Expert View

May 7, 2004
Regulators should charge reasonable 3G license fees

Geetanjali Wadhwa & Pradeep Chakraborty

NEW DELHI -- Has UMTS been able to overcome the pitfalls following the hype in early 2000 and later? Have regulators and governments become wiser regarding charging 3G license fees or do they need to learn more from their mistakes? Is UMTS W-CDMA in a good position to give 3G CDMA a good run for its money? Convergence plus recently met up with Jean-Pierre Bienaime, chairman, UMTS Forum, on the sidelines of the India Mobility 2004 conference and exhibition, to find out more about the status of UMTS today, and the issues involved with it. Excerpts from an interview:

Convergence plus: Is the UMTS Forum satisfied with the way UMTS has been growing so far?

Jean-Pierre Bienaime: There are 15 UMTS networks worldwide, with a subscriber base of over 4 million. Of this, NTT DoCoMo accounts for over 3 million subscribers. It is likely to achieve a base of over 5 million subscribers by the end of this year. There are 1 million subscribers in Europe, mainly Hutch 3, as well as networks in Hong Kong, Australia and Italy. Hutch 3 recently launched its services in Hong Kong and Australia.

By the end of 2004, most European operators would have launched UMTS. Some of these include Vodafone, T-Mobile, Orange, Telecom Italia, etc. Some others have commenced soft launches, such as Orange, in three French cities. Initially, it will cover one third of the French population and 20 big cities by end of 2004. It would likely cover 50 percent of the population by 2005 and the entire population by 2009.

Vodafone and T-Mobile have started business applications via PC Cards. While Vodafone will fully launch services this autumn, T-Mobile will be starting this May in the UK, Germany and Austria. We are looking at 12-15 million subscribers by end of this year only in Europe. We expect 50 percent subscribers to be in Europe and 50 percent in Asia.

CP: Is 3G UMTS rid of all hypes and problems?

JPB: We have always been realistic. There was definitely hype in 1999 and early 2000. It took time for GSM to be launched fully commercially. For example, in France, it took GSM operators a decade to have net payback on their investments.

CP: Was it a mistake on part of some governments or regulators to charge hefty license fees in Europe?

JPB: The UMTS Forum has always promoted beauty contests, rather than auctions. It was a mistake to charge heavy license fees from some 3G operators in Europe. The UMTS Forum has always stood for optimal fees. In France, the regulator and the government were more considerate. The government decided on a new regime for renewing 2G GSM licenses. There was a threat that the French government would not be reasonable enough and impose heavy fees. However, it was advised not to burden the market. The French government fixed Euros 25 billion as license fees plus 1 percent of GSM revenues, which is very reasonable. This move will facilitate the evolution from 2G to 3G.

Some operators realise that some governments pumped the resources of operators, so those governments were more reasonable. In contrast, the Asian governments and operators have been more reasonable with license fees. We urge all the regulators to apply reasonable fees for licenses, not huge auctions. There can be a combination of both beauty contests and auctions. Some countries, like Norway and Finland, have had pure beauty contests.

CP: Will multimedia services be available only after 3G is in place?

JPB: There are three main multimedia portals -- Vodafone Live, Orange World and i-mode. However, we really do not need to wait for 3G to enjoy multimedia services. We have much more spectrum and speed for all interactive services. This will enable much more comfort of use and quality of service. Definitely, 3G will enhance speed, capacity, etc.

CP: What is the roadmap toward full UMTS services?

JPB: The present 3G network is based on Rel-99 of the 3GPP. In the first phase, it will offer 384Kbps in mobility situations or 2Mbps in outdoor situations. In the second step announced by DoCoMo, by middle of 2005, it will offer HSDPA (high-speed downlink packet access). This will facilitate speeds from 3Mbps to 14Mbps in all situations. The 3GPP Rel-6 is in the final stages. We will help finalise this release. There will also be an uplink version of HSDPA. This is real broadband 3G.

CP: How do you see operators generating revenue from mobile applications?

JPB: Operators should also be able to generate revenue from applications. However, it is difficult to forecast. Once all of the actors are in place, many more revenue streams will be possible. Initially, there will be ease of use, network optimisation, etc. In the second stage, the revenue will increase due to the synergy of new services.

CP: How can colocation help the operators lower costs?

JPB: It is being allowed more and more by regulators. Colocation is a good solution for lowering costs. The ideal situation of network sharing can only happen between actors or players of similar sizes. There can be a range of solutions from simple site sharing, BTS sharing, rack sharing, RNC sharing. This has to be on a case-by-case basis and not mandatory. We as UMTS Forum want this to be done as per the market demand. It should be circumstantial and not mandatory. In Europe, it is on a case-by-case basis.

CP: What sort of role do you see MVNOs playing? How many operators are ideal for any country?

JPB: We are a bit careful about this. The MVNOs will be one of the ways of increasing the market size, only if it really complements the offerings of the network operator and not distort competition. In the initial steps of the licenses, they should make arrangements, have specific content, and sign partnership contracts with 3G operators. MVNOs like to cream the market without playing the game and without investing much. The MVNO can be a supplementary way of growing the market. They can be beneficial if they can be complementary. This can bring specific customers together.

Regarding the number of operators in any country, we believe that three to four operators are a good fit in the European countries. It may be more in India and China. For example, in France, the 3G license is still free and available.

CP: Would you like to comment on the success of i-mode and Monternet?

JPB: Both have led to higher ARPUs. Customers are ready to go further. The ARPU of i-mode is much higher than any other service. The proportion of the non-voice ARPU is much higher in Japan and Korea. There is a lesson in this for the other operators. DoCoMo's revenue for non-voice services last year was over 25 percent and that of European operators was 12-15 percent for non-voice services such as SMS, MMS, intranet, Internet browsing, corporate messaging, etc. We hope the European operators can raise the ARPU from non-voice revenue to 25 percent and hope that the 3G licenses will accelerate the process. The early adopters are more adaptive and eager to deploy 3G.

CP: How do you foresee TD-SCDMA rolling out in China?

JPB: We took a presentation last year at the 3G China Summit. We said that we saw W-CDMA and TD-SCDMA complementing each other. TD-SCDMA will complement W-CDMA in China and the two technologies should be completely interoperable. However, there is an argument that the smart antenna makes TD-SCDMA more spectrally efficient.

In cdma2000/3G (1x/EV-DO), the number of subscribers is less than 5 million, as compared to over 4 million for UMTS. However, 1xRTT rolled out early in Japan, courtesy, KDDI, and Korea. For us, the real 3G CDMA began with EV-DO that has comparable speed.

CP: What is your estimate of China and India? Will the Chinese operators opt for 3G UMTS?

JPB: China and India appear to be promising markets. We believe that 3G licenses will be given out earlier in China, by end of 2004, and later in India, perhaps, by end of 2005. In China, China Mobile will allocate a major part to UMTS, complemented by TD-SCDMA. China Unicom will be offering UMTS and both 3G CDMA. We hope that both China Telecom and China Netcom will go for UMTS and there will be a critical mass in China.

CP: How do you foresee 3G coming up, as and when it happens, in India?

JPB: India has a lot of potential. It has an addressable market of 150 million subscribers, which represents a very big market on its own. It will be more of a volume market than a value market. The third dimension, video, offered by 3G, will capture India's attention. Of course, no two markets are similar. Local demands will have to be taken into consideration to fine tune tariffs, etc.