Ovum: Time to cut 3G expenditure

Minimize third-generation (3G) network capital expenditure, or face the risk of being mired indefinitely in massive debts, cautioned research and consulting company Ovum.
Written by Ariel Tam, Contributor
SINGAPORE--Minimize third-generation (3G) network capital expenditure, or face the risk of being mired indefinitely in massive debts, cautioned research and consulting company Ovum.

In its recent report titled 3G Survival Strategies: Build, Buy, or Share, Ovum noted that mobile operators worldwide have pumped in a staggering US$200 billion in total for 3G licenses in recent years. When operators can see returns on their investment is a big question.

At this moment, the endless theoretical possibilities of 3G have not translated into actual facts. Worldwide 3G trials have endured a series of hiccups that hint that this much-vaunted technology is far from perfect. And both investor and consumer confidence in 3G deployment has plummeted as a result.

British mobile bigwig, Vodafone, recently shocked the telecommunications industry when it announced that its impending 3G networks would not be able to support full multimedia services, and could only guarantee speeds of 64kbps.

Eirwen Nichols, principal consultant at Ovum, said operators have to be pragmatic about the limitations of 3G.

"Operators need to be prudent. The capabilities and anticipated limitations of 3G technologies have been an open secret in the mobile industry for some time, yet the marketing machine has maintained the hype of a fully multimedia 3G world from the start," Nichols said. "Expectations need to be realistic, particularly in the early stages of network deployment to reduce the risk of 3G falling into the ‘WAP trap,’ where overkill is merely followed by disappointment."

Hope floats
Not all is lost though, according to Ovum, as long as operators spend prudently.

"Many operators entered the world of 3G in poor financial shape," explained Nichols. "Network rollout is still in its early stages and infrastructure costs will be vast, at least US$100 billion will be spent in Europe alone by 2006."

Ovum predicts that in terms of total spending on 3G network infrastructure (2001-2006), Asia Pacific will be the second largest region after Western Europe, with a cumulative figure of US$49 billion, accounting for 27 percent of global cumulative spend. Western Europe is expected to account for 44 percent (US$80 billion).

Within Asia Pacific, Japan will make up the largest proportion of the total, with US$22 billion spent over the forecast period, Ovum stated.

The way forward in the current climate is to minimize 3G network capital expenditure, Ovum said. Operators need to develop a flexible strategy that can be reviewed as the market matures and circumstances change.

"It's given that venture capital is drying up. A strategic business plan that cuts expenditure and focuses on the ratio of capital spend to revenues is paramount. This will help a company overcome financial burdens, recoup built-up debt and survive," Nichols said.

He advised mobile operators to "follow a simple maxim of build, buy or share, depending on the regulations imposed by license conditions in the respective countries."

Building your own network is the most expensive option, according to Ovum, but operators may not have a choice due to country-specific regulatory obligations designed to promote competition in the mobile market.

As for buying, Ovum analyst Nikki Murrell said operators could partner mobile virtual network operators (MVNOs) in investment- or risk-sharing. This model allows a company to "buy" 3G airtime wholesale from a network operator to resell. This way, the company does not have to build a network, Murrell said.

Network sharing could be another cheaper alternative. This strategy, which can vary from mast and antenna sharing to radio access network sharing, will help to reduce costs, ensure rapid rollout and even address environmental concerns by minimizing the number of sites and antennas set up, said Ovum.

"There is no doubt that 3G will happen, and its casualties can be lowered as long as operators open their eyes to the times and use business strategy as their weapon," Nichols said.

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