Professional Documents
Culture Documents
3G in Europe
3G shapes up
Pieces of the 3G puzzle begin to fall into place: faster speeds,flat-ratepricing, crumbling ivalled gardens
by lain Morris ITS F A I L U R E to excite customers has
made 3G an expensive puzzie for European operators to solve. Trying to piece it together has left them scrabbling in the dark for much of the seven years since they paid exorbitant license fees for their 3G spearum. But over the past few months operators and analysts alike have begun to sound more cautiously optimistic when they talk of 3G. Robert Grindie, a research analyst with Dresdner Kleinwort Investment Bank (DKIB), claims to feel more confidence in 3G now than he has for many years. "Since text messaging took off seven years ago, there's been a year-on-year slowdown in the growth rate of non-voice services," he explains. "But recently there's been stabilization and even acceleration over the last couple of quarters. I'm pretty optimistic that things are happening and we might see an improved trend." While mobile data services other than SMS still generate only a tiny fraction of any operator's revenuesaround 6 percent for f / Vodafone in its
1H07 earningsanalysts like DKIB's Grindle clearly believe a convergence of market and technological developments could spur 3G to greater heights in the months to come.
Faster speeds
One important development has been the launch of HSDPA, a relatively simple upgrade to 3G that can boost bandwidth from 384kbps to as much as 7.2Mbps in lab conditions. Operators in more developed markets have been busily rolling out HSDPA for the past couple years, but only now is coverage reaching a level that makes it an attractive proposition for a consumer. Amit Nagpal, head of mobile for Analysys, a telecom consultancy, says that in terms of data speed HSDPA is finally delivering what originally was promised to 3G customers seven years ago. So far, the main audience for HSDPA has been the traveling laptop user, Vodafone now claims to have sold 1.8 million of its Mobile Connect HSDPA data cards in Europe and says the customer base for the product has risen by more than 74 percent since this time last year. Priced In the UK
1 1
711711711. lelprommngnzine.rnm
3G in Europe
and sees mobile's share of the Hungarian broadband market rising to 25 percent by 2010 (see Broadbar^d adoption in CE3, page 16).
at around 25 (US$50) per month, it costs the customer little more than many DSL packages. What also impresses DKIB's Grindle is iHSDPA's low cost to Vodafone. Because its rollout requires little more than a software upgradeas opposed to installation of new base stationsit can be done on just incremental capex."in practical terms this could see Vodafone mobile data revenues increase and yet capital intensity [capex to revenue ratio] fall in the short to medium term,"Grindlesays. As Vodafone deploys HSDPA in new conurbations, and as its speed edges up (to a theoretical maximum of 14.4Mbps, according to DKiB), Grindle expects the operator's capex as a proportion of revenue to fall from 14.5 percent at year-end 2007 to 14 percent by year-end 2008, and just 13.1 percent by year-end 2009. On the demand side, the prospects for HSDPA are even sunnier in Central and Eastern Europe markets, where evidence suggests it is beginning to substitute for DSL. In a recent report by Credit Suisse, an investment bank, research analyst Istvan Mate-Toth expressed surprise at how quickly mobile broadband including HSDPA as well as CDMA2000, a rival
Flat-rate pricing
The price advantage of HSDPA over fixed broadband is not exclusive to the CE3. In Portugal, broadband consumers can now buy an HSDPA service for about 20 (US$29) a month. Credit Suisse says, while fixed broadband still costs more than 25 (US$36) a month. In Austria, the differential is even greater; An HSDPA service from Telekom Austria costs less than 20 (US$29) a month, while DSL services in the country are priced at around 30 (US$43} a month. Indeed, in its recent earnings announcement,Telekom Austria suggested mobile broadband was cannibalizing revenue from its DSL business. Earlier this year it launched aonPur, a highspeed naked DSL product with unlimited usage, to mitigate the impact of HSDPA. Vodafone does not expect HSDPA to have quite such a dramatic effect in a market like the UK, where only 13 percent of households are "mobile only," compared with 39 percent in Austria, and broadband penetration has now risen to 41 percent, compared with just 21 percent in Austria (figures are from the European Commission's E-communications
3G in Europe
Poland
2007E 30% 4,350 2,652 1,102 596 201CE 65% 9,425 6,291 2,371 1763
348 261
Household Survey pbWshed in April 2007). Nevertfieless, it sees the collapse in 3G pricing that has accompanied the launch of HSDPA, and particularly the move towarcJ flat-rate pricing, as an important piece in the 3G puzzle. Why has flat-rate pricing taken so long to arrive? Partly, Analysys'Nagpal says, because HSDPA has only now given operators the capacity to cope with the increase in data usage that such a business model could trigger. "If people had used 3G a lot [before HSDPA], it would have been detrimental to the quality of the service," he says. Tellingly, flat-rate pricing is growing in prevalence as HSDPA coverage expands. Usage caps are still common, especially in markets like the Czech Republic, Hungary and Poland, where 3G coverage is still a comparatively low 30 percent of the population. Vittorio Colao, Vodafone's deputy CEO, reckons ultra-low flat-rate tariffs allowing unlimited usage could invite a deluge of data traffic that overburdens the network. In the UK, Vodafone's own unlimited-usage mobile broadband service is still priced at a slight premium to fixed broadband offers. The operator claims 50 percent to 60 percent of its available 3G capacity is being used in dense urban areas. But capacity constraints are not the only reason operators might shirk full flat rates. In France, mobile operator SFR recently launched a new range of HSDPA phones on a tariff scheme called Illimythics. For 39 (US$56) per month, customers get 120 voice minutes and what SFR calls"unmetered Internet access" with a 24-month contract. The monthly fee rises to 49 (US$70) for 180 minutes and 69 (US$99) for 350 minutes. On the same day it was unveiled, Jean Bernard Levy, CEO of SFR owner Vivendi, claimed Illimythics was evidence of the operator's commitment to flat-rate data tariffs. Yet Illimythics has already drawn plenty of flak for not being truly flat rate. "The terms and conditions include many limitations to the unlimited usage of mobile data,"saysVtncentPou!bere,anOvum analyst, in a research note. "For example, unlimited browsing is only allowed for brows-
ing on the WAP portal and Internet sites [and not for some] downloads and other services." Like others, SFR seems reluctant to risk taking the full plunge at a time when data revenues still form sucb a small percentage of its turnover. Flat rates are an end game: If they do not spark an explosion of interest in 3G, operators might find they have backed themselves into a corner. "It's about confidence in the market," DKIB's Grindle says. "When you launch a new product you want to find the right price level, and maybe at the beginning it's more of a niche product, But clearly [operators are] recognizing this is something a lot of people want and there could be a good elasticity response."
"3G operators are recognizing that it's better to have a small piece of a big pie than a big piece of a very small pie"
Amit Nagpal, Analysys