When you build xG networks, is that you sell capacity. (2G sold coverage only) Hence operators wil have to invest a lot in backhaul facilities. But their suppliers, traditional mobile vendors, make money out of selling BTS and its ancillary equipment, NOT of making and selling backhaul gear.
What everyone is doing right now? Squeezing all capacity into existing backhaul gear (to make room for some data) for operators to keep spending CAPEX in BTS and its ancillary equipment. I keep my ears to the ground and my thermometer in backhaul at all times.
Parodying the garffitti in Arkansas during the first Clinton's campaign:
"It is the backhaul, stupid!"
The shunning of 3G
Sep 18th 2003
From The Economist print edition
Europe's first fully fledged 3G operator is struggling. So is 3G doomed?
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EVERYONE in the mobile-phone industry is watching 3, a new operator owned by Hutchison Whampoa of Hong Kong, which is setting up third-generation (3G) mobile-phone networks in several countries around the world. 3G is faster than existing 2G technology, with the potential to offer whizzy new services such as sending and receiving live video. In March, 3 launched Europe's first commercial 3G service in Britain and Italy. Since then it has launched networks in Australia, Austria and Sweden, with Hong Kong and Denmark expected to follow soon.
It is 3's operations in Britain and Italy, where it has nearly all of its customers, that are being followed the most closely. Having collectively paid over euro100 billion ($112 billion) for their 3G licences, Europe's other operators are hoping to learn from 3's experience as they prepare for their own 3G launches. For 3 is pioneering a 3G technology, known as W-CDMA or UMTS, to which European operators, and some of their counterparts in Asia and America, have also committed themselves.
So far, things do not seem to be going well. Despite a huge advertising campaign promoting the video capabilities of 3G handsets, consumers seem unimpressed. Six months after launch, 3 has signed up 300,000 subscribers in Italy and 155,000 in Britain, and seems unlikely to reach its target of 1m users in each country by the end of the year. Subscribers complain of lost calls, bulky handsets and inadequate battery life. Some are still carrying their 2G handsets around with them as back-ups.
Things look particularly bad in Britain, where 3 has had to cut prices already to drum up business. A new tariff introduced in June offers subscribers 500 minutes for £25 ($40) per month—far less than the incumbent 2G operators, which typically offer 400 minutes for £45. This week, 3 introduced lower tariffs in Sweden too. What is worrying is that the chief justification for 3G has long been that it would enable lucrative new data services, such as video and high-speed internet access, to compensate for declining revenues from voice calls, which are being eroded by fierce competition. If cheap voice, not pricey data, turns out to be the only way to interest customers in 3G, is this plan doomed?
Not necessarily. For unlike the vast majority of Europe's operators, 3 is a “green-field” operator that does not own an existing 2G network. This makes 3 an unreliable crystal ball with which to predict 3G's future, because it has been forced to launch, market and price its service in a different way from other, established operators.
For a start, 3 decided to launch 3G before the technology was really ready, in an attempt to steal a march on its rivals—most of whom will launch next year. Hence the technical gremlins, as handsets and base-stations made by different firms do not yet work together well. 3's marketing also stressed gee-whiz technology, as that is the basis of its competitive edge over 2G operators. 3 only resorted to price cuts once it became clear that video-telephony, its main differentiator, had failed to catch on. “Video was all they advertised, but now it is cheap voice,” says Brian Modoff, an industry analyst with Deutsche Bank.
Talk is cheap
Whether this is a viable strategy remains to be seen. Technological improvements allow voice calls to be carried more cheaply on new 3G networks than on existing 2G ones, so 3's decision to undercut its 2G rivals makes sense. In saturated markets, 3 can only sign up new customers by tempting them to defect from other operators. So far, fears that other operators would follow suit have proved unfounded. They would sooner lose a few subscribers to 3 than drop their prices.
Instead, established operators are introducing 3G a different way. This summer they have aggressively promoted bundles of mobile data services, including news updates, games and the ability to send still photos (but not live video). Such services can be delivered to new handsets with colour screens, via today's enhanced 2G, or 2.5G, networks. Vodafone's data-service bundle is called “live!”, T-Mobile's is called “t-zones”, O2's is called “Active”, and so on. But the capacity of 2.5G networks is limited. So as more users sign up and existing users upgrade, the operators will quietly switch them to new handsets that work on both 2.5G and 3G networks.
In other words, 3G will be introduced by stealth. “It has gotten such a bad name that they are not going to call it 3G,” says Mr Modoff. Instead, operators plan to emphasise their own brands rather than the underlying technology. People do not care what kind of technology they are using when they are making a phone call or downloading a ringtone, says Julian Horn-Smith, Vodafone's chief operating officer. 3G, he says, is an enabling technology, not a service, “so we won't market 3G per se.”
A far better guide to the prospects for 3G, then, is to look at how quickly data services are being adopted on 2.5G networks. The evidence looks promising. Vodafone's live! service, for example, signed up over 2m customers, primarily in Europe and Australasia, within nine months. Mr Horn-Smith says the signs are that live! subscribers spend 7-10% more than non-subscribers per month. Evidently, many people do want to use their phones for more than just voice calls and text messaging—though whether the huge outlay on 3G licences will be justified is still uncertain.
Switching stealthily over to 3G will be tricky, however, because today's 3G handsets are far bulkier and heavier than 2G ones. Operators are banking on smaller, lighter models emerging in 2004. Only then will 3G face its real test, as Europe's operators start to offer their data-service bundles over 3G networks as well as 2.5G ones. They are hoping for a smooth, seamless transition. Indeed, the irony is that if everything goes according to plan, consumers should be unaware that anything has changed. After all the 3G hype, the mark of 3G's success may be that its adoption goes completely unnoticed. |
