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To: Eric L who wrote (10159)	3/29/2001 9:10:44 AM
From: Eric L	Read Replies (1) \| Respond to of 34857

re: ARC Group on Handset Evolution * GPRS at 700 million subs by 2006 * 3G at 300 million subs by 2006 These numbers for GPRS are much higher than those estimated by Strategis recently. Strategis has 250 million GPRS, 50 million EDGE, and 710 million GSM subs (out of a total of 1.63 billion subs end of 2007). 3G subs (cdma2000/W-CDMA are similar to Strategis & Strategis has 190 million cdmaOne subs at end of 2007) >> Evolution to 3G Handsets Arc Group March 2001 There has been much debate over the past year on the value of third generation licenses and the operators network roll-out plans bearing the revenues from the high bandwidth services that will be offered. Equal interest has been generated on the availability of the handsets that will support these services in time for the launch of these networks. In order for the 3G market and for that matter the intermediate markets of 2.5G to perform as predicted, handset manufacturers are faced with the multifaceted challenge of providing timely terminals with multimedia capabilities and user-friendly interfaces, with greater levels of intelligence incorporated in them. They also face issues of backward compatibility with second generation networks. More importantly, users will demand a variety of handsets with the performance, price and form characteristics offered by present generation handsets. Network Technologies Fig 1: Cellular Mobile Technologies by Region (Based on Subscribers, end 2000) - chart at site Various 2.5G technologies are presently being implemented along the 3G path to meet the needs of higher data speeds. Across Europe, GSM has been the predominant technology and networks are beginning to implement or run initial runs of High Speed Circuit Switched Data (HSCSD) or General Packet Radio Service (GPRS) as their 2.5G migration. HSCSD implementation is however likely to remain limited compared to GPRS which is a more natural step towards 3G technology. It is estimated that 75% of GSM operators will implement GPRS since it will allow them to offer a range of 3G type services. TDMA operators are faced with the option of moving either to EDGE (Enhanced data rates for GSM evolution) or GPRS. However, from recent announcements, it is quite uncertain as to when EDGE will be deployed as no firm commitments of migrating towards EDGE have been made. EDGE is the next logical progression on the path towards 3G, since it can carry three times the traffic of GPRS. However it is believed that many GSM operators throughout the world would prefer to migrate directly to 3G. At the end of 2000, AMPS networks form a sizeable proportion of the US and Latin American markets. In order for the next generation digital networks to be rolled out, the logical step will be to close down the AMPS networks gradually. Handset manufacturers will already have to cater for an array of multi-mode handsets and are unlikely to continue offering dual-mode AMPS handsets when it happens. CDMA networks are significantly dominant in Asia and the USA. These networks will also be moving towards the 1XRTT technology that offers packet data speeds of up to 144Kbps. PDC networks in Japan have seen a huge growth in data services, since the I-mode system was introduced in spring 1999. Subscriber growth has been so high that the spectrum available has become very limited. For this reason, Japanese operators have been anxious to roll out their 3G networks as early as May 2001. Other Asia/Pacific countries such as Korea, Taiwan, Hong Kong and China are also likely to follow quite soon afterwards, in an effort to gain the advantage that early implementations provide. Evolving Handset Market Present leading Handset Manufacturers are likely to benefit from: * Their expertise as network equipment manufacturers (mobility management and RF handling are critical competences) * Their close relationship with network operators and understanding of their customer needs * Their strong brands * Expertise in 2G technologies (3G handsets will be dual/triple-mode 3G/2.5G/2G ) * Global presence Although, manufacturers are strongly positioned for the 3G evolution, they are faced with a changing economic condition within the industry. There will be an increase of substitution products for the mobile phone including smartphones, PDAs, Pagers and handheld computers. Though the volume of units will double by 2005, overall revenues are unlikely to increase as the market becomes commoditised, due to increased competition from traditional IT/consumer electronics vendors and a continued decline in selling prices as a result of increased buying power created from the consolidation of the operators. Because the introduction of 3G systems will be first in Asia, it is expected that the competitive advantages once enjoyed by the European manufacturers will shift to the Asian players. Furthermore as higher bandwidth services become available such as video and music, it is believed that Japanese and Korean manufacturers will have a competitive edge in manufacturing based on their consumer electronics experience. Many of the 3G trials carried out to-date have been with Japanese prototypes. The replacement market is however still expected to increase as a percentage of all mobile handsets due to technological improvements from new network upgrades. New handsets will be required to go from GPRS to WCDMA. Users will require a variety of devices optimised with their lifestyle and the tasks