3G battle centres on consumers

End of the phoney war

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The phoney war is over and the battle for 3G supremacy in Europe will begin in earnest next year as consumers adopt the technology in wider numbers. Analyst group Gartner predicts that European consumers will be spoilt for choice as operators vie with rivals to build market share.

Until now existing third-generation mobile networks (such as 3UK) have competed against second-generation GSM networks. As more 3G networks are launched these networks will compete against each other as well as older services. The battle between rival operators could last several years and will focus on the consumer - rather than business - marketplace, Gartner analyst Nick Jones, co-author of a snappily-titled new Gartner report What to Expect From the Struggle for 3G Supremacy in Europe, told El Reg.

Road warriors (travelling sales execs and the like) might each spend a lot of money on their mobile phone bill every month, but there are simply to few of them for operators to recoup the huge licensing fees and capital costs incurred in establishing 3G networks. So 3G operators need to attract consumers. But the Western Europe telecoms market is already saturated. So, 3G operators will have try to lure customers away from rivals - or else encourage people to own more than one handset.

For consumers that means the widespread availability of subsidised packages. But people searching for better deals or that latest phones may switch operators to get cheaper upgrades. For operators this means the likelihood of increased customer churn, alongside the possibility the 3G operators will face competition from "rivals with deeper pockets, who may subsidize consumer offerings for longer", Gartner forecasts. Given this tough competition, it thinks consolidation between operators, so that countries are left with three operators (two pan-European and one local) - is a likely scenario. Jones said: "We believe some operators will merge. Three operators makes sense. Why build four networks in the same country?"

Services - not technology - hold the key

Gartner reckons large operators that own both 2G and 3G networks — such as Vodafone and Orange — will advertise 3G offerings mainly as opportunities for users to get new kinds of service, rather than as new technology. So consumers will get their hands on 3G handsets even if they didn't request access to high-speed mobile networks. Starting in late 2004, a wider range pf 3G handsets will become available, so hardware supply won't be too much of a problem. "3G is driving innovation in handsets - which will soon have hard disks and be more like iPod. With increased video capability they could even be a competitor to video cameras," Jones said.

Gartner reckons operators will have an uphill task convincing consumers to become big consumers of data. Excluding text messaging and ring tones, the majority of operators get only a tiny fraction of their revenue from data services. Services that exploit the higher bandwidth available with 3G have to be marketed to consumers. Jones is sceptical that video alone is a strong enough incentive for consumers to switch to 3G. "My daughter wouldn't make a video call without putting her make up on. People would just as soon make voice calls. I'm very pessimistic about mobile video, there's no evidence they'll be a great take-up," he said.

Other services such as video messaging, media streaming, adult content and downloading of music and video have also been suggested. But Jones reckons the market is yet to identify a range of killer applications that will be a compelling proposition for consumers. Up to now operators have concentrated on offerings, such as gaming, likely to appeal most to teenagers. More attention needs to be paid to more mature consumers, according to Jones.

Only if operators find a wide range of partners (such as content providers and application developers) and show the courage to experiment will result in the rapid introduction of compelling services. By outsourcing development in this way and creating a mobile environment akin to the formative years of the internet will spur innovation. Gartner reckons this approach as well as been more creative could cut development costs for operators.

Jones said: "Up to now the mobile world has been separate from the internet. Bridges need to be built. Operators need to create an ecosystem. Environments like the Vodafone like portal are not open enough. Ecosystems - like Japan's DoCoMo - are better model," he added.

Words up - cheap 3G voice calls on the way

Meanwhile, voice telephony will remain the most important mobile service. Gartner predicts that the increased capacity of 3G networks will enable operators to change the way they sell voice services, for example offering large bundles of voice minutes, so that calls are, in effect, priced at a flat rate. Free calls for subscribers phoning other people on the same network might also be introduced. Consumers might be offered low price for voice calls on 3G networks to encourage them to upgrade from GSM and fixed line services.

To help mobile networks compete with fixed line networks upgrades to emerging wireless broadband technology, such as High-Speed Downlink Packet Access (HSDPA), are likely. Gartner reckons that operators without alliances with fixed broadband providers will be at the vanguard of introducing these 3.5G services by 2007. However, these services will be introduced to a limited extent only and to a small number of users. HSDPA will not be much of a money spinner in the short to medium term.

Despite this drive to faster and faster networks, Gartner reckons operators with GPRS networks can look forward to at least two years revenue before these systems become obsolete. Operators of 2.5G networks shouldn't panic, because upgrades like Enhanced Data Rates for Global Evolution (EDGE) will add enough bandwidth to meet short-term demands. ®

Related stories

UK 3G rollout targets 'too tough'
Motorola: 3G handsets selling like hot cakes
Vodafone leads charge in 3G offensive
3 UK claims 1.2m subscribers
Content is king for 3G. But what content?

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