3G: Hard News or Hype?
By Stephanie Losi
www.WirelessNewsFactor.com, Part of the NewsFactor Network
January 3, 2001
Although 3G technology promises speeds of up to 384 kbps, a recent Yankee Group audioconference report said this theoretical speed won't translate into reality for many consumers.
In This Story:
Beyond the Buzzwords
3G Investments Increase
Trouble in Paradise
Speed Bumps Ahead
Convincing Consumers
Related Stories
The term "3G" gets thrown around a lot, but what exactly does it mean?
Wireless equipment and data providers have promised seamless wireless Internet access for years, but high connectivity costs, scarce bandwidth and not-so-scarce cellular dead zones have held back innovation and slowed consumer adoption of mobile technology in the United States.
Companies have predicted that third-generation (3G) services will break the data deadlock -- but although 3G technology shows promise, problems abound, and it will likely take longer than the companies hope for U.S. consumers to jump on board.
"Most people don't even realize what it is," Yankee Group analyst Sarah Kim told the Wireless NewsFactor. "This is a push from the supply side rather than demand from consumers."
Beyond the Buzzwords
In a nutshell, 3G is the set of wireless infrastructure and services that will succeed today's 2G systems, which are based on the Wireless Application Protocol (WAP) widely used in the United States and Europe. WAP's bandwidth limitations, combined with equipment problems such as small screens and digit-only keypads, have deterred consumers.
In contrast, the proposed 3G systems are based on technologies such as Wideband Code Division Multiple Access (W-CDMA) and the Universal Mobile Telecommunications System (UMTS) standard, which will allow wireless devices to send and receive data at speeds of up to 2 megabits per second (Mbps) while receivers are stationary, and at speeds of up to 384 kilobits per second (kbps) for mobile users.
3G Investments Increase
Many industry heavyweights are pouring money into developing 3G infrastructure and services, which promise to bring streaming video and CD-quality sound to mobile devices.
For example, Nortel Networks Corp. in December announced a plan to supply some US$350 million in wireless Internet infrastructure equipment and services to Deutsche Telekom's (NYSE: DT) T-Mobile International unit. The company also recently forged agreements valued at US$1.8 billion to establish European UMTS networks, and has partnered with Sierra Wireless, Inc. (Nasdaq: SWIR) and Xircom, Inc. (Nasdaq: XIRC) to build high-speed 3G wireless modems.
The U.S. airwave market, which has trailed its counterparts in much of Europe and Asia, is also heating up as telecom giants purchase spectrum for planned 3G services. The auction for wireless licenses offered by the U.S. Federal Communications Commission (FCC) reaped a record total of US$11.1 billion before a temporary halt for the holidays. The auction likely will end no later than January 20th.
Trouble in Paradise
But despite industry enthusiasm, real problems face companies that are trying to implement 3G services.
One major challenge is the high cost of new infrastructure balanced against consumer interest -- or the lack of it -- in the United States. While Japan and Europe boast rapid consumer adoption rates for wireless technology, U.S. consumers have lagged behind.
Several factors present unique challenges to U.S. wireless adoption, according to a survey by wireless communications firm Alexander Resources: a highly competitive business atmosphere; competitive technical standards; high rates of Internet access at home and work; and the high cost of wireless connectivity in comparison with low-cost wired access.
Speed Bumps Ahead
In addition, 3G's theoretical speed of 384 kbps won't pan out for most consumers when they use the technology in the wild, according to a recent Yankee Group audioconference report on wireless network evolution.
Because of these problems, some companies are pulling back from 3G and focusing on 2.5G technology in the near term, Yankee Group's Kim said. "After seeing the craziness of the auctions in Europe, there's a lot of skepticism" about how businesses will recoup their investment in 3G, she added.
2.5G technology will be based on General Packet Radio Service (GPRS), allowing data speeds of up to 115 kbps. It will complement existing wireless services rather than replacing them, which will make it much cheaper to deploy than 3G technology. Most 2.5G users will experience data speeds of about 56 kbps in real-world situations, the Yankee Group report said.
Convincing Consumers
Whether businesses choose to focus on 2.5G or 3G systems, they will face an uphill battle to win over consumers.
To overcome consumer apathy, companies will need to offer concrete incentives like free calls and lower prices, and they must remodel their pricing structures for a data-driven market, Kim said. "Companies talk about micropayments, but at this point there's no billing system to back that up," she added. "At this point the phone is really a toy."
For now, companies can hope that wireless Internet access might be a service people don't realize they need until they try it.
"Consumers don't think they want the wireless Web yet, but they will," said Patrick Callinan, a researcher with Forrester, in response to a Forrester study that showed U.S. consumers are apathetic about wireless technology.
After all, there was another technology that many people scoffed at until they tried it -- the Internet. And if you're reading this story, you know that story.
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