The Case For 3G

It's without doubt the biggest individual telecommunications project the world has ever seen. Representing billions of dollars of investment from hundreds of the world's mobile network operators and equipment manufacturers, Third Generation (3G) Mobile will soon bring high quality multimedia services to people everywhere. 3G networks, implemented in many territories by holders of UMTS licences, will be a giant leap forward from today's second generation (2G) networks as we move from voice communications to a rich interactive multimedia-based personal and business environment - the complete Wireless Information Society experience.

Enabling "any time, any place" connectivity to the Internet is just one exciting possibility, but it is important to note that 3G brings much more than just mobility to the Internet. The major market opportunity builds on the unique characteristics of mobile to provide group messaging, location-based services, personalised information, and entertainment experiences. Many new 3G services will not be Internet-based-they will be truly unique mobility services. With the world's first 3G networks already up and running - most notably NTT DoCoMo's FOMA system in Japan - we are on the brink of an explosion in high-value services and applications for consumers and businesses everywhere - and many of them are going to be m-commerce enabled.

Presenting the business case for 3G

Acknowledging the substantial investments in network infrastructure and the high cost of licensing in some countries in Western Europe, the market opportunity for 3G is nevertheless massive. There will be more than a billion mobile users by the year 2003, and more than 2 billion within the next 10 years. Users of 3G technologies will be empowered by communications as never before to be able to do anything, anytime, and anywhere. And with growing mobile penetration thanks to the extended appeal of 3G's increased speed, capacity and value-added capabilities, service revenues will grow even more spectacularly.

An ongoing series of studies into the service revenue opportunities over the next decade for the third generation mobile market conducted by the UMTS Forum predicts a Compound Annual Growth Rate for three key 3G services - Customised Infotainment, Mobile Intranet/Extranet Access and Multimedia Messaging - of over 100 per cent during the forecast period, with total annual revenues for these three services of over US$ 164 billion by 2010. This partial forecast is impressive when compared to current worldwide totals for ALL mobile cellular service of about US$ 270 billion. In other words, revenues driven by 3G services and applications will amount to something more than half of today's gross revenues for all mobile traffic. Most dramatically, the UMTS Forum's forecasts predict that operator-retained revenues from 3G data services worldwide will represent a cumulative market opportunity worth as much as US$1 trillion globally over the next decade.

UMTS Forum Market Forecasts: key findings

Total operator-retained annual revenues of over $300 billion for 3G services by 2010
In 2010 the average 3G subscriber will spend about $30 per month on 3G data services
Non-voice service revenues will dominate voice revenues by 2004 and comprise 66% of 3G service revenues by 2010
Asia Pacific represents the single largest total revenue opportunity - reaching $120 billion in 2010
Europe and North America will provide the highest annual revenue per head of population ($150 - $200 per year).
All figures expressed in US dollars ($)

But who will be the users of this technology, and how will this be reflected in the overall revenue picture in years to come? Thanks to the strong appeal of 3G's speed, capacity and interactive capabilities, service revenues will grow spectacularly in consumer and business market segments alike over the next decade. Just as significant in the scale of this growth over the next ten years is the shift in emphasis: network operators today capture around 90% of mobile market revenues, dominated by the income they earn from voice-based services. It is widely recognised, however, that advancing technology, growth of Internet services and new end-user demands are challenging this traditional value chain. The new, fast changing value chain will have new players and entities, and many network operators are already adopting new business strategies to broaden their role and to defend their competitive position. The multimedia content and service providers will be key players in the multimedia value chain. Revenues will increasingly be diverted to other market players than the traditional.

What will these new services be? An empirical evaluation of the likely perceived value of next-generation mobile services by the UMTS Forum affirms that the emergence of a single "killer application" is unlikely. Instead, we can expect to see the emergence of a "killer cocktail" of services, with the distinction between business and consumer services blurring. As well as high-quality voice and video communications, the speed, capacity and resilience of 3G will enable everything from m?commerce and wireless access to corporate intranets to streaming music and video on demand, on-line gaming and even gambling.

Significantly, we will see the emergence of a new tier of location-based services, enabled by network's ability to overlay geographical information onto subscriber data. The location-specific services will include navigation, "local experts", traffic news and emergency services, plus highly localised information and entertainment services. With 3G, there is no reason why tomorrow's mobile subscriber could not download a language translator as he or she travels overseas to read the menu in a restaurant, before calculating the bill and paying for the meal in local currency using their handset's m-commerce capabilities to conduct the transaction.

New Business Models and A New Value Chain

As the mobile space welcomes the arrival of many new exciting players - from media owners and games developers to providers of banking, health, leisure and financial services - the key to success lies more than ever in partnerships. And as mobile networks become conduits for commerce, network operators are forging relationships with these entrants, creating dynamic new models for revenue sharing and customer care.

