Any information, any time, any network - how close are we to the full take-up of 3G?

Last month's 3GSM conference suggests 3G is taking its first steps to maturity

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.
This was last published in March 2005

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