G technology.
Nortel's Etchieson predicts many operators will implement GPRS this year. "Operators (regard) GPRS as a wireless Internet for their subscribers," he says, explaining that packet data will allow mobile users to browse the Internet, receive and send e-mail and make connections to office intranets.
He says GPRS will expand the content possibilities of the current text-only short-message-based data services, but that it will not offer sufficient capacity for streaming video on mobile devices. That, he says, is where UMTS comes in, with added bandwidth and multimedia services. "The step from GPRS to UMTS will not be a revolution for subscribers," he says, preferring to call it "an evolution". This evolution, he says, is achieved by "taking the intrinsic value of mobility and marrying it to rich multimedia content."
Alcatel believes EDGE to be a significant new technology. The head of government and regulatory affairs for Alcatel UK, Gary Baker, agrees the company has changed emphasis to enhanced second-generation networks, describing EDGE as "an enhancement to GSM giving you not much difference in service to UMTS". By implementing EDGE, he says, operators - particularly new operators - can "take the next step to providing higher bandwidth at a much lower cost." He also warns that falling prices of bandwidth on fixed wire networks mean the cost of 2Mbit/s over UMTS will be significantly greater than over fixed wire technologies. He thinks much of the motivation behind applications for 3G licences is to gain extra capacity, not faster data capability.
Ukko Lappalainen of Nokia is less enthusiastic about EDGE. While the Finnish giant is still aggressively investing in 2G+ enhancements such as GPRS and EDGE, Lappalainen says: "I see lots of divergence of opinions about EDGE."
Some, he says, advocate skipping EDGE and jumping straight into UMTS, while others prefer to extend 2G networks with EDGE. It depends on licensing, he says.
Fellow Finn, Pekka Keskiivari of Sonera, is also more cautious aboutimplementing EDGE. "There are uncertainties as to how well it will be supported on the terminal side," he warns, adding that for equivalent capacity its investment costs are similar to those of 3G. However, he concedes it is easier to roll out because it requires less new competence than UMTS. Overall, he says, the operator choice between EDGE and UMTS boils down to the value they place on 3G's advantages, namely data speed and capacity.
THE HANDSETS
When pushed to identify an area that might hold up 3G network deployment, many industry sources point to the handsets. Or, rather, they wonder if there will be sufficient handsets to point to when the first networks go live.
The problem here is that the multiple air interfaces for 3G have resulted in a family of standards. Handsets will not only have to support two or more third-generation standards if they are to allow roaming across network types, they will also have to support existing second-generation standards because many 3G networks will be first implemented in areas of high congestion, with handsets falling back onto 2G networks outside these areas.
In its report on third-generation mobile strategies, Ovum counted 57 combinations of current second-generation and third-generation technologies.
Its author, Dan Gardiner, says: "There is no market for a single-mode UMTS handset for several years into the deployment of 3G networks, because coverage will not match that of 2G networks," and the report notes that "historically the availability of terminals has always lagged behind that of the network equipment."
The report's authors conclude: "It is likely that terminal vendors will not be able to meet all the requirements of the terminal before the first network equipment becomes available."
Ovum is predicting that the first three combinations of 2G and 3G interfaces to be supported by handsets will be: GSM and W-CDMA; D-AMPS and UWC-136; and cdmaOne and cdma2000. It also predicts two more complex combinations among the first implementations, the first being GSM, W-CDMA, D-AMPS and UWC-136, and the second being GSM, cdmaOne and cdma2000. Most handsets sold in the first few years of third-generation mobile will be voice-centric, the report predicts.
Nortel's Etchieson is another who cites handset availability as the main potential problem of 3G. Noting that handsets were scarce when GSM was first introduced in 1992, and again when WAP was first launched last year, he says: "It always comes down to getting handsets into the hands of consumers."
Not surprisingly, given Nortel's arrangement with Panasonic, Etchieson predicts Japanese companies will get to the market early. This is, he says, partly because they must feed their own markets earlier, and partly because having come to GSM relatively late they have now learnt to develop handset technology very quickly.
Ukka Lappalainen says confidently that Nokia's handset developments will follow the same availability as its 3G network equipment, while Ericsson's Ihrfors acknowledges that there is concern in the market about 3G handset availability.
On a positive note, however, Ihrfors is confident that the very competitive nature of the market will help speed up developments, and notes that there today's terminals contain a great deal more software than in the early days of GSM.
And that competitive element makes it hard to predict which of the operators and vendors will find themselves in gold medal position in a few years' time, and which will be the first to trip over the high hurdles on the way. It should be a compelling marathon.
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