The role of new players will become increasingly significant in this trillion-dollar opportunity. An example of this is the Mobile Internet Service Provider, whose role will extend beyond that of the current fixed-line ISP to deal directly with roaming users as they travel around the world. Mobile ISP's will connect people with personalised information and specialised services that have no clear equivalents on today's fixed Internet. In particular, an "Access Focused Approach" business model is contrasted with a "Portal Focused Approach" model, corresponding to different positions on the value chain and providing a distinct way to model service revenues.

New revenues will flow from Web and Intra/Extranet access, infotainment, data services, location based services and 'rich' voice. All will serve to stabilise and reverse the trend towards diminishing ARPU's (Average Revenue Per User) faced by voice-only operators today.

A Shift in Focus: Mobile Multimedia Portals

Another crucial business enabler and a shift away from today's paradigms of Internet and voice communications will be the emergence of the Mobile Multimedia Portal - a new approach to personalised content management. Through this portal, new ways will be created for individual users to manage and control vast amounts of information from many diverse sources in order to fulfil their own objectives and interests. The convergence point for supply of information and entertainment, and the demand from the end users, the Mobile Multimedia Portal will be the preferred point of entry into all IP-based services and content, and will define the space where the customer interacts with the entity that provides the services. The portal presents a huge market opportunity for strong customer relationships that are essential to competitive success in the new Internet-enabled environment.

Whereas traditional fixed portals are designed to provide a mechanism to organise information delivery to specific market segments, the mobile portal will be oriented towards individual users to reflect their needs of secure and robust access in changing locations and circumstances. Using an intelligent IP-access platform with dynamic service selection capabilities, the portal owner can provide personalised location-dependent services that are tailored to the mobile users' individual requirements and choices. This type of personalised portal allows the customer to select, subscribe to and configure all type of services.

The Mobile Multimedia Portal is not restricted, as is the case with a "traditional" web-based portal, to the Internet itself. Instead, it operates on a higher level in the control chain, providing access to and selection of all IP-based services, including, of course, the World Wide Web. Other services managed by the portal will come from audio providers, television broadcasters and video content providers, application service providers (ASP), operators of "yellow pages" local directory services, advertising companies - and from the portal owner itself. For the customer the portal will be a personalised home page, whose intrinsic "stickiness" will play a vital role in managing customer churn and building brand loyalty to the portal provider. The importance of local content in this mobile portal environment cannot be overstated: by aggregating a whole host of personal, personalised services tailored to the individual's information and entertainment needs, content will be geared heavily toward local culture and language.

As this portal-based approach to content management and service delivery emerges and matures, terminal design will also evolve as the breadth and complexity of service types and data formats and user interface requirements itself expands. In the initial phase of service launches, third generation terminals are most likely to mimic existing designs, reflecting the predominance of voice-centric applications. This functionality will be augmented by the inclusion of some form of microbrowser to support access to the Internet and IP services, as exemplified by today's WAP and i-mode handsets. Inside, of course, new radio elements will support higher speed data transmission, via various access modes within the W-CDMA standard that has been selected by ITU member states as the basis for third generation's radio element. For access to the Internet and World Wide Web, early adopters will link their existing PDA or notebook computer to their phones for access to 3G applications.

Just as devices that support MP3 for the audio market will soon be added to existing phones, with advances in mobile audio and video streaming technology will result in the appearance of specifically designed devices to support these applications also. Then as more markets introduce 3G networks in Asia as well as Europe and other world markets we will begin to see more differentiation in style and design as manufacturers produce terminals optimised to differing users' lifestyles. One thing is for sure - the 3G terminals of tomorrow will be infinitely more varied in terms of size, shape and appearance than the commodity phones of today.

As this portal-based approach to content management and service delivery emerges and matures, terminal design will also evolve as the breadth of service types and data formats and user interface requirements expands. 3G terminals, however, will not displace today's mobile handsets overnight. The current average global replacement rate is close to 50%; meaning that mobile phones are replaced by most users once every two years. On the basis that this industry average replacement is unlikely to increase dramatically - particular as the first 3G terminals will in all likelihood carry a price reflecting their premium positioning, it is still possible that the majority of users worldwide will be using 3G terminals by 2006 or 2007, with a consequent impact on the faster development, roll-out and adoption of 3G applications.

Towards A New Value Chain

The revenue potential that UMTS/3G presents to the whole world is enormous. Operators face a number of challenges to adapting to the totally new business models that 3G presents, best characterised by a paradigm shift from "single service" delivery as exemplified by voice to a rich portfolio of services. Success with 3G for all world regions will also depend on the forging of new partnerships and interdependencies between all players in the mobile value chain - from operators and MVNO's (Mobile Virtual Network Operators) to service providers, content developers, banks and other commercial partners. Through the work of its expert groups, the UMTS Forum continues to inform and support the work of governments and all industry players as they come to terms with the ramifications of this new, as yet untested value chain and business model.

While third generation may yet exhibit a faster growth curve than GSM, we must retain a realistic view of the enormous inputs and resources required by all sectors and all countries of the world to assure its global success. We must temper our natural enthusiasm for the new and futuristic with patience, foresight and careful planning - and in time our investment will be repaid with benefits to all the world's citizens that will far outweigh the technical, regulatory and political cost already incurred.