Morgan spoils the 3G party
smh.com.au
By Sue Lowe
April 11 2002
Sydney Morning Herald
It was a case of the analyst versus the industry at this week's heavily 3G-focused mobile phone industry
conference. While carriers, handset manufacturers and equipment vendors did their best to hype up the market,
JP Morgan poured cold water by the bucket.
Ms Lynn Canalese, telecommunications analyst with the 3G non-believer, told industry participants in the
Australian Mobile Telecommunications Association conference that capital markets would not allow the
heavy handset subsidies that had driven GSM growth through the '90s, and without those subsidies consumers
would not be able to afford $1000-plus 3G phones.
Ms Canalese claimed GSM handsets were launched into the market at $1500 to $2000 but took off only after
aggressive subsidies brought prices down to the same level as the $500 analog handsets they were replacing.
But the same thing would not happen again.
"Aggressive handset subsidies are a thing of the past," she said. "The big change during 2001 was that the
market stopped rewarding on a subscriber number basis, but [moved to] a revenue basis."
Reductions in handset subsidies have helped carriers improve earnings before interest and tax margins, she
said. The carriers clearly benefited, "but consumers and handset vendors don't".
While 3G proponents are pushing a richer "user experience" via handsets packed with new functionality such
as video and high quality audio, JP Morgan claims significant handset volumes are only ever generated when
consumers pay less than about $500.
In the short term, that means 3G functionality will have to be reduced to little more than is offered by
so-called 2G/2.5G handsets, already coming on the market.
JP Morgan predicts 3G's early adopters will represent less than 8 per cent of Australia's population.
Depending on how desperate handset vendors get, Ms Canalese predicts they may get into the subsidy game
themselves.
Mark Williams, general manager for SonyEricsson, agreed new forms of subsidy might be needed. "Already
there are all sorts of inducements that can be converted to lower handset prices - it's just subsidies under a
different name."
For its part SonyEricsson is banking on multimedia messaging (MMS) - a means of adding video and high
quality audio to the tide of basic short message services (SMS) - attracting 10 million users by 2007.
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Those are Australian dollars she's talking about. One AUD = 0.53 USD. $500 Aus = $ 215 US .
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