An interesting perspective from NOK. This gentleman is genuine in his perspective on 3G. However it is sad to see someone like this who is simply following the NOK company line and coming off as an authority.
Some Low Lights:
NOK to have 25 WCDMA trials in September 01
NOK commercialization of 3G in the second half of 01;(beating GoNoMo).
Followed by 6 to 9 months of optimization and 9 to 12 months of integration (after commercialization)
Edge adding capacity
WARNING LONG ARTICLE
Nokia exec discusses 3G’s future
[relax, you are in good hands with Nok]
5/22/2001 Rate of 3G deployment depends on country, standards.
Joseph Barrett is Head of 3G Market Relations at Nokia Networks. He has worked in the mobile communications industry for more than 15 years, the last nine years of which have been with Nokia in the UK and now in Finland. He has held positions as Account Manager, Product Manager and Marketing Manager and Head of Competitive Intelligence with the Radio Access Systems division at Nokia Neworks. Currently Mr. Barrett is Head of 3G Market Relations, in Nokia Networks Marketing and is based in Finland. Prior to Nokia he worked in Sales and Marketing in the UK's emerging mobile phone market, witnessing the explosive growth of mobile communications. He started his communications career in the Royal Navy as a radio engineer and then with BT. He is an Associate Member of the Chartered Institute of Marketing.
TWST: Can we start out with an overview of what's going on with the 3G
system at this time and where it's going to go over the next year or
two?
Mr. Barrett: At the moment, if you start off with standardization, the standards for WCDMA systems (wide-band Code Division Multiple Access), have all been completed. There have been some iterations now that we have been going through, some small enhancements and changes. This is obviously an evolution of the standard and there will be additional standard enhancements coming, release four, release five, etc. in the near term. What's really important about these standards is that they're basically the iteration of the standard that was completed in December 2000, what's also called the 12:00 version standard. That was readily accepted as being the version of the standard that would enable operators to really test the commercial viability of the network. Nokia is focused on delivering equipment that is based on the 3G standard that is also forward-compatible to all future versions of the standard, as well. It is also important to note that the US has a slightly different scenario. They have carriers operating today on three different network technology systems: GSM, TDMA and CDMA. CDMA carriers, including for example Verizon and Sprint PCS, will deploy initial 3G Services using CDMA2000 1X later this year. GSM and some TDMA carriers that are moving towards GSM now will implement EDGE, then WCDMA as the evolution to the Third Generation. From a manufacturing-of-equipment point of view, then, Nokia is already well down that road. We are starting to deliver 3G GSM network equipment. In the next few weeks we'll be delivering the first test networks, and there will be a growing number of test networks operating in the first half of this year. By September of this year (2001) there should be about 25 Nokia customers that have a 3G WCDMA trial network, so they can then start to do some testing of the equipment. And that's really where operators get the first chance to trial a vendor's offering and validate that what they've said they can deliver can actually be delivered. In the second half of this year, we will see the first full commercial 3G hardware and software being delivered that will allow operators to launch a commercial network, or to say, 'I have a commercially viable 3G network.' As soon as you get that equipment in place, they can start friendly user testing. Bear in mind, you've also then got to roll it out over the country, get the base stations, the antennas, the masts (cellular towers), etc. rolled out across the operator's territory, which is going to take a few months. Then the operators will go through what's called an optimization period. Let's focus for a moment on today where we are with the rollout of GPRS. We delivered the first GPRS for GSM networks in April or May last year, and in that six-to-nine month period since then what we've been doing is optimizing those networks and getting to a position where the operators can guarantee a quality of service that will enable them to deliver a service that meets users' expectations. The technology needs to be integrated to the existing network, and that can take nine to 12 months. We will see the same situation with 3G, so that even though we're delivering equipment in the second half of this year, it will be the second half of next year before the networks are really ready to deliver the user experience and levels of expected quality of service.
TWST: Where are you going to roll it out initially?
Mr. Barrett: It will initially be rolled out in Europe, then in Asia. I expect, in the US what we'll see is that...
Ms. Gary (Corp. Comm.): Following GPRS, which introduces packet data into the network, some of the US carriers (GSM and TDMA operators) will then be adding EDGE, which many view as the first step into true Third Generation. EDGE, which is the next step in the GSM 3G evolution path, stands for Enhanced Data Rates for Global Evolution. CDMA carriers will deploy later this year the CDMA2000 1X standard, bringing them as well into 3G.
