News
Issue #2002 - 40 (October 2002)
(Updated Oct. 22, 2002)

MARKET OUTLOOK & TRENDS

Dismal Outlook for 3G Mobile Devices & Services

Source: News story written by Mala Nugehally, special to MobileInfo.Com

Reports from different corners of the world indicate a dismal outlook for 3G mobile devices and services for the coming year. Down from original expectations, the 2003 forecast for worldwide 3G device sales is 432 million units. In spite of strong performances by companies such as Verizon, T-Mobile and Nextel, analysts are pessimistic and predict an impending WorldCom like debacle that will impact the sales of companies like AT&T Wireless and Cingular. The gloom in the 3G sector is expected to impact other industry sectors such as WLAN developers also. Already, Proxim announced a lower than expected revenue for the third quarter. 

With both Asian and US carriers sharing this pessimism in the timeline for implementing 3G services, handset manufactures have come together to brighten prospects for this industry by conducting a public campaign to boost investor and consumer confidence in 3G services. Qualcomm has made major strides in these efforts by committing to develop and deploy new and enhanced 3G services and entering into new partnerships with other manufactures that employ Qualcomm-based technology. But based on the success of e-mail in South Korea, some analysts are placing their bets on this to be the killer app that will unleash a flood of 3G devices into the market and help boost handset sales. 

Source: Julio Caraballo - jcarabal@syr.edu

3G Report from UMTS Conference in Europe - courtesy http://www.3g.co.uk

Third-generation mobile networks, hailed as a source of revenue beyond imagination just two years ago, have become a millstone around the necks of many carriers worldwide. Financial migraines and technology-development crises aside, participants at the UMTS Mobile Internet Conference here this week are beginning to voice the unthinkable: that there is no compelling reason today for customers to gravitate toward 3G.

Power consumption in 3G handsets has led operators to question the applications they will be able to offer. The industry appears to have written off two-way video communication, for example, as totally unrealistic. "Video streaming on a handset simply kills the battery," said Nick Hunn, managing director of the French company TDK System. Moreover, said Hunn, evidence from NTT Docomo in Japan, which became the world's first operator to offer 3G services last October, suggests the multimedia bells and whistles that handset vendors are conjuring might draw a big yawn from users. A recent Docomo report, he said, shows that after only two months of owning a 3G handset, many people stopped using picture messaging. "We must realize that 3G is largely irrelevant to the users," Hunn said.

On the carrier side, meanwhile, "It's getting ugly," said Richard Siber, a partner at consulting firm Accenture and a keynote speaker at the UMTS conference. "Carriers are caught in a very vicious cycle." Many carriers all over the world are on the verge of bankruptcy, Siber said, while other operators need money to maintain their present networks and build new infrastructure, at a time when the capital market has closed up. Vendor financing is no longer an option, he said, since equipment makers are "in an even worse boat" than their carrier customers. 

Siber believes consolidation - among both operators and equipment suppliers - may be the only remedy left. "Within a year, Nortel, Lucent and Ericsson won't exist in the current form, and one of them will be de-listed from the stock exchange," he predicted. Siber also expects that the count of 20 U.S. wireless operators today will shrink to four or five through consolidations within a year or so. 
Even more provocative was Siber's suggestion to carriers that just sank a fortune into 3G licenses: "You'd have to ask yourself what your true asset is." Although most chief technology officers working for carriers tend to see the network as key to their success, that may be no longer true, he observed. Carriers should take a harder look at outsourcing services that are not in their core competency, at sharing their network with others or even at reselling their own network, Siber said. 
Indeed, such examples are already beginning to pop up in Europe. British Telecom has sold its debt-laden mobile business to the Dutch company MMO2 but is getting back into the wireless business in a different way - through 802.11 gateways, which require no capital in acquiring spectrum, Siber said. Meanwhile, MMO2 has outsourced its whole wireless network to Ericsson, which is in charge of designing, building and running the network, he added. "In order to be successful in the wireless business, in many cases, you don't even have to own a network," said Siber.

What happened to 3G rollout?

Frustration was evident everywhere at the conference over the almost nonexistent large-scale commercial deployment of 3G services. European rollouts have been slow in arriving, and even in Japan, NTT Docomo has been disappointed in the number of subscribers signing up for the world's first 3G offering: 400,000, instead of the 1.4 million subscribers the carrier had hoped for. 
The major reason is limited service coverage, said Yukitsuna Furuya, general manager of mobile-terminal core technology development at NEC Corp., but he also acknowledged a shorter standby time of 3G handsets compared with the current crop of mobile phones. Handset vendors are racing to prolong both standby time and talk time for wideband-CDMA phones through a new generation of ICs. 
In Europe, meanwhile, operators are blaming the slow rollout on handset vendors' lag in delivering 3G models, while the handset manufacturers in turn point to the operators' inability to stabilize the 3G infrastructure. Furthermore, cash-strapped 3G license holders "appear to be doing everything they can to slow down the rollout of their 3G networks," said Yair Shoham, general partner of venture capital firm Genesis Partners (Tel Aviv, Israel).

