9th March , 2004

US : If the adoption of 3G in Western Europe follows the same timeline as it did in Japan, there will be more than 8 million W-CDMA users in the region by mid-2005.

Above shows : W-CDMA User Share of Domestic Mobile Market from NTT DoCoMo and Hutchison Whampoa, 2004. Telefonica Moviles’ announcement in January 2004 that it had agreed to sell its Austrian 3G license to local incumbent Mobilkom marked the scrapping of yet another would-be 3G network. Telefonica had previously abandoned its 3G licenses Quam (Germany) and Blu (Italy).

Orange, which has unloaded its Swedish license, and OniWay in Portugal, which was broken up and absorbed by the three incumbents, joined Telefonica in its strategic retreat. Meanwhile, Tele2 decided it was better off being a virtual 3G operator (MVNO) in Norway rather than spend millions on building out its own network. Broadband Mobile declined its Norwegian license from the outset.

Including Mobilcom in Germany, and of the 70 national 3G licenses issued in Western Europe, eight have been officially scuppered while plans for a few others remain in serious doubt.

At the end of 2003, commercial W-CDMA services were only available in Austria, Denmark, Italy, Sweden and the U.K. Hutchison’s 3, which has commercial operations in all five markets, has made uninspiring progress so far. After 9 months of handset, network and roaming problems, it had achieved a user market share of less than 1 percent in both Italy and the U.K. by the end of 2003.

As a European W-CDMA market leader, 3 can be forgiven some initial teething problems. Even NTT DoCoMo encountered major glitches following the launch of its FOMA W-CDMA service in Japan. In October 2002, 1 year after service launch, there were only 142,000 FOMA users—a mere 0.2 percent of all Japanese mobile users. However, in the last 12 months, as network coverage expanded, the range and price of handsets improved and the glitches ironed out, FOMA adoption snowballed. By the end of 2003, DoCoMo had 1.9 million FOMA users—an annual increase of more than 1,000 percent, and accounting for 2.4 percent of the country s mobile users.

If Western Europe replicates the Japanese adoption timeline, there will be more than 8 million W-CDMA users in the region by mid-2005 (2.4 percent of 340 million). There's no doubt the two markets are very different; the main difference is the attitude of consumers toward mobile data. However, there are strong reasons to believe the pace of European 3G adoption will equal or exceed Japan’s.

First, most carriers are conducting pre-commercial trials and will launch commercial services in 2004. Carrier pressure on vendors and greater economies of scale will mean better and cheaper equipment, while the lessons of DoCoMo and 3 should help other providers avoid early technical problems.

In addition, there is the lack of competing technologies. Where CDMA and 1X upgrades will compete with W-CDMA in Japan, there is no comparable cellular broadband technology being deployed in Western Europe. Interim or parallel technologies such as EDGE and Wi-Fi have similar characteristics but cannot match the attributes and benefits of W-CDMA.

Despite some licensees dropping out, most markets will see a new infrastructure-based mobile entrant, bringing additional competition, lower prices and greater stimulus for mobile data adoption and usage.

Vendors Recommendations
· Collaborate more on open standards and interoperability. Despite various industry initiatives, network and handset technologies from different vendors still don’t interact effectively, causing major integration issues, delays, and higher rollout costs.

· Introduce 3G handsets with advanced features now. Vendors should focus on fulfilling carrier demand for W-CDMA handsets in 2004. Interim technology upgrades are less important. Operators have shown they will find alternative suppliers or create their own branded devices with OEMs if requests are not fulfilled.

Carriers Recommendations
· Ensure that you have adequate network coverage, reliability and interoperability before marketing commercial services. Resist pressure to launch in response to competitors actions or loose regulatory mandates, for consumer disappointment will be hard to reverse.

· Focus on W-CDMA. The future, as determined by spectrum licenses and market realities, lies with W-CDMA. Diverting resources now to develop and extend the shelf life of E-GPRS or EDGE will only delay progress to this eventual goal. EDGE can play a useful for role for many European operators over the next 5 years, but it should complement W-CDMA rather than substitute for it.

· Keep price levels similar to GSM. Even if this means very high handset subsidization and low video call revenues in the interim. Base pricing for additional W-CDMA services on the value customers perceive, not on the fact the service uses a new technology.

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