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Analysts welcome 3's flat-rate broadband

Mobile operator's decision to fully embrace flat-fee mobile internet access is widely welcomed, but some doubts remain
Written by David Meyer, Contributor

Analysts have reacted positively to mobile network 3's announcement on Thursday that it is adopting a flat-rate mobile internet model and teaming up with a host of web giants.

From December the operator, owned by Hong Kong's Hutchison Whampoa, will be offering the full internet experience on its X-series handsets — initially the Nokia N73 and Sony Ericsson W950i.

Partners providing an optimised mobile experience include Skype (for VoIP calls), Microsoft (instant messaging), eBay (real-time bidding), Google and Yahoo (search and other web services), Orb Networks (accessing digital content from the user's home PC) and Sling Media (relaying programming from the user's home television — but reliant on separately purchasing a Slingbox).

"People want choice, so… we're taking down the walls around the big walled garden," said 3's group finance director, Frank Sixt, at Thursday's launch event, before revealing that the Nokia and Sony Ericsson devices were just the first X-series phones. Subsequent waves in the series will each carry new functionality, the second coming next year.

Perhaps the most surprising element of 3's announcement was the news that Skype — which has been working in partnership with the operator for months — will have its free service included in the flat-rate package. This will essentially allow free calls between X-series phones, and between the phones and PCs around the world. Other services, such as Skype chat and the premium SkypeIn and SkypeOut functions, will be introduced to 3 at some point next year — potentially cannibalising a large portion of 3's voice revenue. 3, said Skype co-founder Niklas Zennstrom, is "not afraid of disrupting their own market".

"To date the mobile internet has been a bust," said Joe Costello of Orb Media, who compared previous mobile web solutions to dial-up technology. Like broadband, 3's service involves a flat data fee, although there will initially be an additional fee for customers making use of the Orb or Sling functionality, as this involves higher-bandwidth video.

Analyst Dean Bubley pointed out that 3's package "looks like it is starting where T-Mobile's pretty decent Web'n'Walk leaves off". T-Mobile's pricing structure offers a low-priced, all-you-can-eat data package, but then adds further charges for use of instant messaging and VoIP and bans high-bandwidth usage such as video streaming.

"3 has recognised that there is a sizeable market of ADSL/cable-educated people who want a good quality pipe, with a couple of optimisations to take account of handset form factor. Not trying to do something idiotic like creating an own-brand IM is a sign of real-world Internet-savvy maturity that many operators would do well to embrace," blogged Bubley on Thursday. "At last, a mobile telco which embraces the idea of delivering end-user value through providing abundance and embracing third party services," enthused analyst James Enck of Daiwa Securities.

Similar views were echoed by Ovum's John Delaney, who wrote: "Everything about the internet that worries the mobile operators is here. Flat-rate data tariffs remove the link between service usage and end-user revenues. VoIP undermines mobile voice revenues. Instant messaging offers text messaging at a fraction of the price of SMS. The big portal brands are far more powerfully associated with internet services than the operators' brands. Open internet access means you never have to see the operator's portal again, if you don't want to."

However, Delaney noted that 3 could "end up having its role reduced simply to providing internet access"...

... and pointed out that the actual pricing of this new tariff was as-yet unannounced, saying: "That's what will ultimately determine whether X-Series becomes a mass-market service, or remains confined to the category of 'expensive toys for rich boys'".

A spokesperson for 3 told ZDNet UK on Friday that pricing details would be made available closer to the UK launch date of 1 December (other countries will get the service next year). What is known is that the full service will be priced lower than £18 a month (on top of the user's standard mobile subscription) a figure roughly equivalent to that of entry-level fixed-line broadband.

Asked whether all video-streaming services would necessitate the higher flat fee, the spokesperson said that tariff would be reserved for "just Sling and Orb. Other streaming services will fall into the standard web-browsing tariff". It is thought that the extra access fee for Sling and Orb could be maintained until 3's national rollout of HSDPA — the souped-up version of 3G — is completed by the end of next year. By this point more HSDPA-capable handsets should also have hit the mass market.

In the meantime, however, questions remain over the quality of service that customers will be able to expect with 3's mobile broadband experience. Pre-HSDPA 3G is not the most high-bandwidth service, and problems could arise if multiple users are streaming video in one area. It emerged on Friday that 3's Skype service is not actually full VoIP over 3G, but will instead use a more traditional circuit-switched connection with the presence (knowing whether or not someone is online) being supplied through IP.

This effectively makes the Skype service a second line of sorts, although it remains restricted to use within the Skype community until the premium services are added next year. However, as the Skype network is itself IP-based, some problems with latency, or lag, may remain. The service would also suffer if 3G coverage was patchy, although 3 remains confident in its service quality.

"We're still in the process of bringing it to market but we have absolute confidence in the service and its reliability. It is a new service, of course, but we think this is something that customers are used to using online and we expect them to have a good service," the spokesperson said, adding that 3 had based its network "around a high-capacity service".

An X-Series phone

One of the first X-Series devices.

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