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3G Profitability Threatened by P-WLAN Competition

15th September, 2004

Europe : Public WLAN has so far made the running with high-speed wireless Internet/intranet services, with 2.5G technology dogged by capacity limitations, inadequate throughputs and high costs. 3G could potentially displace Public WLAN services, by finally allowing mobile operators to offer these services on a near-ubiquitous basis. However, mobile operators should proceed with great caution according to a new report, Delivering High-speed Mobile Internet/Intranet Services: the role for 3G and public WLAN, from Analysys, the global advisers on telecoms, IT and media.

An increasing number of 3G operators are launching high-speed services with datacards to meet demand from business users for mobile email and Internet/intranet access. In their haste to kick-start 3G revenues, some operators are embarking on radical strategies. Some are offering 'all you can eat' packages or attempting to replicate WLAN pricing, while others are offering 3G services in the home, in an attempt to displace fixed (for example, xDSL) services. The report warns that such strategies may damage the economic prospects for 3G at an early stage of its development.

"While 3G offers substantial throughput, capacity and cost advantages over 2.5G technology, operators must avoid pushing 3G beyond its limits," says report co-author Alastair Brydon. "Head-to-head competition with xDSL or PWLAN could kill profitability. Such strategies may fill 3G networks with low-margin Internet traffic, leaving no space for more profitable services, such as voice telephony, small-screen messaging and video content."

Rather than competing with alternative services, mobile operators need to find a more profitable way of co-existing with them. "Some operators are taking an early lead in integrating PWLAN and 3G services, to achieve the best of both worlds," says Brydon. "This may give higher 3G margins, avoid network congestion and allow mobile operators to control the emerging PWLAN hotspot market."

The report claims that operators must exploit the unique benefits of 3G, for example offering attractively priced always-on email services on a near-ubiquitous basis, while providing the glue that connects and controls PWLAN services, perhaps notifying users of the location of the nearest hotspot if they need to make intensive downloads.

The report also highlights a number of pricing pitfalls, identified from analysis of 3G, PWLAN and integrated 3G/PWLAN services worldwide. Operators moving away from volume-based 3G charging are taking a big risk, according to report co-author Mark Heath. "Several operators are experimenting with time-based and unlimited-usage tariffs. Such schemes may be simpler for users, but they inevitably jeopardize revenue per Mbyte, and hence profitability."

"Some mobile operators are now trying to strengthen their new integrated 3G/PWLAN offerings with common pricing across both technologies," says Heath. "Unfortunately, common pricing can result in the worst of both worlds ­ being uncompetitive with independent PWLAN services while generating unacceptably low revenue per Mbyte on 3G networks."

Delivering High-speed Mobile Internet/Intranet Services: the role for 3G and public WLAN assesses 3G and WLAN services worldwide and evaluates the diverse technology and pricing approaches for high-speed wireless Internet/intranet services. The report discusses the key attributes of 3G and PWLAN and identifies optimal implementation and marketing strategies for each. Pricing models and case studies are used to illustrate the serious
pitfalls that affect operators.

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