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Michael Logan

Slim 3G handset knocks rivals off their perch

The prospects for third-generation (3G) mobile-phone services have brightened dramatically, thanks in large part to a slim handset manufactured by South Korea's LG.

Hutchison Whampoa, which will unveil interim earnings on Thursday, is expected to report an additional 1.57 million global 3G subscribers, for a total of 3.3 million and up from 1.73 million in May.

Analysts attribute subscriber growth to the LG phone, which is lighter and has a longer battery life than its bulky and lethargic predecessors. These features have helped to break down consumer resistance, giving 3G technology a bigger audience beyond the early adopters.

'I do think the subscriber growth has accelerated with the new LG handsets,' CSFB analyst Peter Hilton said. Mr Hilton is one of several market watchers who have grown more positive about Hutchison's 3G services in recent weeks.

Some of the early complaints about 3G were that the phones were too heavy and the batteries went flat  after just a few hours of use.

The A835 Motorola,  for example, weighs 172 grams and has a battery life of just 120 minutes of 'talk time' and 70 minutes of video time. By comparison, most 2G phones are about 60 grams lighter and can provide six hours of talk.

Earlier this year, Hutchison priced the A835 at HK$498 to entice consumers, and also dropped its minimum tariff to $123 a month.

But selling 3G phones at 2G prices was not enough to  bridge the glaring performance gap.

Hutchison has since dropped the A835 promotion and is  aggressively pushing the LG handset. The clam-shell model weighs 126 grams and offers 140 minutes of talk time, 100 minutes of video time and 120 standby hours.

'The latest LG ... model appears to be the best-seller among all 3G models due to its reduced weight and [longer] battery life,' Macquarie analyst Cusson Leung said.  He said the release of the handset represented a turning point for the company: 'The worst is over for 3G.'

The LG phone did not completely close the performance gap with 2G models, Mr Hilton said, but the phone was attractively priced at $1,680, and the monthly tariffs were in inexpensive as well.

What it added up to was a good 'value proposition' for the user. 'I think the consumers are thinking the handsets are good enough,' he said. 'As the handsets evolve, the value proposition becomes even more compelling.'

The continuous improvement of handsets  is the key to wider adoption of 3G. If the experience of DoCoMo's  Foma  service is anything to go by, 200 to 300 standby hours appear to be the tipping point at which consumers begin to adopt 3G en masse.

After struggling with battery and other performance issues for years, Foma crossed the one million subscriber mark last September, signing up another one million by February.

Mr Leung forecast Hutchison reaching five million global 3G subscribers by year-end.

Deutsche Bank expected Hutchison to report 155,250 3G users in Hong Kong, rising to 250,000 by year-end,  compared with about 84,000 in May.

Although Hutchison faces fresh competition in Europe, and new players at home are expected to enter the market in the fourth quarter, the company should be able offer handsets that are superior to those  of its rivals.  Hutchison  was the first to roll out 3G services, and thus established early relationships  with handset manufacturers, leaving less desirable phones to latecomers.

Although they have yet to launch 3G services, SmarTone Communications and CSL - in addition to Hutchison - are selling Sony Ericsson's first 3G phone, which is as big as a bar of soap and weighs 144 grams. An early lead has also given Hutchison a chance to establish a large subscriber base, which puts it in a strong  position to negotiate  prices. SmarTone, CSL and Sunday Communications will struggle to achieve the same economies of scale.

LG has been asked to deliver two million handsets in September and another one million after that. Hutchison had about 5.5 million NEC handsets on hand, with another two million and four million scheduled to be delivered, respectively, in March and December next year.



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