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29th January 2003

TOKYO (Dow Jones)--Mobilkom Austria AG will extend the reach of the third-generation, or 3G, mobile communications network it launched last September to more than half of Austria's population by the end of 2003, chief executive officer Boris Nemsic says.

By the end of this year, Mobilkom Austria's 3G service will "definitely" be available to more than 50%, perhaps almost 60%, of Austrians, Nemsic told Dow Jones Newswires in an interview at the recent Marcus Evans' 3G Mobile World Forum in Tokyo.

Greater nationwide coverage for Mobilkom Austria's infant 3G network is key to the success of commercial 3G applications that the company will launch in the first six months of this year, Nemsic said.

Mobilkom Austria, a wholly owned unit of Telekom Austria AG (TKA), became the first cellular operator to roll out a 3G network in Europe on Sept. 25. At the time of launch, the network was available to 25% of Austria's population, and coverage was extended to about 40% by the end of the year.

But Nemsic noted that Austria's "very difficult topography" will make further 3G coverage expansion more difficult, forcing Mobilkom Austria to make "very precise investments" going forward.

Under its 10-year plan through 2010, Mobilkom Austria intends to invest EUR640 million in its 3G network. Over the last two years, it spent EUR72 million on the development of its 3G network, with the assistance of Sweden's Telefon AB LM Ericsson (ERICY) and Canada's Nortel Networks Corp. (NT).

Taking aim at the consumer market, Mobilkom Austria has already begun to offer what Nemsic calls a "friendly user" 3G service that features real-time audio, text and video streaming of news, on its 3G network.

Other planned 3G applications in the future include gaming. Mobilkom Austria currently offers its 2G and 2.5G subscribers the ability to download and play around 40 to 80 games.

Its 3G network is based on universal mobile telecommunications system technology. UMTS, the European version of wideband code division multiple access, or W-CDMA, technology features a wide range of advanced voice, text and video functions, enabling cellphone owners to surf the Internet or watch television.

Mobilkom Austria is also working hard to improve the interoperability between its three different network generations, Nemsic said. "Inter-working between 2G, 2.5G and 3G will be in place by the end of the year, so a lot of data services will be available on the 3G network but also on 2.5G," he said.

Interoperability among these networks will ensure a seamless handover of mobile communications services between Mobilkom Austria's current networks and its 3G network, another key factor for the future success of commercial 3G applications.

As part of its "friendly user" 3G service, Mobilkom Austria is making available several dual-mode 3G handset models made by manufacturers such as LG Electronics Inc. (Q.LGE) and Nokia Corp. (NOK), which are capable of serving users of its current-generation networks and its 3G network, Nemsic said.

"That's what you need. Because in Europe, you cannot sell only wideband CDMA terminals," he said.

Mobilkom Austria's current-generation network is based on global system for mobile, or GSM, and general packet radio service, or GPRS, technology. It increased its mobile phone market share in Austria to 44.4% in the October-December quarter last year, up from 42.9% at the end of September. It also had more than 3 million subscribers in Austria in the fourth quarter.

In the future, Mobilkom Austria could rely on its new international partner, Vodafone Group PLC (VOD), for 3G handset models, Nemsic said.

"It really depends on the manufacturers. We joined the Vodafone partnership, so we will actually have access to Vodafone" handsets, he said.

Earlier this month, Telekom Austria announced a partnership agreement between Mobilkom Austria and Vodafone that includes cooperation in product development, marketing and procurement.

Mobilkom Austria To Offer Roaming In Japan

Under its agreement with Vodafone, Mobilkom Austria also has a roaming partnership that allows Vodafone and Mobilkom subscribers to use mobile services on each other's networks.

"A Vodafone customer coming to Austria must feel at home. He'll use his services and very complex data services in Austria the same as he's using them in Germany, the U.K. and Japan," Nemsic said.

At the same time, Mobilkom Austria can also provide its subscribers with mobile services that they are used to using in 35 countries covered by Vodafone.

In a sign that Mobilkom Austria's subscribers will be able to use international roaming services in Japan, Nemsic said he had used the cellphone he brought from Austria to call Austria from Japan via the network operated by Japan Telecom Holdings Co.'s (J.JTC or 9434) J-Phone.

As part of Mobilkom Austria's partnership agreement with Vodafone, J-Phone subscribers will also be able use their dual-mode 3G handsets in Austria, Nemsic said.

J-Phone launched commercial 3G mobile phone services in major cities in Japan on Dec. 20. Since then, the mobile unit of Japan Telecom, in which Vodafone has a 66.7% stake, started offering an international roaming function for 3G services in around 50 countries.

-By Ron Harui, Dow Jones