Hutchison Telecom is scheduled to launch commercial 3G services in the U.K. and in Italy before the end of this year using Motorola handsets, said Bob Schukai, Motorola's director of 3G product marketing, who is responsible for Europe, the Middle East and Africa. Motorola's 3G handsets have been in testing throughout this year and have already been delivered to Hutchison, he said. "Our hardware is done, and the handset is the least of the problems." 

Infrastructure in progress

Schukai acknowledged that Motorola could have sold hundreds of thousands of handsets this year "had we completed the infrastructure testing sooner." He added, "The biggest challenge for us is the handoff issue, because not every infrastructure is built the same way." For a handset vendor, operators such as Swisscom are easy to deal with, Schukai observed, because Swisscom uses Ericsson's network equipment throughout its network, including 2G, 2.5G and 3G installations. In contrast, Hutchison, for example, uses both NEC and Nokia network equipment within its 3G infrastructure. 
Meanwhile, Motorola's 3G handsets still need to talk to other carriers' GSM networks, which may be based on Nortel or Ericsson network equipment. Consequently, "the number of test cases we need to run for our handsets just exponentially grows," Schukai said.

The multibillion-dollar question that went unanswered at the conference was how stable the 3G network infrastructure is today and when it will become fixed. "The technology is the problem" keeping 3G from volume rollout, said Brian Modoff, director of Deutsche Bank Securities Inc.'s North America Equity Research. While many 3G handsets, including Motorola's, are built in accordance with the June 2001 version of the Third Generation Partnership Program standard, called Release 99, some of the new basestations are based on the March 2002 version of Release 99. "They won't work together," said Modoff. "This is a logistical nightmare" for carriers, he warned, because a massive recall of 3G handsets may be inevitable. 

Moreover, many European carriers are extra cautious in the wake of their misadventures with the Wireless Application Protocol. "We already have a series of technology launches that have failed in the eyes of consumers," Motorola's Schukai said. "We can't afford another failure like WAP." 
Timely test

NTT Docomo's reports of consumer indifference to 3G's multimedia capabilities is also making many operators in Europe nervous. While snapping a picture and sending it, or streaming a short video file, remain very much a part of the 3G application scenario, Motorola's Schukai warned that "we should avoid 3G features that are simply designed for PR stunts." For example, the streaming-media (video or music) application that sucks the life out of your battery is just not happening yet, observers said. Low-res pictures and voice, along with some pretty shabby MP3 files, are about as far as 3G goes at the moment. 
Also problematic, said Schukai, is the digital-rights management issue. A DRM algorithm must be integrated into handsets as well as into the infrastructure to safeguard valuable digital audio and video content, but the industry has yet to agree on a standard approach. "Once users download a music or video clip onto a memory card in a handset, content walks, and spreads over the Internet," he said. 
To reach the mass market that carriers covet, Schukai said, "It's our belief that 3G must do one of the following two things very well: It must be good at either saving time or killing time." So far, the technology has shown no clear edge in either.

MobileInfo Comments and Advisory: The two press reports from 3G.CO.UK website and summarization from Julio Caraballo pretty well give us a good picture of what is going on. Network vendors and carriers will continue to put on a brave face and prop up their technologies but the market and user community have given their "short to medium term" verdict. We feel that the real problem is with the real 3G and not with so called 3G  (we mean 2.5G or 2.75 G - GSM/GPRS, CDMA 1xRTT, CDMA 2000EV, etc.). Network providers must move on to these interim networks - there is definite need for upgrading both for voice that is getting saturated and much more for data applications that are just starting and are very elastic.  Network providers' wish for MMS-type consumer applications will have to wait till good times come around. The applications where we expect the carriers to succeed with are wireless gaming, entertainment and location-based services like giving directions, restaurant booking, etc. We are appalled by most carrier's' apathy to the enterprise market. Perhaps Sprint of USA could show them the light. 

By and large, for the moment, hybrid networks using 2.5G plus public-shared WLANS networks will meet the needs in an economic fashion. The true 3G technology must also adopt to newer realities of these hybrid networks, competing technologies like Flash-OFDM from Flarian, IBurst with Smart Antenna from ArrayComm and others.

As far as 3G handsets are concerned, are they not a means to achieve 3G usage? If users want 3G applications, there will be enough 3G handsets. That usage is the only thing slowing arrival of 3G handsets.

On top of all these factors, spectrum allocation diversity in different regions of the world must be kept in mind. Therefore, we expect virgin regions of Asia, Japan and less-virgin Europe have better chance of succeeding with 3G than "spectrum-corrupted" North America.

To enterprise IT professionals, we suggest that they should continue to pursue wireless and mobile projects on selective and business-case basis. There is plenty of opportunities to improve business processes and worker productivity. Just ignore the intricacies of "to 3G or not to 3G"  debate. Let carriers sort that one out. There are pretty intelligent heads to figure it out.

3G is not dead. 3G has just slowed down - may need rerouting. 

Note: This news release may contain forward-looking statements. Readers should take appropriate caution in developing plans utilizing these products, services and technology architectures.  All trademarks used in this summary are the property of their respective owners.