US : "Four factors are driving UMTS adoption," stated Dr. Herschel Shosteck, President and Chairman of The Shosteck Group. "These are:

(1) regulatory mandates, (2) greater network capacity, (3) reduced capital and operating costs, and, for end-users, (4) the availability of well-functioning, numerous, and low-priced handset models."

"Most important, and least recognized, is providing low-cost voice capacity," Dr. Shosteck continued.

The study points out that the UMTS air-interface is more efficient than are the GSM-GPRS and EDGE interfaces, in particular for mixed voice and data. This translates into greater traffic capacity per MHz of spectrum and, correspondingly, lower operating costs. These lower costs become more pronounced as traffic increases.

"Yet, the industry has seemingly ignored the capacity gains and cost savings that UMTS allows and, instead, focused on the data services that it enables," stated Jane Zweig, CEO of The Shosteck Group. "Abstractly, the industry recognizes the capacity and cost advantages for voice that UMTS provides. Yet few are talking of those advantages – and, by inference, paying full attention to them. When placed in the perspective of industry revenues, this lack of attention is remarkable. Voice generates most revenue," she continued.

The study observes that because UMTS increases capacity, it will become increasingly important, indeed essential, for facilitating expanded data services. However, into the near- to mid-terms, if not beyond, voice will continue to produce most revenues.

"On this account, the strategic advantage of UMTS may lie as much in the low-cost voice capacity that it provides as in the high-speed data services that it enables. Network costs are high during the early years of UMTS, thus explaining the reluctance of many operators to invest in it," stated Dr. Shosteck.

"Beyond 2006-2008, the situation reverses. Both increasing traffic and a greater proportion of data will inexorably raise the per-minute costs of EDGE and, especially, those of GSM-GPRS. At the same time, the costs of UMTS will continue to decline. Once the cost curves cross, the operators that have deployed UMTS will enjoy an increasing cost advantage over those who have not," he continued.

The crossing of the cost curves would explain Hutchison’s market entry as a "pure" UMTS operator and its seemingly untenable tariff reductions in the U.K.

In March 2003, Hutchison launched Europe’s first commercial UMTS networks in the U.K. and Italy. On June 5, Hutchison-U.K. slashed voice tariffs to 5p per minute or less. This represented as much as a 50 to 70 percent discount on the average price for mobile calls.

"It appears that Hutchison has reached similar conclusions to ours – that UMTS will prove profitable based on its lower costs for voice alone. From this perspective, Hutchison’s pricing makes competitive sense – assuming its continuing commitment to UMTS – and it could build a meaningful subscriber base before its competitors respond," stated Ms. Zweig.

In the white paper, the firm looks more deeply into the recurrent drama which EDGE has provided for Western European operators. Since late 2002-early 2003, trade press reports reflect a reviving European interest, if not commitment.

"What may be a rekindled European interest in EDGE raises two questions. First, to what extent, if at all, might deployment of EDGE delay the launch of UMTS? Second, to what extent, if at all, will investment in EDGE reduce investment in UMTS?" commented Dr. Shosteck.

To delve beyond the press reports, the firm surveyed the seven major European and North American vendors of wireless infrastructure as well as several major European operators.

Whatever impact EDGE may have, no vendor sees it as delaying the launch of UMTS. In general, respondents view EDGE as a supplement to UMTS, enabling operators to provide data services in lower traffic areas at less cost than would be possible with UMTS.

"In addition, respondents saw virtually no effect from EDGE on UMTS investment," pointed out Ms. Zweig. "They view the technologies as providing different functionality under different circumstances, UMTS for high-traffic areas and EDGE for lower-traffic areas."

Handsets acceptable to end-users are essential for the adoption of UMTS. Acceptability encompasses: (1) good performance, (2) a large number and variety of models, and (3) low prices. Shortcomings with any of these will inhibit adoption.

"On the one hand, UMTS handsets will soon work reasonably well and numerous models will quickly become available. These will encourage UMTS adoption," stated Dr. Shosteck. "On the other hand, wholesale prices may decline at a relatively slow rate. If reflected at the retail level, it would inhibit adoption. However, high wholesale prices will be mitigated by operator subsidies," he continued.

Network operators will subsidize UMTS handsets to $100 or less. This is being driven by Hutchison-U.K., which is already selling handsets for as little £49 ($80).

"Some will argue that such subsidies will lead Hutchison to bankruptcy. However, over the mid- to long-terms, UMTS will enable it to provide lower-cost voice service. As such, Hutchison believes that it can offer voice to heavy users at as much as 50 to 70 percent below current rates and still prosper. If it attracts enough such users from other operators, the handset subsidies – in the abstract – make sense," stated Ms. Zweig.

"Whether or not Hutchison has the financing to reach breakeven is another matter. Nonetheless, with subsidizing to less than $100, the price of handsets as a barrier to adoption of UMTS, at least for heavy users, will no longer be an issue," she continued.

The paper also points out that established operators may find that subsidizing UMTS handsets for their heaviest users will be a less expensive way to relieve capacity on their GSM-GPRS networks than by adding GSM-GPRS infrastructure.

The concluding chapter forecasts UMTS subscribers and handset sales by year. In 2007, the firm estimates 125-150 million UMTS subscribers and 70-85 million UMTS handset sales.

Four factors are driving UMTS adoption : regulatory mandates, greater network capacity, reduced capital and operating costs, and availability of well-functioning, numerous, and low-priced handset models."