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In 2001 the mobile phone industry reached a major milestone when, for the first time, there were more mobile connections than fixed line connections. Now the industry is waiting for its next 'big thing' with the introduction of the Third Generation mobile phone system and the range of applications and opportunities it may deliver.

Marie Kelly, Public Affairs Director at Hutchison/Orange, says, "Key 3G applications will be multi-media messaging, games, sports and entertainment. Video telephony can only be a reality with 3G, enabling peer-to-peer video calling as well as video conferencing. 3G will also deliver concurrent voice and data calling so a user can access 3G content services and take a voice call at the same time."

The Australian Communication Authority (ACA) in its Telecommunications Performance Report 2000-01 expects 3G systems to deliver the following services:

• Conversational services such as multimedia messaging, photo sharing, and mobile video conferencing;
• Information and entertainment services such as games, video and audio streaming to mobile devices, and internet access from mobile devices;
• Business services such as mobile video conferencing, interactive application sharing and fast file sharing to and from portable computers and PDAs - for example, members of mobile sales and field service teams would be able to access central sales and corporate database information to service clients;
• Mobile commerce where users can browse and make purchases from a mobile handset or PDA.

There are many big questions about 3G and one of the most nagging, at least for the mobile phone companies, is this: having spent many billions of dollars acquiring licences to operate 3G systems, will they recoup their costs? In other words, are mobile phone users going to want 3G and all it promises to offer?

Generation next

First of all though, what exactly is 3G? Well, first generation mobile technology was the initial analog network developed in the 1980s. Second were the various digital systems involving GSM, cdmaOne, PDC and DAMPS which were developed at the beginning of the 1990s to deliver voice services coupled with limited data capability. Now we're in 2.5G territory, thanks to SMS availability on your mobile.

Over the years the industry has become focused on developing 3G systems and networks that will ultimately replace the existing networks and technology infrastructure. According to Paul Budde, an independent analyst and researcher in telecommunications, "The main objective for 3G systems is to provide a more robust network with a range of data and multimedia services."

Marie Kelly at Hutchison adds, "3G services are the next phase of growth in wireless mobile communications. They will offer customers high-speed access to wide-ranging multimedia services as well as high quality voice."

When 3G becomes technically possible, a totally new mobile and wireless business model will have to be developed. "However," says Budde, "this is still a fair way off. I don't expect major developments in 3G before late 2003, but it's more likely to be 2004/2005."

As with a lot of new telecommunication services, the first buyers will likely be business. However, that's where there are also some questions. Are businesses going to pay what will almost certainly be a premium to use 3G services? Do they even want the services which 3G will supposedly provide? These are big issues because without business use, and plenty of it, it's difficult to see how 3G can make a serious return on its substantial investment. With the current slowdown in the market it's unlikely that operators will be planning massive new technology investments or major infrastructure upgrades.

"Operators that rush into this market too early will face massive obstacles - standards are far from finalised, and the business models for new revenue streams don't exist, beyond niche markets. These markets can also be addressed by GPRS and other specialised wireless services," says Paul Budde.

Budde believes that mobile revenues will largely remain voice based and that margins are shrinking.

"The delivery of any new technology is challenging," admits Kelly. "Though Hutchison is tracking well in managing technological difficulties in the areas of handset specifications, IT platforms and network implementation and integration, we are aware of the risks as well as the opportunities associated with 3G."

Budde says, "In order to survive as an operator in the telecommunications market you will have to embrace the open access model, also known as the virtual operator model, whereby you encourage others to actually operate end-user (retail) services over your network. Any other model will fail in the long term."

Some operators will start to use this model successfully, and their competitors will be forced to follow them. So according to some in the industry, and Optus is one of them, it is better to take the lead in mobile wholesale.

There is very little chance that other services such as WAP, GPRS, m-commerce etc will become mass-market applications on the current mobile systems.

"There will be quite a few interesting niche markets and I am sure that some clever small-scale 'virtual operator' will be able to develop highly successful and profitable services along those lines," says Paul Budde.

