The pressure to attract new customers could drag the UK's 3G operators into a damaging price war, experts have warned.
Speaking to ZDNet News on Thursday Simone Roberts, senior research analyst at The Yankee Group, warned that Hutchison 3G is planning to undercut its rival 3G operators by offering next-generation mobile services at a similar price to today's GSM packages. The company, which does not currently operate a mobile network in the UK, is hoping to acquire a customer base through highly competitive pricing.
"This isn't really a surprise. It's going to be very tough for Hutchison as a new entrant to the UK market," explained Roberts. "A price war won't be in anyone's interest, though, because it will make it much harder for the five network operators to break even."
Paying less for 3G services sounds like a clear win for the consumer, but there is a danger that Hutchison's strategy could force other operators to follow suit, leading to a situation where they cannot make enough money from their offerings.
Roberts warns that this could cause "a degree of consolidation within the market", or even lead to one 3G operator failing. "The only operator in danger is Hutchison. As the newcomer, it will find it harder to get customers," Roberts predicted.
As well as committing a total of £22.5bn on licences, the five winners of last year's 3G auction -- Vodafone, BT, Orange, One2One and Hutchison 3G -- must also spend around £15bn building the networks. Including marketing and subsidies, the total bill could reach £50bn.
The network operators made this investment because they believed that third-generation phones -- whose high-speed data access rates should allow applications such as real-time video streaming -- would generate massive amounts of revenue.
However, according to Roberts, Hutchison doesn't believe that the average revenue per user (ARPU) will rise significantly when 3G hits the market, because a substantial decline in revenue from voice calls will cancel out an increase in the number of data calls. If the company is correct, then the mobile industry could be in real trouble -- but Roberts believes that most 3G users will spend more than they do at present.
"We're predict that ARPUs will begin to increase from 2002," said Roberts, who is still confident that 3G will be a success even if it takes longer than originally expected for the services to arrive.
3G was originally expected to launch in the UK in 2002, but some experts -- including Hans Snook, former boss of Orange -- are now saying that it won't be available until 2004.
Other telecoms analysts have been more pessimistic. Lars Godell, telecoms analyst at Forrester, said earlier this year that 3G would be remembered as "the trigger that imploded Europe's mobile industry". Godell reckoned that industry consolidation would lead to only five 3G operators being in business across Europe by 2008.
Last week Hutchison announced that it has signed an agreement with the FA Premier League to provide football news and clips of goals to its 3G users. The deal is thought to be worth around £35m.
"This deal could be a really good way of attracting mobile users in the 18-30 year old bracket," said Roberts, who explained that all the 3G licence holders are trying to aggregate good content for their forthcoming services.
Find out more about what's coming up in the wireless world with ZDNet UK's Special Report: The Road to 3G.
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