Firms express mixed feelings as ministry readies 3G license sale
May 26, 2003 (New World Publishing via COMTEX) -- All of Hungary's three mobile phone providers breathed a massive sigh of relief when the last government scrapped plans to sell licenses for the 'third-generation' UMTS mobile networks, citing insufficient demand. Companies in other countries have encountered numerous problems in preparing to offer the service. Now, two years later, the use of the high-speed technology - which is currently being initiated in Austria - appears to be back on track. Speaking at Ericsson Hungary Kft's Professional Day in Budapest last week, IT and Telecommunications Minister Kalman Kovacs revealed that the government will get the 3G ball rolling by the end of the year, when a decision on licenses can be expected. According to Kovacs, 3G is beginning to enjoy more credibility across Europe after a few teething troubles. He added that to hold back any longer, while the rest of the continent forges ahead, would leave Hungarian consumers and providers in the lurch. Westel Mobile Rt, Pannon GSM Rt and V.R.A.M. Rt (Vodafone Hungary) are unlikely to welcome 3G with open arms, given that the 3G story in other countries has not been a happy one. (A rare exception is Japan, where people are already talking about 4G.) The first potential problem area is the issuing of licenses. Hungary's operators will be praying that they are not auctioned off at the astronomical prices that have resulted in a number of mega-value write-offs in other parts of Europe. Only last week, Europe's fifth largest operator, U.K.-based mobile operator mmO2, wrote off a whopping GBP9.7 billion from the license it bought three years ago. Meanwhile, anticipated demand for the product has remained at a low level, barely making it worthwhile for mobile providers to splash out on the networks. Whatever the dangers of 3G, Hungary must implement it soon, executives from Ericsson Hungary have said. Hungary is slipping behind just about everybody in the 3G race, they warn - including countries that are farther behind it in the EU accession race, such as Romania. Consequently, Ericsson says, the software industry could lose out on providing the content for a whole new industry. Things are already under way in the Czech Republic, where two of the three operators currently hold UMTS licenses. EuroTel and T-Mobile each have to pay 3.5 billion Czech korunas (112 million) for the licenses, to be paid over 20 years. Third-generation services will most likely be launched at the end of 2004 in the Czech Republic. They will start in Prague and possibly Brno, later moving onto other population centers. The licenses stipulate that operators provide 90% coverage in Prague by January 2005. Analysts do not expect the service to take off overnight in the Czech Republic, saying the high prices of handsets are likely to deter many potential new users. Sooner or later Meanwhile, some say that Hungary's tardy embrace of the much-hyped 3G technology could work in its favor, as the mistakes and lessons learned from other countries filter through. Another advantage of waiting a while before launching 3G is that the price of handsets may fall in the meantime. Pannon's Deputy CEO Gyozo Drozdy said Hungary should avoid throwing itself headlong into a rapidly evolving industry that will require constant new investment to keep abreast of technology changes. Instead, he argued, it should wait for the introduction of the universal standard, to be called WDCMA, which will be available from 2005. In this way, he said, investment burdens will be reduced. However, Zsolt Monszpart, deputy CEO of Ericsson Hungary, defended the investment that 3G requires. Contrary to popular belief, according to Monszpart, a 3G network is more cost-efficient to build than that of a 2G GSM. He said that in neighboring Austria it cost a mere 25 per user to get the system up and running. Indeed, the system is already operating well in Ericsson's home country, Sweden, according to Thomas Sidenbladh, deputy president of Ericsson's UMTS division. There are independent 3G networks in four cities, while the rest of the country is shared through national roaming, he said. Westel CEO Andras Sugar disagreed, warning that to launch 3G in Hungary will not be as cheap as in Austria. He argued that a huge investment of four to five times the cost of GSM networks is needed in Hungary in order for the new technology to compete with so-called 2G and 2.5G. Sugar remained adamant that 3G is not urgently needed in Hungary, arguing that consumers are already spoilt for choice when it comes to quality service. He added that whatever is decided now will have huge implications for the future. "What we do now, we'll have to live with for 15-20 years," he said. Nevertheless, he predicted that 3G will be operating in at least Budapest by 2005. Cutting edge Meanwhile, Pannon is looking at introducing an alternative known as EDGE, which could act as a bridge between the 2.5G GPRS (currently used by all three operators for their multimedia services) and 3G proper. EDGE is an extension of GPRS technology, though in trials it rattled off speeds of up to five times that of GPRS, according to Jozsef Huszlicska, chief technical officer of Pannon. He said EDGE will be able to satisfy 95% of customers' data needs for the foreseeable future. Of Pannon's current network, 30% is compatible, which Huszlicska said will mean that this route will cost Pannon somewhere between $1 million and $10 million over the next few years - less than the cost of going straight to 3G. It will also bring the company an excellent opportunity to test the market to see how much demand there really is for high-speed data, he added. One scenario Huszlicska envisaged is that when 3G comes to town, EDGE will be used as an umbrella service for the entire country, while pure 3G will kick off in population hot spots. Pannon is working together with Nokia on this. If tests are successful both on the technical and consumer side, EDGE could be available by the end of the year. All this represents a strategy change for Pannon, which previously downplayed the importance of data services. This is a timely change, according to Huszlicska, who acknowledged that data is becoming much more significant. Concerning fully-fledged 3G, he held that companies are still unsure how much revenue the service will bring, meaning that it will take a year to get indications from other markets as they go 'live' with the service. When talking about Hungary falling behind its neighbors, Huszlicska simply replied: "Falling behind in what?" To buck up the mobile providers and their profound lack of enthusiasm for 3G, IT and Telecoms Minister Kovacs hinted during the Ericsson conference that a fourth provider might enter the scene. However, he emphasized that his ministry's priority is to ensure wide availability of 3G to consumers, and that maximizing the license fee may not be the way to go about it. Which could prompt another sigh of relief from Hungary's mobile operators. Tech Talk is a regular BBJ column reviewing technical novelties and gadgets that are supposed to make life easier. Robert Smyth can be contacted at robert.smyth@bbj.hu
By Robert Smyth
Budapest Business Journal
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