THE YEAR IS 2005 and high-speed, wire-free Internet has truly arrived. You are sitting in the back of a cab, stuck in traffic. But instead of fretting about time wasted, you are replying to urgent e-mails and holding a video conference using your small, wallet-size 3G (third-generation) phone. Wireless carriers have plastered images of such happy 3G scenarios on billboards where consumers can do practically anything from anywhere at warp speed. But for months now, the wireless industry has been back-pedalling on promises of 3G wireless technologies. And the speed of the next-generation network is expected to be much less than the promised 384 kilobits per second. Content and services are expected to be no more compelling than the ones being offered on 2.5G networks. Delays are almost certain, with 3G handset manufacturers pushing back 3G handset availability dates by two years to 2004 and 2005. In Hong Kong, more indications have surfaced that 3G will arrive later, as the SAR's four 3G licensees 'hum' and 'ha' on launch dates. The most bullish of the four, Hutchison Telecommunications, has not backed down on a 2002 launch. Hutchison managing director Agnes Nardi said plans were on track and a fourth quarter launch of its 3G network was expected. She would not talk about speed and services. SmarTone Telecommunications, Sunday Communications and CSL were much less willing to pinpoint launch dates and analysts expect Hutchison's 3G network to be the only one in Asia through this year and most of next year. Where 3G services were once seen as the Holy Grail for an industry battered by dwindling profits, more than one industry executive has recently notched down the rhetoric. 'There is a lot of noise around in the market about 3G. It is going to take time for it all to come together and 2004 is where we see 3G having an impact,' Bruce Hicks said, Sunday group managing director. Foong King Yew, telecoms analyst at Gartner Group, said: 'Operators do not need to rush into W-CDMA [wideband code division multiple access] as the technology will take some time to mature and there is little economy of scale in the early stages to really drive down handset prices. 'The slow take-up of NTT DoCoMo's Foma service was hampered by handsets with short battery life, expensive price tags for handsets, and limited service coverage. Operators who rush in early will likely encounter similar sorts of problems.' Doubts are also rising over the revenue potential of 3G when it does arrive. High-speed 3G networks were expected to enable new and compelling applications and services which would increase operators' declining average revenue per user. SmarTone chief executive Douglas Li said: 'We don't expect a huge lot from it. 3G is just a bigger pipe. It is quite clear now that in 3G you are talking no more than what we can do in 2.5G.' He said nothing more extraordinary than content and services already offered on GPRS (general packet radio service) networks such as ring tones and wallpaper downloads, multimedia messaging services, Java games and news and e-mail services would feature on 3G. How successfully operators in Hong Kong increase revenues from GPRS data services will serve to indicate how 3G will be received. According to market research firm International Data Corp (IDC), revenue generated by voice services in the Asia-Pacific region last year reached US$54 billion, compared with short-message service/data services revenue which brought in US$1.5 billion. For operators, wireless content and services are a double-edged sword - they have to create both demand and supply for services that previously did not exist. In addition to the high cost of rolling out 3G networks, they must shoulder the burden of stirring up demand that is not there. However, despite substantial investment in upgrading to 2.5G networks, mobile operators in Hong Kong are making only 3 per cent to 5 per cent in data revenues compared with a world average of 10 per cent according to Merrill Lynch. They believe the killer application to boost revenue is the multimedia messaging system (MMS). 'Multimedia messaging services are going to be very significant. It is a remarkable new form of communication and is the first step towards 3G,' Mr Hicks said. There are four MMS providers here: CSL, Hutchison, SmarTone and Peoples Telephone. Sunday will roll out MMS services in October when more MMS-capable devices are available and interconnection between operators is expected to have been achieved. SmarTone, which recently launched picture mail, an MMS service allowing subscribers to compose and send snapshots over MMS handsets, expects the new service to boost its data revenues from 2 per cent last year to 5 per cent by year-end. Hutchison, which launched an MMS in June and location services last week, said it expected to make 25 per cent of revenues from data services in three years. It claims to make 5 per cent to 6 per cent in data revenues. Gary Hong, research manager at IDC, warned that with voice services increasingly becoming a commodity, network operators probably will not be able to halt the decline in revenue per user by 2003-2004, even with the introduction of data services. So far, only operators in two countries have had success in creating profitable wireless services on 2G and 2.5G networks - Japan and South Korea. Operators there have been successful because, in the absence of clear demand, they opted to introduce 'low value' services such as cartoon characters, ring tones and simple wireless games to drive volume in the early stages - strategies operators here appear to be mimicking. However, Jeremy Green, principal analyst at research firm Ovum, pointed out that unlike Hong Kong, operators and handset makers in Korea and Japan were closely tied. Wireless services are successful partly because handsets were locally manufactured to take advantage of new features. Moreover, the high costs of 3G adoption will hamper uptake for several years. Hutchison Whampoa group managing director Canning Fok Kin-ning revealed this month that a 3G handset would be sold in Britain for less than HK$15,000, a proposed price in Hong Kong. Initial tariffs for 3G services are also expected to be prohibitive, whereas fees for 2.5G will drop to reasonable levels by the end of next year and 2004. 'There is no sign yet of a dual-mode 3G phone and initial [handset] prices are expected to be at least seven times that of 2G phones. As always, network infrastructure will be ahead of handset availability. The true promise of 3G can be achieved, eventually, but it will take between five and 10 years. It would be very naive to believe we can get there in the next few years,' Mr Green said. Mr Foong expects return on investments in 3G networks to take 10 years, maybe more. 'Consumers will be the most likely of initial adopters of 3G and they will be put off by costs. Businesses will be concerned with security and manageability of devices accessing their corporate networks and it will take longer to convince them about the benefits of mobility.' Graphic: anal24gbz
