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WCDMA: Promise of Success 2004
Visant Strategies, Inc., Jan 2004, Pages: 65
1.1 Purpose of study
The purpose of this study is to reassess the present and future market opportunity for WCDMA (wideband code division multiple access) globally.
The deployment of WCDMA infrastructure has began and there is a current market for the air interface that has been thought of as by many the only real path to third generation wireless. A crossroads has approached and a timely and realistic assessment must be made at this critical juncture for an air-interface meant for data services when voice is still king in the mobile world.
1.2 Findings
1.2.1 Already significant levels of WCDMA infrastructure deployed
Over 80,000 WCDMA base stations have already been deployed as of Q1 2004. To date, almost all of these deployments have occurred in Western Europe and Japan. The deployment rate for WCDMA base stations now runs at approximately 40,000 units per year. The base stations that are now deployed are based on WCDMA Release 99 of the UMTS (Universal Mobile Telecommunications System) specification with the exception of those installed by NTT DoCoMo. The latter carrier is using a proprietary implementation of WCDMA, which is marketed under the service name FOMA (freedom of mobile access).
1.2.2 Coverage is limited
At of the start of Q1 2004, few carriers have more than WCDMA coverage of 33% in any nation. There are exceptions, notably all 3G carriers in Sweden, DoCoMo in Japan, Three UK in England, Three Italy in Italy, and Vodafone in Japan. For the most part, the deployment of WCDMA has just begun, as has its true real-world evaluation.
Also, at this point WCDMA deployments have been concentrated within two nations, as Sweden and Japan have close to 40,000 WCDMA base stations deployed within their borders and account for nearly one-third of the world total.
1.2.3 Carriers forge forward
WCDMA has been deployed to date mainly due to efforts of some forward thinking carriers and a large number of carriers carrying out government appointed license requirements. Today, WCDMA network build outs continue across Europe and in the nations of Japan, Hong Kong, Australia, New Zealand and South Korea. The ongoing expansion of WCDMA coverage is indisputable.
1.2.4 Mobile Internet remains in incipient stages
Although data services use accounts for about 12% of all mobile wireless subscriber revenues in Western Europe today, monies paid for mobile Internet accounts for 25% of those data earnings, or, 3% of total mobile wireless subscriber revenues. Subscribers to mobile Internet (GPRS) in Europe have been appreciable to date, and in other markets, such as the United States. In 2004 we are just beginning to see these services offered by a wide array of carriers.
It may be too early to judge whether or not these early returns on GPRS are a fair barometer for how users will utilize WCDMA when it becomes available. Also, the number of wireless Internet data users utilizing GPRS in Western Europe have not been as great as hoped as of 2004, and it can be questioned whether or not this region, the leading market for WCDMA, will run to high-end wireless data services via WCDMA as supposed.
On the other hand, within the mobile user group, wireless Internet enjoys high penetration in Japan, the other main market for WCDMA today and seemingly tomorrow.
1.2.5 Renewed focus on specialized content
Mobile carriers in 2004 across Europe are offering a mobile Internet experience through offering specialized content and applications, generally over a GPRS-based network. Some of these services available today include WorldAccess from Orange, Live from Vodafone, Active from MMO2 and iMode from Telefónica, KPN, and Wind.
The focus on specialized content suggests that operators seek to gradually build consumer interest in services. Many of these carriers are imitating the model used by Japanese carrier DoCoMo, as it has been used long as the model of wireless data success. Monkey see, monkey do. Specialized content to date has relied on lower bandwidth than the traditional Internet and generally means an offering of stripped own content not resting on the Internet but developed by the operator or a third-party vendor with content intended for the small cell-phone screen.
1.2.6 Build out targets are changing
Overall, the aggressive WCDMA network build out plans of the past have been reduced. Initial plans anticipated aggressive take up of services and high use of data and quick rollouts with WCDMA up in most nations by 2003.
And, those operators looking for real-life examples of successful WCDMA deployments looking to two of the most aggressive carriers as of this time deploying WCDMA might become frustrated with the view. Japanese carrier DoCoMo and Three in the UK, have shown that the real cost of WCDMA network build outs is higher than expected and the actual take up rates are lower than expected, and has resulted in less aggressive plans by the two carriers.
1.2.7 EDGE is gaining traction
EDGE continues to gain support. The technology has overwhelming support from GSM carriers in North America, Central America and South America and support for the technology is rising in Western Europe.
For example, TIM (Telecom Italia Mobile) and Telia Sonera recently upgraded the company’s respective cell sites with EDGE technology, going against the conventional wisdom of several years past that WCDMA had to be deployed to if one were to remain competitive. The carrier’s Bouygues of France and O2 of Ireland have expressed public interesting deploying EDGE.
Throughout the wireless handset, semiconductor, and planning community, a strong interest from carriers across Western Europe for EDGE technology and handsets has been seen. EDGE, many have theorized, could be used to fill a gap until WCDMA matures and/or as a means to upgrade the capacity of GSM cells in rural areas without relying on WCDMA. In either case, the growing interest in EDGE in Western Europe suggests a lesser role for WCDMA than was once expected.
1.2.8 WCDMA marketing is changing
WCDMA was originally anticipated to be and sold as a vehicle to drive the mobile carrier’s average revenue per subscriber (ARPU). Support for that approach is now waning.
Three changed its strategy throughout its territories. It is now differentiating its service via pricing on voice minutes. For example, the company slashed per minute charges to just under 5 pence in the UK during the summer of 2003. The nearest competitor, Vodafone charged roughly 9 pence per minute. The other UK carriers, Orange, T-Mobile and O2 charged more than double Three’s rate on a per minute basis.
