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After false starts, 3G mobile service set for take-off

BY REUTERS

http://www.itweb.co.za/sections/telecoms/2004/0411190957.asp?S=Reuters&A=REU&O=FRGN

[Hong Kong / Reuters News Service, 19 November 2004] - With most technical issues resolved and giants like Vodafone signing up customers, 2005 could be the year when third-generation (3G) mobile services finally gain a global audience.

For carriers in Europe, the start of commercial services offers a chance to begin recouping 3G investments that included more than $100 billion on spectrum licences and billions more on network upgrades and development of applications.

As evidence of the big expense, the Australian unit of Singapore Telecommunications and Vodafone said on Friday its 3G mobile network would cost up to A$1 billion ($781 million).

The search continues, however, for revenue-spinning "killer applications" to take advantage of the technology's multimedia capabilities.

Signs of building momentum for the technology have emerged with growing frequency in recent months, with the launch of services by big carriers, entry of new players into the equipment market and the rapid proliferation of 3G capable handsets.

"It looks like 3G has arrived," said Francis Cheung, Asia telecoms analyst for CLSA. "There are plenty of handsets now on the market and lots of commercial service launches already. There are 54 networks already operational and at least that many more will be operational by next year."

All three of the top global phone makers -- Nokia Oyj, Motorola and Samsung Electronics -- and many second-tier players now offer 3G handsets, eliminating a shortage that had hampered early launches. Many were on display at the 3G World Congress in Hong Kong this week.

New markets

Launches by Vodafone and Hutchison Whampoa in Europe, and the imminent introduction of services by France Telecom's Orange and Deutche Telekom's T-Mobile, have extended the reach of 3G from its established bases in Japan and South Korea.

Applications are springing up to take advantage of a technology that can transmit hundreds of kilobits of data per second, with television programmes and music videos proving popular downloads in South Korea.

Vodafone will offer a spin-off of the hit television series "24" on its 3G network beginning 30 January, offering 24 one-minute episodes for downloading to phones.

"The applications are promising, but we don't have one decisive driver of growth yet," Cheung said.

Service take-up has been encouraging in Japan and Korea, the earliest markets to adopt the technology.

Japan has 23.5 million people using 3G, while Korea has 9 million. Hutchison had 3.2 million in Europe and Hong Kong as of mid-August.

NTT DoCoMo's 3G service struggled when the Japanese pioneer launched it three years ago, but it has recently gained traction and now accounts for about 15% of DoCoMo's 47.5 million mobile customers. Rival KDDI Corp has done even better, persuading 87% of its customers to switch to 3G.

"We struggled right after we launched because the coverage area was small and the phones' battery life was short," a DoCoMo spokesman said. "But we made improvements, started an attractive pricing scheme, launched better phones and now we're growing steadily."

He added that DoCoMo expects to have about 10.8 million 3G customers by the end of March.

Spend more

If existing markets are any indication, 3G should persuade users to spend more on their mobile services.

As of June, average revenues per user (ARPU) for 3G in South Korea were $51 per month, more than twice that for 2G services, according to International Data Corp.

In Italy, where Hutchison Whampoa launched last year, the average customer spends about 35 euros a month, compared with 25 euros for voice-only customers, a spokesman said.

"The acceptance of 3G services has been extremely positive," he said. "Nowadays, at least half of our clients use a 3G service every day."

Higher spending is crucial if companies are to recoup their investments. Even the industry's cheerleaders say it will be a long slog. Jean-Pierre Bienaime, chairman of a forum representing 3G carriers using the WCDMA standard, said it would take operators six years to turn a profit, the South China Morning Post reported yesterday.

The switch to 3G promises big bucks for phone makers facing slowing growth in sales, as handsets typically cost more than simpler 2G units.

Motorola plans to make about 16 WCDMA handset models next year, double the number it is offering this year, said Ron Garriques, newly named president of the company's handset division.

(Additional reporting by Yukari Iwatani Kane in Tokyo and Lim Moon-kyung in Seoul.)