3G in 2003 – but what will it really mean?

6 Jan 2003

If all goes according to plan, we should be seeing 3G (third generation) services in action at some stage next year. All of Ireland’s next-generation licences were awarded on the basis that each network had to launch before 1 January, 2004 and each licensee has no intention of missing that deadline.

Three 3G licences have been awarded in Ireland. However, there are differences between the licences. Vodafone and O2, already the dominant players in the GSM market, have been awarded B licences, which require 33pc demographic coverage to be fulfilled by the end of June 2006 and 53pc demographic coverage by the end of June 2008.

The downside of these licences is that they were more than twice as expensive as the A licence. The single A licence was award to Hutchison Whampoa, which will be marketing its service under the brand name ‘3’. The A licence involves minimum requirements of 53pc demographic coverage by the end of December 2005 and 80pc demographic coverage to be fulfilled by the end of December 2007. In other words, while O2 and Vodafone will be concentrating on the main population centres, 3 will have to have a near nationwide network.

With regard to the current ‘big two’, the introduction of 3G is not going to signal an immediate massive overhaul in products and services. Both see it as a way of building on existing offerings. When speaking to siliconrepublic.com, both companies used the phrase ‘evolution not revolution’ and both recited the well worn mantra about selling services and not technologies.

According to Laurence McAuley, head of regulatory affairs at Vodafone, the company is already working with Nokia, its equipment providers, on rolling out its 3G network. “We see our 3G project as a network for major population centres, providing extra capacity in densely populated area,” he says.

Vodafone is intending to use this extra capacity to support the range of data services that it launched this year in the form of Vodafone Live!, an offering that includes various services such as multimedia messaging.

The 3G elements of its network will initially support data speeds of up to 144Kbps. Vodafone also plans to continue to upgrade its GPRS network for those not operating on 3G.

3G will also require an awful lot more masts, however McAuley doesn’t see this as a problem. Site sharing agreements are already in place with the two other existing operators O2 and Meteor and McAuley says Vodafone is currently concluding a new code of practice with the other operators. Because Vodafone’s new network will only be in the major population centres, McAuley doesn’t anticipate any problem in finding enough sites for masts.

Handsets are another issue that has been subject to some speculation. Vodafone concludes handset agreements at a group level and as such has quite a bit of buying power. McAuley mentions Motorola, Panasonic, Nokia, Sharp and Sony Ericsson as possible contenders. Because of the fact that 3G is already up and running in Japan, McAuley believes Japanese manufacturers could begin to make a big impact on the European market given their prior experience in the area.

“We feel Ireland is positioned very well for 3G. The ARPU [average revenue per user] is quite high and the Irish are enthusiastic data users. Data revenues from Ireland are the highest in the Vodafone group,” says McAuley.

As for tariffs, McAuley declined to be specific. However, since the Vodafone offering will involve moving between 3G and 2.5G networks, data tariffs would have to be uniform in order to avoid confusion.

The same principle may well apply to O2, given that it is in the same situation. Nobody is releasing pricing details, but it may be reasonable to assume that there won’t be massive price increases on data tariffs given the likelihood of consumer dissatisfaction.

O2, meanwhile, is a little more reluctant to comment on 3G. Other than confirming that it is going ahead with its 3G network, the company would not get into any specifics as to what stage the development is at.

“Operators can’t be expected to roll out 3G until a return can be made. Any decision will be taken on the basis of commercial realities,” says John Gunnigan, strategy and business development manager at O2.

Aside from the business case, Gunnigan also saw issues arising with handsets. Developmental difficulties have been encountered in creating dual-mode handsets, ie those that will roam between 3G and 2.5G networks. “It is still not clear that handsets will be available in any volumes,” he says.

“The timeframe keeps slipping. I think it is unrealistic to expect anything major on 3G in 2003,” he said.

While the incumbents are concentrating on improving existing services, the joker in the pack is 3. Hutchison Whampoa is working on 3G networks in several countries and work has already begun in Ireland. However, the company still doesn’t have a full presence of staff in Dublin. 3 certainly faces an uphill battle in its attempt to win customers.

Meteor, the most recent entrant into the Irish mobile market, has failed to live up to expectations, primarily because it arrived at a stage when the two big operators had already signed up most potential customers. 3 is arriving later still and will have to offer a higher quality of service at competitive prices in order to compete.

Hutchison’s competitors have been quick to express doubts about its chances. “I am sure Hutchison will say its business plan is very strong, but I would question launching a 3G network without a strong 2G and 2.5G business in place,” says Danuta Grey, chief executive at O2.

Unsurprisingly, 3 has refuted suggestions that its strategy is founded on anything but a strong plan. “In the UK, it is a plan based on consumer research, on a business model that raised £3.2bn sterling. There has been a very thorough independent valuation of our business strategy,” says Ed Brewster of 3 UK.

3’s problem is that it has no existing customer base and no legacy network to fall back on. Its customers will have to roam on other networks when outside of 3’s areas. However, there is a compelling counter argument in favour of 3. The company’s ace may lie in the fact that its licence compels it to cover a wider area than its rivals. If it can compete on costs, the company could succeed in wooing people in search of regular high data speeds.

These customers would be high data users, the most valuable customers to the networks. While it may not be able to compete on numbers, it could compete on ARPUs, positioning itself as a premium service.

As next year goes by, we will no doubt hear more about the network’s 3G plans. At the very least, we can hope for improved data services from the big two operators. At best, the entrance of another player in the market may help shake things up and provide more competition.

By Dick O’Brien