Telia Sonera, meanwhile, is offering a free upgrade to 3G in Sweden. Vodafone has made it clear that it views WCDMA as a technology that is secondary to the actual service such as Live. Thus the company will use Live to attract customers to WCDMA instead of the opposite, which conventional wisdom dictated.
1.2.9 License deadlines are driving the market
With the exception of Three and Japan’s DoCoMo, carrier deployments of WCDMA are being driven by the coverage requirements of their licenses and not by market demand or competitive pressures. Carriers also continue to press regulators to loosen the terms of their licenses including the coverage deadlines and requirements.
Some carriers are deploying ahead of the deadline mandates, such as multi-national carriers Vodafone and Orange but these two are the exceptions and their aggressive stance is primarily in the UK and France.
1.2.10 Capital expenditures ceiling
Carriers are striving to reduce group-wide capital expenditures from 10% to 20% of total revenues. Europe’s global operators, which are numerous, seek to reduce investment in their European operations from 5 % to 10% of total revenues to achieve this goal. And, the balance of capital expenditures also trying to be means less is being invested in the Western European markets so more can be spent in growing markets such as Eastern Europe, Middle East, Africa, and Latin America.
1.2.11 Global opportunity
The developing world represents the largest single opportunity for carriers today. Wireless penetration exceeds 65% in aggregate in Western Europe and 60% in Japan and South Korea. Wireless services have 20% penetration globally. The fact is relevant because operators, including those committed to WCDMA, are investing heavily in operations that target developing areas. Doing so is attractive because capital expenditures have a direct impact on revenues due to basic subscriber growth. The trend is placing limitations on the amount that carriers are willing to spend on WCDMA or any other technology for upgrades in developed markets.
1.2.12 It’s the handset stupid
Phone features including cost, battery life, size, operating system, capacity and other elements will play a pivotal role in driving demand for services, especially data services. GSM devices will offer a considerable advantage in variety, feature set, and cost for some time to come. This will be a disincentive to use of WCDMA for many. WCDMA is unlikely to overcome this disadvantage until sometime in 2007, though progress will be evident prior to that time.
1.3 Conclusions
There are now 2.9 million WCDMA subscribers. Most of these are in Europe and Japan. Japanese operators ended the year with 2.1 million subscribers, accounting for the vast majority of users in the Asia-Pacific region. The majority of WCDMA subscribers will still reside in Europe and Japan in 2009 as well. Correspondingly, handsets shipments will also predominantly be sent to these two regions from 2003-2009.
As of 1Q 2004 over 81,000 WCDMA base stations have been deployed, mainly in Europe and Japan, resulting in a sizable amount of WCDMA coverage. Approximately 22,000 of these base stations are deployed in Japan. Deployments continue in both Japan and Europe. WCDMA will clearly play a growing role in both of these areas. However, coverage in other areas is expected to lag well behind that in Europe and Japan.
Penetration of WCDMA infrastructure and users in Europe is expected to proceed through 2005. DoCoMo (Japan) continues to invest aggressively in WCDMA equipment and has already announced intentions to end orders for new PDC phones. In contrast, most European carriers continue to proceed only at the pace that is required by their license. Many of these multi-national operators are investing in carriers/networks that are outside of Western Europe.
Current trends and existing coverage deadlines suggest that WCDMA will be gradually brought into the mainstream European mobile market during a three-year to five-year period between 2005 and 2009. Inexpensive and appealing WCDMA/GSM handsets that are comparable to those for GSM represent the trigger that will enable operators to accelerate the process. These types of devices are anticipated to proliferate by the end of 2006. Operators are expected to simply migrate their existing subscriber base to the WCDMA network by selling dual mode handsets between late 2006 and early 2009. It is likely that many subscribers will even realize that they are on a different network.
In addition to the markets discussed, WCDMA has or will be deployed in Hong Kong, Australia, Israel, South Korea, Malaysia and Taiwan.
AT&T has announced that it would deploy WCDMA in its network in a select few cities during 2004, but it seems like the carrier, as are other TDMA and GSM carriers, is looking at EDGE and GPRS as a means to the end until a significant mobile high-speed wireless data audience is proven to exist in the United States. This could change with the pending sale of the wireless company 1Q or 2Q 2004, with the buyer looking to upgrade to WCDMA. However, in the United States, as in most of the world, voice is still king to carriers.
As of 2004, large WCDMA contracts of significant scope are nonexistent for deployment in areas outside of Europe and Japan. Even in the case of South Korea, expected expenditures on WCDMA have been reduced.
Carriers outside of Japan and Western Europe can, for most part, still expand capacity of the existing wireless networks via basic software upgrades, traditional cell splitting, and EDGE, before considering turning to WCDMA for enhanced voice capacity in the network and the ability to offer high-speed data. If the potential data audience does not clearly appear, many European and even Asian-Pacific carriers in glutted markets will use the spectrum and the WCDMA network to court voice users.
Most carriers throughout the world are not ready to build out entirely new WCDMA networks and won’t be until 2007. The gap in time might have been advantageous to WCDMA proponents if it were not for the on-going commercialization of competing technologies, such as OFDM and TD-SCDMA.
WCDMA product built to UMTS Release 99 will still play a role outside of Europe but that role is expected to account for fewer than 60 million subscribers by 2009. The introduction of subsequent variants of UMTS, such as Releases 4 and 5, will be critical to capture opportunities beyond Europe and Japan in the 2007-2009 timeframe.
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