Mr. Barrett: Yes, they're going to go GSM EDGE, and then, I think in 2003, they will then implement WCDMA into their networks. And that's true about the CDMA carriers.
TWST: What's going to get consumers to move to this new service? What are the bells and whistles that are going to make the transition happen?
Mr. Barrett: People often say, you can do all these services that we talk about with 3G in the 2G or 2.5G networks, and that's true. But there are a couple of things that are relevant. First of all, 2.5G-type services — and even 2G services, text-messaging, etc. — the growth that we're going to see in those services, and actually this is the growth that the operators need to encourage the generation of more revenue, has to come from getting increasing usage on their network. As we see 2G usage increase from today's figures, then the operators will have to move to a new technology that is more cost-effective on bandwidth and actually offers additional spectrum. So that's the third thing. It's a capacity requirement. Although you can increase the capacity in GSM, it comes at a high cost because of the technology. 3G technology is much more efficient from a frequency and bandwidth point of view. And if we think about what that really means from a revenue point of view, today we see around 330 billion euros of mobile service revenues in the world, and according to forecasts that's going to go to around 1,000 billion euros in 2006. Today it's mostly about voice; in 2006, 58% of that revenue comes from voice services, the other revenue then comes from new data services, and 40% of those new data services are in development today. So those things are going to happen over the next few years.
TWST: Those are all the things the consumer doesn't know they need?
Mr. Barrett: I think the research we've done shows that they're expecting these new services to come along. We've just done some research for example into entertainment services. In a report I just saw today, the focus groups are also expecting more multimedia type capabilities with their mobile phones like pictures and little video clips, downloading music. Another way to look at this transition — because society is now becoming more technology-enabled — we understand how a video recorder now works and how to make mobile phone calls and send text messages and work on the Internet, all these things are now natural things within society ' so too will be mobile Internet services. The mobile phone is becoming more than just a mobile phone. If you think about the mobile phone, it's the only device you carry with you 24 hours a day, so if the mobile phone also has a camera built into it — and you never carry a camera with you all the time, but there are many times you think, 'Oh, if I had the camera, then I'd just take a quick picture of that,” — or a radio — you don't always carry your radio with you. Oh sure, the kids today, they do carry a Walkman and a mobile phone, but bringing those two things together in one device is what they want. Or consider if you could also play more sophisticated games with your mobile phone than for example with the GameBoy kids are now carrying around, then you'll use that on more occasions. It's certainly not going to replace a GameBoy, for instance, it will be a little more time before the graphics and the type of things you can do with a GameBoy are available on mass market mobile phones. So people are expecting these things. It's not as if they don't know they need them, they are expecting some new things to come in the near future, as well.
TWST: There was an article in The New York Times indicating that the service providers are beginning to lean on people like Nokia to help finance 3G. What's your response to that?
Mr. Barrett: Financing has always been a part of the business. We've been doing it now more than 10 years, and we have an experienced team of people doing it. We continue to apply the same prudent and conservative financing in terms of 3G that we've always used regarding financing. Nokia is well positioned and prepared to extend financial support for selected, feasible projects in a reasonable way and at the time, when such enhancement is justified. However, it is assumed that the financial feasibility of the project shall always be shown and the parties involved participate in the total financing in a balanced way to secure funding for the whole project in different phases. Nokia's strategy is mainly to bridge the technology gap, i.e. to support the project in such a way and at the time when the value of enhancement is the highest and to transfer credit to the financial markets as soon as possible. Emphasis is given to the quality of the project, which means all elements, including the sponsorship and the business case itself must support the financing decision.
TWST: The gist of the article was, with the questions about 3G, the banks are getting less willing to fund it so they're looking to the suppliers to do it.
Ms. Gary: I think a very important distinction to make now is that this is a very complicated process, and the business case for every operator is different, given their dynamics. So we do have a business consulting group that Joe actually works with very closely, that works hand-in-hand with the operators and banks to put their business case together, to put their projections together. We do work very closely with the operators on their business case because we know mobility.
Mr. Barrett: Yes. We do work with the operators. I think we've done something like 250 GSM and 53 3G business analyses with our business modeling tool, which has now been available for about five years. So we have a lot of experience to bring to the table with the operators. And also, as we take an active role in working with the financial institutions to help to educate them — what does 3G really mean? And what are the opportunities there? In 3G we take the same conservative view we've always taken about financing, that while it's part of a package that we can offer, it's not the most important part. The most important part to Nokia is the ability to deliver the best technology, provide excellent services and be sure that the user gets the experience that they're expecting.
