3G migration a headache for operators, says Alcatel

3G (third-generation) mobile operators face more headaches than just high spectrum license fees and underperforming handsets -- they need to tailor their migration strategies to fit their position in the market, according to Jimmy Lukito, marketing and sales support manager for Alcatel SA's mobile networks division in Asia-Pacific.

"Operators must migrate to 3G in a way that fits the business model they have adopted," he said in an address at the International Data Corp. (IDC) Asia-Pacific Telecoms forum here Wednesday. "3G is a much more complex environment to design for than 2G as there are many different types of traffic."

The second generation (2G) of mobile phone services, of which the most widely-used is GSM (Global System for Mobile Communications), carry predominantly voice traffic. This makes the 2G business model simple: the value chain consists of network operators and handsets.

With 3G's ability to deliver a wide range of services, there are many more elements in the value chain, including content providers, value-added aggregators and service providers, according to Lukito.

The share of end-user revenue going to network operators will drop from 75 percent in a 2G environment to 25 percent in a 3G environment, with content providers taking 38 percent, value-added aggregators taking 12 percent and service providers taking 25 percent, Lukito said.

Users and operators have different imperatives during the upgrade from 2G to 3G, Lukito said.

"Users want continuity of coverage and services, while operators want to preserve their existing investment, optimize operating costs and have maximum flexibility in applications development."

Migration strategies must therefore depend on where an operator is currently positioned, according to Lukito.

The incumbent operator, with an existing network, can afford to be aggressive in rolling out 3G. Their existing infrastructure and 2G user base can help them roll out a viable 3G service faster and at a lower capital cost than newcomers. According to Lukito, these companies can build 3G networks for between 400 euros (US$367) and 1,100 euros per subscriber.

Newcomers who have bought 3G spectrum must expect to pay between 1,200 euros and 1,500 euros per subscriber, as they have to build infrastructure -- but they are also free from the constraints of managing 2G legacy systems and can therefore introduce advanced services widely, according to Lukito.

A third group of operators -- those who do not have 3G licenses -- are better off sticking with GPRS (General Packet Radio Service) and EDGE (Enhanced Data for GSM Evolution) technology which can match 3G's first-phase speed of 384K bps (bits per second), according to Lukito. These operators suffer very little network disruption and can pick up subscribers for between 50 euros and 160 euros each, but risk losing out on high-end subscribers who want the advanced services promised for 3G.

3G subscribers will make up 9 percent of total mobile subscribers by 2005 and 27 percent by 2008, he predicted. That will still be considerably lower than the market penetration for GSM, which will still be used by 50 percent of subscribers, according to Lukito.

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