Market forecasts

A report from telecommunications analysts, Ovum, says that 3G mobile communications will allow the user to receive consistently high levels of service and coverage for voice, data, graphical and video information, independent of their network. Ovum predicts that there will be over 60 million 3G subscribers by the year 2005. According to them, the largest markets will be South East Asia (22 million), Western Europe (18 million) and North America (17 million).

Developed Asia-Pacific countries, such as Japan, South Korea, Singapore and Australia, will be among the first countries in the world to launch 3G mobile systems. The high level of competition, capacity shortages and the advanced culture of utilising telecommunications services in these countries will mean that they will be among the fastest adopters.

The major players

In introducing 3G there is definitely a strong level of hesitation on the part of existing mobile operators. Paul Budde says, "They realise that 3G will undermine their 2G services and that they will have to cannibalise 2G in order to be able to successfully introduce 3G. This hesitation, on top of severe price-competition and technical delays, has put the short-term 3G developments under a cloud."

Vodafone is adopting a wait and see approach to 3G. Janine Graham, Manager of Corporate Communications at Vodafone, says, "We're taking a look at what's happening overseas in places like the UK first before we commit to offering services in Australia. At present we cannot see what applications it can deliver, additional to what is already in existence."

According to Paul Budde, however, "3G will complement Vodafone's existing network, including GPRS, and facilitate the delivery of a wide range of new mobile services such as wireless internet access, mobile video conferencing, mobile picture postcards and advanced messaging."

Ringing the changes

But what of the main telecommunications providers? What's their attitude?

Interestingly, Telstra initially indicated that it had been unable to identify any 3G services that it couldn't already provide on its existing mobile networks. However, last September the company changed its position and indicated it wanted to be the first in the country to launch a 3G network. This would mean an introduction before the end of 2002. Goldman Sachs estimates that Telstra will spend $1.67 billion on its 3G business over the 2001-2006 period.

Optus will deploy WCDMA (the most commonly adopted 3G standard) and EDGE, in addition to the complete 3G Circuit and Packet Core network, and is working with Nokia in a joint mobile internet applications laboratory called FutureLab to develop products and services for future telecommunications systems. Optus will apparently spend $900 million over the next five years establishing this nationwide 3G network. This agreement with Nokia appears to have put Optus in the driving seat, at least in terms of almost certainly being the first in Australia to provide a high quality commercial 3G network in Australia.

For Hutchison/Orange, 3G services will be marketed under a new global 3G brand to be launched by Hutchison Whampoa later this year. Marie Kelly says, "During 2001 Hutchison secured a number of key elements that will enable us to enter the 3G market early with a highly competitive cost structure and sophisticated service delivery platforms."

In March 2001, Hutchison acquired 2.1 GHz spectrum licences for $196.1 million. This allows them to operate a high-speed 3G wireless network in and around Sydney, Melbourne, Brisbane, Adelaide and Perth. The 1800 MHz spectrum licences purchased in 2000 covering the same areas will be used for additional capacity on the 3G network.

Mid-year, Hutchison entered into a strategic alliance with its parent company Hutchison Whampoa Limited and Telecom Corporation of New Zealand Limited (TCNZ). As part of the alliance, TCNZ acquired a 19.9% interest in Hutchison's 3G business in Australia and committed to provide equity funding of $400 million, with $250 million of that amount contributed on the formation of the joint venture. In July 2001, Hutchison signed a $830 million contract with Ericsson to supply the necessary technology. The new network is expected to have its commercial launch at the beginning of 2003.

This level of simply colossal investment is typical of the sort of money involved in acquiring 3G spectrum and then developing it.

Still, it's too early to define exactly what services 3G will offer, how many organisations and people will make use of them, and where service providers are going to make their money. With all of these unanswered questions there are surely more than a few in the telecommunications industry who are losing sleep over 3G.

For potential users of 3G the big question surely must be - is it something that I need? And additionally, do I want the services they are promising?

In spite of all the questions though, at the end of the day there may not even be a choice, as 2G and 2.5G will probably go the way of analogue and 3G will be the natural successor.

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