that they need to perform. To provide this choice, we are likely to see a variety of devices growing side by side. There will be the basic mobile phones for mass market applications with very limited data capabilities. Then there will be the VAS handsets which will be bigger than standard phones with medium to larger displays and enhanced processing and memory functions. They will incorporate Bluetooth and will support various audio and video functions for a variety of different end markets. These handsets are likely to form the bulk of the market. The smartphone and communicator markets are expected to grow moderately as these devices will be targeted mainly for business and for frequent traveller users. In the forecasts presented in Figure 2., ARC Group has made several assumptions, including the following: * The timescale of the 3G roll-outs goes according to current plans * Initial network coverage of 40% and varying regional market take-up rates Fig. 2: Mobile Subscribers by Technology 2001-2006 (chart at link) * GPRS at 700 million subs by 2006 * 3G at 300 million subs by 2006 Enabling Technologies There are technologies available that will enable some of the planned higher bandwidth data services. The most significant of these, perhaps is WAP, Bluetooth and Java. Although developments in location based services, security and streaming video technologies are also underway. Wap allows an efficient way of accessing the web through a mobile terminal. It allows the viewing of images for example on a small display. Although WAP has not taken off as initially predicted, the introduction of ‘always on’ networks is likely to increase the WAP uptake amongst users. Also, with a new version of WAP being sought incorporating X-HTML, which is also the direction in which the internet world is going, WAP is likely to offer more to the end user. Bluetooth offers a specification for short range RF connectivity. This technology will allow handsets to be wirelessly linked to a range of devices such as headphones and laptops. It is likely that all handsets offered initially for the technology upgrades will support this, especially as it will provides benefits in terms of size and cost. Java is emerging as a key enabling technology facilitating enhanced access to content by providing better graphics and interactive features such as the download of games and music.ARC Group expects that by the end of 2003, 60% of all phones will be capable of running Java applications. Many companies have emerged focusing entirely on developing user-interface technologies and licensing to handset manufacturers. Developments have included voice recognition, pen-based systems and alphanumeric keypads with other simple navigation keys. Speech recognition and predictive text input are already becoming evident in handsets, however people are sometimes reluctant to operate voice user interfaces in public places and it also requires considerable processing power to operate. It is therefore important that alternative forms of navigation should be available for where background noise is excessive. At present, there isn’t a dominant standard for interoperability between operating systems and this is likely to restrict the growth of the market. Open application interfaces are required in order for more compelling applications to be incorporated into the handset. The main players emerging in this area include Symbian’s EPOC system and the Windows CE operating system from Microsoft. Handset Parameters Handset manufacturers are just coming to grips with the technical problems that need to be tackled in order to offer the capabilities of 3G services. Especially in the early stages of service roll-out which will be focused on metropolitan areas initially, the handsets will have to be dual mode. It is important therefore, that handsets should be backward compatible with intermediate standards such as GPRS and 1XRTT. Several combinations of multi-mode handsets will be required, however due to pricing and commercial availability pressures, it is likely that manufacturers will focus on few combinations initially. Displays will be larger, be in colour and offer higher resolutions comparable to present PC resolutions. They will also have to offer increased refresh times to support viewing images and video conferencing. To accommodate technologies such as video coding and over-the-air upgrades, handsets will be 20 to 30 times more complex as enhanced processing and memory capabilities incorporated within. Therefore manufacturing economies of scale will be essential for vendors to be able to offer handsets at a price that consumers will be able and willing to pay. Power consumption will also be a factor as consumers will expect at least the same performance as second generation phones which offer up to eight hours of talk and 200 hours of standby time. The higher power consumption associated with the RF and baseband circuitry will require enhanced power management techniques - turning off components when not in use and offering low-power modes. In the initial stages of the technological upgrades, the cost of the bill of materials for the first generation of dual band handsets is likely to be high. As such a strong link between system design and chip design as well as maximum design reuse will be required to achieve lower costs. The driving forces for change within handsets will be related to users’ needs to view and dynamically interact with this information. The overall weight, size and battery life may well be similar to those of products on the market today. << - Eric -