Last month's 3GSM conference suggests 3G is taking its first steps
to maturity
The 3GSM conference in Cannes in February may not have been the
first of its kind, but it could be the most important so far.
Until late 2004, 3G offerings in Europe were relatively meagre.
Most providers have offered 3G services in limited configurations,
focusing on selling 3G cards for enterprise laptop users.
The exception to this was 3, the Hutchison-owned group which began
offering 3G services to UK users in 2003. The incumbent GSM and
2.5G providers finally began targeting the consumer market at the
end of last year.
Vodafone rolled out its offering in November with about 60%
coverage and O2 and Orange followed with launches in December.
T-Mobile which, like the other companies has been targeting laptop
corporate users, has yet to dive in with its own consumer offering.
This spate of launches will buoy the 3G market, said research firm
Analysys. The number of subscribers in Western Europe at the end of
2003 was 600,000, growing to a more respectable (but far from
profitable) 5.3 million at the end of 2004. The company predicted
another 22 million subscribers this year, rising to 240 million by
the end of 2009.
But judging from existing corporate use of the technology, most of
these gains are likely to come from the new consumer services in
the short term. Even though laptop data cards have been available
for longer than most consumer services, the signs are that
corporate deployment of 3G has been piecemeal.
Company executives may be using 3G laptop cards to surf and collect
e-mail on the train, but this hardly places the new network
technology at the centre of a cohesive corporate mobile computing
strategy. And in a world dominated by the Blackberry, which already
offers quick, easy access to e-mail and the web over non-3G
networks, it is not clear how 3G will offer business people enough
value to make them change in the short term.
Services such as videoconferencing are unlikely to be enough to
propel 3G beyond a technology bought by executives for personal
use. At the 3GSM show, Daniel Taylor, managing director of the
Mobile Enterprise Alliance, high- lighted integration of
applications across 3G networks as a key problem.
Shiv Bakhshi, director of wireless infrastructure at analyst firm
IDC in the US, said companies will be reluctant to trust their
valuable data to 3G networks until an appropriate set of security
measures and a business case has been established.
"The vision is of being able to access any information, any time,
on any device and on any network. That is not going to happen
overnight. You need the family of devices to be available," he
said.
Corporates also need to be sure that everything is tied into
billing systems for corporate use and operators must be more
efficient and innovative when it comes to bundling services. "We
could be waiting until the end of the decade until the corporate
market for 3G matures," he said.
In the meantime, other than basic e-mail access and mobile internet
surfing, the most likely use for 3G in the corporate space will be
for using thin-client applications, said Delia MacMillan, an
analyst at Gartner.
Companies will resist deploying applications on handheld devices
given that we are still on the upswing from a recession. Accessing
web applications from small devices is an acceptable
compromise.
Businesses will also be watching the burgeoning consumer market for
3G to see how the technology fares. One of the biggest challenges
for operators promoting consumer 3G has been working out the
content model. With the technology still relatively young, and with
tariffs still high, operators have to come up with winning
applications to convince users to switch.
3G operators face the same problems terrestrial operators face as
they try to move into triple play (voice/video/data) services for
residential users - telcos are experts at building infrastructure,
whereas content is a new and uncharted field. Understanding the
business model will be difficult.
Peter Strivens is a telecommunications partner at Baker and
Mackenzie, a consultancy working with mobile operators on evolving
content models to support the new networks. "A principal issue is
interactive game playing," he said.
"This is being hampered by a lack of common standards and it is not
clear how these standards will evolve or the extent to which they
will be driven by handset manufacturers."
Games developers have been down this road, complaining that
although Java was a standard operating environment on many mobile
phones, the phones' size and the underlying deployment of the
standard made it difficult to develop one base code.
A more promising form of content could be music, said MacMillan.
She said the success of the iPod and Apple's iTunes has rekindled
interest in the downloadable music market, digital rights
management issues notwithstanding. This is certainly what Sendo is
hoping for, having launched its X2 music phone at Cannes. And where
3G's 384kbps theoretical bandwidth opens the door for music, video
will surely follow. Streaming television is already available and
interest is likely to increase.
For video over 3G to really take off, the networks will have to
embrace High Speed Downlink Packet Access (HSDPA), said Analysys.
HSDPA is an enhancement to the W-CDMA air interface standard that
in turn underlies the UMTS networks making up today's 3G offerings.
Sometimes called 3.5G, its main strength is speed. The theoretical
downlink on an HSDPA connection is 14mbps - more than residential
broadband connections. Even the likely practical usage rate of
1mbps or 2mbps will more than treble current 3G speeds, leading to
content opportunities.
Alistair Brydon, who wrote an Analysys report on HSDPA, said the
standard would enable operators to offer enhanced mobile browsing
services as a revenue generator, alongside video. O2 is already
taking steps in this area, testing an HSDPA-enhanced version of its
3G network on the Isle of Man under its Manx Telecom subsidiary.
This is a fitting area to conduct the test, given that Manx Telecom
rolled out the first 3G network trial.
But is there really a benefit to creating higher-speed 3G networks
before the other issues have been thrashed out? For one thing,
operators must resolve the tension between the original
closed-content model (also called the walled garden) where the
operator controls all of the content, and the more
internet-friendly open model, analysts have said. Traditionally,
operators have wanted to control everything because it is a good
way to increase the average revenue per user - something they
desperately need to do.
"It is changing," said Jim Wadsworth, chief marketing officer at
micropayment service provider Simpay. Even so, the prospects for
third-party content providers are not good.
Wadsworth said, "We have tens of content providers asking to get on
our portal and we turn them away. We know we are losing business,
but we do not have the bandwidth or the virtual shelf space."
Wadsworth has a vested interest in opening up the walled garden -
his micropayment service, which will handle payments of less than
£6.98, presents an alternative to premium SMS and will provide
third parties with a revenue collection channel.
The tension between walled garden and open services will resolve
itself naturally, says Bakhshi. The walled garden model will work
up to a point but eventually will have to come down. As phones
begin to offer both 3G and Wi-Fi access, switching automatically
between the two depending on which services are available in the
area, operators will no longer be able to trap users within a
managed portfolio of services.
"What you will see is preferred treatment in the walled garden that
you could easily access, and then there will be things outside the
wall. You will see a hybrid model. But I do not think any operator
will deny you access."
But the spectre of Wi-Fi must be worrying operators. With the
number of high-bandwidth hotspots increasing in urban areas, 3G has
a well-established competitor which is not only understood by the
customer base, but is also available on a per-hour or per-day basis
in many areas and is supported by many of today's laptops.
The US city of Philadelphia is a good example of the threat. It
plans to create a mesh network of Wi-Fi access points across its
135 square miles, offering free access to everyone. No wonder
wireless operator Verizon attempted to block the move.
Still, many operators, such as T-Mobile, are covering their bases
by running broadband cellular networks and building Wi-Fi hotspots
in cities, moving closer to the ubiquitous access model Bakhshi
envisaged. And Wi-Fi has its downpoints, according to MacMillan,
who said people lost Wi-Fi access at the Cannes 3GSM show by moving
too far away from the access points.
Perhaps a bigger problem is the potential cannibalisation of 2.5G
revenues by 3G networks. Researchers at Analysys predicted that
GPRS revenue in Western Europe would grow from £20bn last year,
peaking at £44bn in 2007, then declining as 3G catches on.
With GPRS still in growth mode, 3G operators had better be prepared
for a long wait before they begin to recoup revenues from the 3G
spectrum auctions that took place earlier in the decade and from
the heavy infrastructure expenses they carried thereafter.