TWST: As we look out over the next two or three years, what benchmarks or milestones can investors use to monitor the rollout of 3G?
Mr. Barrett: I think the first thing is to look at what's happening with GPRS. And what I always say to people is that two years ago the industry was not looking to Nokia to be a leader in GPRS because it was about packet data, it was about IP, it was about the Internet. But vendors need mobility expertise as well. According to the feedback we've received from our operator customers, we have the most stable GPRS system in the business today. We have something like 20 commercial networks with our customers, which is more than half of all commercial networks. So that's a good milestone to look at: the ability to deliver the technology at the right time and get the feedback from the operators. The second thing is, as we move towards 3G, to look at what services are coming along and how people are now starting to use their mobile phones, not just for voice and text-messaging, but what other things are they doing. There's already a lot of evidence that people are using different Short Message Services (SMS) today for banking, or even just for simple things: for entertainment, or sending jokes or downloading comics. This is starting to grow now into a multi-billion-dollar business. The SMS text-messaging traffic in Europe was estimated for the year 2000 to be something like 4.3 billion euros — that's a huge business just for a simple service! So looking at these things and those figures, now we're starting to see a change in behavior, people using their mobile phones for something new and different. Then, from a delivery point of view about third generation hardware, we need to look at what the vendors have actually been able to deliver, as well as when the first networks are up and running. The question is when do we actually get the first commercial trials for the early users, which we see happening in the first half of 2002. What's important then is to recognize when we get the real commercial networks that deliver the quality of service that users will expect and how you get a service and a solution out there that will really get users to use these new services, not that you can just do some testing in the laboratory.
TWST: Is that the advantage that Nokia will have in this marketplace?
Mr. Barrett: We believe so. We are very happy with what happened with GPRS. We've been able to bring that new technology to the market, and we can now bring our deep understanding to 3G technology and beyond. About 12 or nine months ago, it took 20 seconds for a GPRS session set-up; it's now down to five seconds. So that's the type of improvement we've experienced in these testing stages. We're already working on the issues with 3G. We can then get our equipment into the market for commercial solutions, work with the operators, and really optimize that technology as well. So we're taking what we learned from GPRS and are putting that into 3G. If you also think about how the mobile phone business works, it always follows infrastructure deployment since the networks have to go through this optimization period. On the mobile phone side — stabilizing software can take some time, and the cost of the technology needs to be at a level where mass market delivery of phones — in millions — is profitable. That's when the mass market cost and performance-caused growth really starts to take off. That's where we will always focus our volume production and our product. So you have to be at the right price. Before then, the technology is a little bit immature or expensive, so it doesn't really create that volume situation. In GPRS today we've got some terminals out there in the marketplace. I think they're not yet there in the millions, which is what we will be focusing on in the third and fourth quarter this year. On the infrastructure side, you have to really start the rollout a lot earlier. You have to deliver the technology, the equipment, the hardware and the software, if it's possible, to get the coverage and the service out there for testing. Then it's almost the usual way, and you can start optimizing the technology. For instance, WAP came in at a level of expectation that was very high, so high that the industry was not yet able to deliver to all of the massive expectations. If you consider the early years of WAP as opposed to the early years of the Internet, then WAP has been an extreme success. But these expectations are even higher today. That means that even if you do bring the technology to market quite quickly through the network, you've often got to take the time required for network optimization into the equation. That can be six, nine or even 12 months, when you really do bring up the level of quality of service and reliability that you can deliver. So when the person starts to use the service, they are happy with it and they come back every day, wanting to use it more and more. That's how we generate the revenue that the operators need. I call this time we are now in a 'window of worry' or 'where are the phones?' zone. But when the networks are actually available, and they've been optimized, when the mass markets terminals are really available that's when the business starts to fly.
TWST: So it's not nice to fool the consumer.
Mr. Barrett: No. For example, people are talking a lot about higher and higher data rates, when the reality is that people are not going to get two megabits per second initially. You actually don't need two megabits per second, you need 20-60 kilobits per second for most applications. Most of the services that we're going to see in the early years of 3G will happily live within 128 kilobits per second, maximum. Most of them will only need 20-30 kilobits — even 10 or 15 kilobits will be acceptable in some cases.
