Will 3G ever take off?

—— Forwarded Message From: Shiuman Ho Date: Wed, 19 Jun 2002 08:41:41 -0700

Let’s look at a back-of-envelope calculation of the ROI. If the carrier can magically come up with a millions subscribers for 3G services, each paying 45 pounds a month, then the carrier might make, say 60% gross margins, or 27 pounds a month per subscriber. With an 8 billion pound investment, any “incidental” acquisition cost (say 200 pounds per sub) will be inconsequential, so let’s forget that.

So we take 8 billion pounds, and divide it by a million subscriber each contributing 27 pounds a month to pay for the investment. It will take 25 years to pay it off. It’s a bit like a mortgage on a house. “Three hundred easy payments…and 3G could be yours!”

Of course, I have deliberately ignored the effect of churn and any other operational costs.

As for the consumer, why would anyone download large video files to the phone? I can see people surfing and sending and receiving messages, but 20 MB of data? What kind of memory chip will I need on the phone? For most people, 2.5G will be totally adequate. Or they will simply fire up their light weight laptop, and use 802.11 (except us, of course).

Shiuman

======================================================== http://www.timesonline.co.uk/article/0,,5-331266,00.html

June 19, 2002

3G charges cast viability doubts By Nic Hopkins

CONCERN over the viability of third-generation (3G) mobile phone services deepened yesterday when mmO2 indicated that consumers would have to pay almost £530 a year for high-speed mobile internet access.

That is how much mmO2, formerly BT Cellnet, estimated it would cost the average residential customer to use all the functions expected to be available with 3G, such as downloaded music and video, gaming and financial services. Business customers could be charged up to £80 a month, the company said.

MmO2, which operates the O2 brand, is the first European telecoms company to put a provisional price on 3G services.

MmO2 is one of four companies — the others are Vodafone, T-Mobile and Hutchison 3G — that paid billions of pounds to the Government for 3G licences.

Many analysts believe the huge investment in 3G will never be fully recovered, a factor that has contributed to the collapse in telecom and technology shares. MmO2 alone will spend a total of £8 billion on 3G, including the £4 billion it spent on buying a licence.

A spokesman for mmO2 said the cost of using a 3G phone could be justified because 3G services would provide an alternative to existing consumer spending patterns. “Somebody who walks into a shop to buy a magazine today might buy it on their mobile, or somebody who sits in a pub on the slot machines might use their mobile phone for gaming,” he said.

But Dan Stillit, an analyst at UBS Warburg, said: “They’ll be asking the consumer to spend £44 on top of what they already spend, which ends up being quite a lot of money, so use is going to be limited to higher-end customers at first.”

Other observers believed that the mmO2 revenue forecasts were conservative. Mark Lovell, a spokesman for T-Mobile, formerly Orange, said: “We would be quite disappointed if that’s all we could generate in earnings from each customer, bearing in mind all the services available to them.”

The rollout of 3G around the world has been beset by technical glitches and a shortage of handsets. Handset makers are beginning to unveil early models of 3G phones, which are expected to cost between £150 and £220.

MmO2’s pricing prediction came after months of trialling free 3G services with customers of Manx Telecom, its subsidiary on the Isle of Man. The company revealed a set of tariffs for the trial which focus on “bundling” services into packages aimed at different customers.

The basic consumer package offers 20 megabytes (MB) of data to be downloaded at a cost of £25 per month, with a further £1 for every additional megabyte. The top-level business package allows for 100MB per month for £80, plus 50p for every additional megabyte.

MmO2 said the final bill will vary from the basic packages and business customers “can expect to pay just over £80 per month and small and medium companies between £60 and £70”. Customers who use the simplest for of 3G services would spend about £9 per month.

Rivals in the highly competitive sector refused openly to discuss their pricing policies, but they privately pounced on the “bundling” strategy, arguing that it was unlikely to be popular with customers.

“We will almost certainly adopt a pay-as-you go strategy because we think consumers will need to get a taste of what they’re getting before they’re willing to commit to a certain amount per month,” said a spokesman for another mobile services provider.

The National Consumer Council (NCC) said “bundling” of services in one package “is not the most consumer-friendly policy because it puts all services into one package when they may only want one or two”.

An NCC spokeswoman said: “Evidence suggests that consumers are showing a reluctance to embrace the new technology and need a gentle push. Requiring them to spend £44 for the full range of services might not be the way to do it.”

A survey by Detica, the IT services group, this week indicated that almost half of respondents were not interested in using 3G services and only needed their mobile phones for voice calls.

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