Site sharing alone won't save 3G

Analysts believe that a whole range of factors will determine just how much revenue 3G network operators will have to generate in order to succeed
Written by Graeme Wearden, Contributor

UK mobile operators who are teaming up to build third-generation (3G) networks have already been warned that site sharing alone won't be enough to guarantee that 3G is a success in this country.

According to reports on Monday Vodafone, currently the biggest mobile operator in Britain, is in talks with Hutchison 3G to discuss sharing the cost of rolling out their third-generation services. Having paid £6bn and £4bn respectively for licences last year, both Vodafone and Hutchison are understood to be very keen to cut the cost of installing all the infrastructure needed for 3G.

However, analyst firm Northstream has calculated that it will take more than cooperation on the building of new base stations for the mobile industry to make a profit from 3G.

Research published by Northstream in May found that as many as 16 key variables will determine how difficult it will be for an operator to create a profitable 3G service. Site sharing will certainly bring down the amount of extra income needed by 3G operators -- which Northstream defined as the increase in "average revenue per user" (ARPU) -- but even with this cooperation some operators will struggle.

According to Northstream, the £22.5bn paid for licences will be a significant obstacle for the five operators who won a 3G licence in last year's auction. "The single most important factor in deciding how much revenue the 3G operators must bring in from each user is whether a licence fee was paid or not," explained Johan Ragnevad, strategic advisor at Northstream. "Site sharing will have a positive effect on the business case for 3G, but it will not solve all the problems," he added.

While Vodafone and Hutchison aren't admitting whether a deal is imminent or not, Orange and One2One have already signed a site sharing agreement, while BT Cellnet has made a similar arrangement with Deutsche Telekom that will see the two telco giants collaborating on the rollout of 3G in their respective countries.

Other factors that determine how much more money a 3G operator will need to collect from users include population density, how much the handsets are subsidised, and whether the operator is already running a mobile service. . Ragnevad told ZDNet that he feared that one of the five 3G licence holders would fail to create a successful service.

The government is keen to see services up and running as soon as possible because of the huge investment made by Vodafone, Hutchison 3G, Orange, BT Cellnet and One2one . Hutchison has promised to bring popular computer game Quake to 3G phones, in an attempt to attract users to its service. The operator, which is backed by Canadian company TIW, is the only new operator to win a 3G licence in the UK.

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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