Next Big Issue for European Mobile Operators

Europe : The rising popularity of mobile phones is likely to force the next big issue for European mobile operators: the economics of adding capacity to ease traffic and congestion. "The European wireless operators have a number of ways they can increase network capacity but there are costs associated with each," said European wireless analyst, Fanos Hira of Bear, Stearns International Limited. "How the wireless operators tackle this issue is likely to become a big focus for investors over the coming year."

Most European wireless operators currently use so-called 2G network technology to carry signals. As traffic increases, operators can ramp up capacity by adding more carriers. But according to the report Wireless Network Economics: If, When, Why, What? while adding capacity through carriers is initially inexpensive, it eventually becomes a costly alternative to adopting new 3G technology. "Wireless operators can continue to build capacity by adding carriers and other features, but there are limits to how much capacity can be added," said Hira. "The benefits are also likely to be short-lived. 2G simply won't be able to keep up with growing voice and data demands of new mobile phones on the market."

3G adoption, however, is no cheap alternative. Operators would have to make big initial investments into building radio coverage, support networks and service platforms. While the investment could make economic sense for key dominant players, the move may prove too costly for cash-strapped operators that lack scale. "As long as operators can build on current technology, it's very tempting for them to ignore 3G, but they risk being left behind," said Hira. "Those operators that invest in the higher quality network will be able to provide users with greater features and are most likely to succeed."

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