Ms. Gary: I think it's important to note that people's experience with computers and operating systems is all they know to compare it to. So we often get ourselves in situations where we're talking about data speeds and mobility, where it's not the same thing that it was with the fixed Internet at all.
TWST: We're talking about an apple and an orange, so to speak.
Ms. Gary: Correct. Today that's what people have a frame of reference for. But, as Joe was saying, with the data speeds that we're anticipating in the next two years, these things will all be able to be done. So we don't feel that the data speed argument is something we should all be focusing on right now.
TWST: Just as a wrap-up, if we take Europe, Asia and the US, when will 3G become important in each of those markets?
Mr. Barrett: 3G is already important in the European market because the operators are now looking at how they're going to get back the money they paid for the licenses. The second half of next year is when we'll see the majority of the commercial launches of 3G in Europe. In Asia, this will probably happen about three to six months later. The licensing there is a little bit behind Europe, but it will definitely happen in Hong Kong, Singapore, and Australia. Those areas are going to start bringing on data. During the first half of 2002, we'll see more of an importance there. My personal view of 3G in the US is that it's probably going to be around the end of 2002, because the change is already happening in Europe. And CDMA carriers will deploy CDMA2000 1X, which will also allow them to offer similar 3G services. People have only just started using text messaging in the US. In Europe on the other hand, there were about 15 billion text messages sent in December of last year. The estimate is that about 200 billion text messages will be sent during 2001. So it's a huge business, and that behavior change has already happened. But it hasn't happened quite yet in the US.
Ms. Gary: The first carrier to really start marketing two way text messaging and promoting it in the United States was AT&T Wireless Services in November 2000. So that was barely four months ago. Now other US carriers including Cingular, Verizon, Voice Stream and others are beginning to market the messaging features to their customers. It is in the early stages of catching on here.
Mr. Barrett: You've got a lot of good wireless networks in the US that are used now just used for basic PDA applications that don't have voice capability. You could argue that the US is even ahead of Europe with data applications because you can do lots of things with wireless enabled PDAs and pagers already. It has not gone to the mass market yet, although there is some good experience there from certain applications and simple data devices. For that to go to mass market — to talk about having 10-20 million of terminals — it has to be built on the back of voice, where we start to do text messaging and simple WAP-type services (such as mobile banking, finance or entertainment). These are simple things that will get people started using their mobile phones for more than just voice.
TWST: So that's somewhere down the road.
Mr. Barrett: Right. Although there is a lot of talk about the need for high data rates and bandwidth in the US, and I think that is coming, it's not needed this year. What's needed this year is a change in user behavior. We believe there will be an evolution toward greater and greater features that is not just voice and the bandwidth will naturally be in step.
Ms. Gary: Another thing we need to point out is about the US market. In the United States, we're in a different place ' especially with the GSM and TDMA operators, and this is a technology discussion about EDGE (Enhanced Data Rates for Global Evolution). For these carriers, for the foreseeable future, EDGE will provide all of the applications you can do on this 3G WCDMA technology. It might be as far as some of the American operators need to go until the take-up rate in the US is greater. CDMA carriers are planning to evolve to CDMA2000 1X.
Mr. Barrett: I think that's true. Companies such as AT&T Wireless Services have already said that they are going to be deploying EDGE, and we expect that for other operators in the US as well. That gives an additional enhancement to the data speed and capacity. Again, it's the capacity that's really important. EDGE brings in a window of extra capacity before you need to go to 3G, especially in the US market.
TWST: So that will be the lead in to 3G.
Ms. Gary: Correct.
Mr. Barrett: Yes.
Ms. Gary: GSM has a very defined evolution path. We're seeing GPRS today, then we'll add EDGE into the network in 2002, and then eventually we'll see carriers moving to deploy WCDMA. That's not to say that they won't eventually go WCDMA; but, because of the expense, they are looking very carefully at this. If the carriers can use EDGE to deliver the quality of service their customers initially expect, they'll do that. As mentioned earlier, CDMA operators also have another 3G evolution path. So EDGE might be it, especially for some of the smaller GSM and TDMA carriers in the US or areas that aren't as heavily populated as cities such New York or Dallas. EDGE enabled networks might be an operators' three generation system at least for the next two to four years. Because the biggest benefit of WCDMA and EDGE is that they add more capacity to the network. |
