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The Dilemma on Developing 3G in Asia-Pacific

Written by  Alan Grahame
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Alan GrahameIssue:Asia-Pacific II 2001
Article no.:1
Topic:The Dilemma on Developing 3G in Asia-Pacific
Author:Alan Grahame
Title:Vice-President of Sales and Marketing, Asia-Pacific
Organisation:Agilent Technologies
PDF size:24KB

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Article abstract

The next generation, 3G, mobile network will be delayed, probably until 2002. Research delays, multiple standards, the complexity of 3G deployment and the costs involved all contribute to the delay. The costs for 3G licences in Europe were huge. And network buildout is expected to be quite expensive; no one yet knows how these investments will pay for themselves. In addition, 3G is still a technology looking for a good business application.

 

Full Article

The long-anticipated next generation mobile network, 3G, will be delayed. Places like Singapore have postponed their licence auction. Most observers believe that 3G as a commercial proposition will only blossom in late 2002. Whether because of the longer-than-expected research time, the multiplicity of standards, the complexity of deploying 3G network, or the cost involved, one question remains in every service provider's head: 'How will the money finally come in?' The Asia-Pacific region currently accounts for a little less than 25 per cent of the world's land lines and approximately one-sixth of the world's mobile phone users. By the year 2010, nations in the Asia-Pacific region will drive nearly half of the world market for telecommunications services and products, according to the latest report from the International Telecommunication Union (ITU). Behind this rapid growth lies the giant leap in communications technology-the migration from today's second generation (2G) to the future third generation (3G) mobile communication network. There is considerable confusion about what 3G is and what 3G will bring about. In brief, 3G employs radio signals or the General Packet Radio System (GPRS) to transmit data between mobile devices and stations or service providers to deliver voice, data, graphics, audio and video, teleconferencing and even true multimedia services. Applications and services that were only written about in science fiction novels will soon be a reality. 3G technology promises more than just the convenience of communicating-will provide all sorts of new applications that will revolutionize in so many ways the daily life of mankind. But all this comes at a cost. A huge cost. Developed Asian countries such as Japan, South Korea, Hong Kong and Singapore are now grappling with the dilemma of developing and installing the 3G network. It is generally accepted that 3G will only blossom in 2002. Many of these countries have delayed their licence auctions. Hong Kong expected to issue 3G licences in 2000, but related regulations have not yet proceeded through legislative channels to set the basis for the auction and the rules and regulations for operators. The government is hoping that by summer 2001 licences will be issued to service providers. China will have to wait until 2002. But is this the end of the story? As in any other business, investments need to be made before revenues can be generated. Service providers need to pay huge sums for the licence before anything else. Last year, the outlay for 3G licences in the UK was US$32 billion and US$45 billion in Germany. Although current economic conditions are expected to reduce prices in Asia, considerable sums are still required for any business seeking a licence. In addition, there is the network buildout cost. With the slowdown in the US economy about to sweep across the Pacific and slowly land in Asia, service providers are facing challenges in raising money. Many of the service providers have already publicly stated that they will not bid a high price for the licence. This would only tremendously increase their capital investment and outweigh the potential revenue generated over the short term. They are fearful of allocating too many resources into the initial start-up, which would ultimately weaken the ability to establish user applications that really shape the revenue model of this new business. After acquiring the licence, service providers still need to build a new infrastructure for this new system. Due to the very nature of 3G, a shorter-wavelength signal transmission topology, the existing Global System for Mobile (GSM), a widely accepted 2G wireless architecture in Asia, may not be readily usable in deploying the 3G network. Due to a higher frequency and the modulation techniques, a 3G network requires more base stations to cover all the areas that are currently serviced by the 2G systems. Installation costs could be enormous and the rollout time could span years. Singtel, the leading Singapore telecommunication service provider, expects that a completed 3G system could cost them US$0.75 billion and take at least 10 years to build. Many service providers are now considering joint co-operation in building such a network and sharing the cost to make the rollout more viable and cost-effective. Minimising installation costs is a major issue and is one solution for minimising capital expenditure. Careful planning and accurate designs of the systems are crucial. Designing 3G networks is something new-it can be compared to the complexities of building the space shuttle back in the 80s. All aspects of this technology must be thoroughly tested, since it is such a huge investment. Careful planning, accurate system simulation and thorough testing are essential. Companies such as Agilent, one of the pioneers and leaders in the 3G test and measurement industry, is committed to bringing these new technologies to life by protecting service providers' investment in installing the network right from the start. Even if the service providers receive all the funding they need for the licences and buildout, they face yet another great challenge. How do they maximize revenues from customers? The cost for using mobile services has dropped significantly over the past few years in Asia. It is now at the stage where every service provider is struggling to expand their customer base to compensate for the drop in profit margins due to offering subsidized handsets and reduced call charges. The telecommunication evolution brought by 3G requires more than just the service providers delivering services to end users. Application service providers now come into the equation. As in the Internet, Internet Service Providers (ISPs) provide the medium while Internet Content Providers (ICPs) provide the content: they co-exist. The fees that ISPs and ICPs charge end-users out-weigh the cost for them to develop their network, system and content, most of which is based on existing technology and systems. But who will benefit ultimately in this new market? These are the major issues that need to be addressed in the industry. 3G is the classic case of a technology looking for a good business application. This has not appeared as yet. Another interesting point is that with 3G, who will own the end customer? If the user wants to watch videos on their 3G handset and the content is supplied by, say AOL Time-Warner, then the service provider simply becomes a vehicle for the transportation of that video signal. Therefore, presumably, the customer pays AOL Time-Warner and they pay the telco. Who will get the bigger portion of the revenue? With 3G, however, everything starts afresh and must be constructed anew. The cost involved may not be immediately recovered from charges on the end-users. End users are keen to see what there is to offer before committing to the new service. Service providers would like to predict consumer demand for this new technology before investing in the development of infrastructure. The real issue here is the chicken and egg problem. 3G enabled devices (handsets) are not being made in sufficient volume as there is currently no market. Concurrently, there is no application to stimulate usage. There is no rollout of networks because the business model is not yet viable due to the cost of the network and no applications; the cycle starts over again. So who will make the first move? 3G in Asia will initially only appeal to developed Asian countries such as Japan, Hong Kong and Singapore. It will evolve to cover other countries if the pricing model is right for that market. Only after a clearer picture emerges on how business will be conducted and how potential revenue will flow to all parties, will 3G really blossom. 3G is definitely the next milestone, if not the fate, for the wireless world. Nonetheless, the dilemma remains: Are Asian service providers ready for the evolution?

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