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3G: Building the World's Biggest Machine
Posted: 04-Oct-2003 [Source: special to MobileTechNews]

[An assessment of what the introduction of GSM in the nineties can tell us about how to launch 3G services successfully today.]

by Steve Jones, The 3G Portal -- The challenge of launching GSM networks in the early nineties has similarities with rolling out 3G and the lessons learned then could now help with 3G.

When I look back over the last year it reminds me in many ways of the observations being expressed about the wireless industry back then. If you were around in those days you would have heard questions like:

- "Do we really need digital mobile communication?"

- "Can customers afford these high prices?"

- "Won't the high investments break the operators financially?"

Well, the last ten years or so have answered those questions beyond all reasonable doubt.

In 1990 there were just over 10 million mobile subscribers round the world, by the middle of the nineties this figure had increased 10-fold, and by 2001, there was over 1 billion mobile subscribers accounting for roughly half the world's telephone lines. By the end of 2003 or early 2004 there will be 1 billion GSM subscribers alone. This growth is unparalleled in the history of technology adoption, even compared with electricity mains, radio, television or the Internet.

However like the infant 3G of today, the early GSM service was also criticised from all quarters, and there were many difficulties to overcome before it took off.

Wireless network operators are now embarking on one of the costliest and most time- consuming tasks ever to confront their networks -- think of it as building the world's biggest machine. Over the next few years they will upgrade their networks so they can offer third-generation (3G) wireless services. As they begin to do this, they can speed up the process, and do it more economically by learning from the history of GSM.

Looking back at the lessons of GSM

There were a number of things that were learned during the rollout of GSM in the nineties that if applied during the early days of 3G could make its adoption faster and less costly.

The following summarises the lessons learned from the early GSM days, lessons that can now help drive the worldwide adoption of 3G.

1. The basis for faster global success is co-operation

2. Help outsiders understand the business case better

3. Satisfy subscriber's preferences even faster

4. The killer app is probably here now, look harder

5. Manage expectations with realistic promises

1. The basis for faster global success is co-operation

It should not be forgotten that GSM, like 3G today, faced criticism that it was taking a long time coming. The GSM gestation period was around 7 years. The planning process for GSM began in earnest in 1985 though the world had to wait until 1992 for its first GSM network (from Radiolinja- Finland).

The good news is that 3G's passage has taken less time. Though the impatience of some observers would suggest otherwise. When the move to 3G began seriously with the first set of usable specifications for UMTS equipment with "Release 99" by the 3GPP (standards body) in March 2002. The impact of this was quick and substantial in that by the end of that year, 112 operators had moved quickly to select WCMDA for their 3G networks (as opposed to 2 for CDMA). Today, commercial 3G services can be seen across the Americas, Asia Pacific and Europe.

The progress of 3G from research through to commercial implementation has been very fast compared to other pioneering technologies such as television, VCR's, fax machines and even GSM.

One of the most time-intensive tasks has been the development process whereby the whole wireless industry has played a part in reviewing the evolution of the UMTS specifications. The determination to create an open standard has taken longer than if a more proprietary approach had been followed. However, this philosophy promises to be the foundation of its future success as has been seen with many other global -- open standards -- technologies, not least GSM itself.

As the industry today looks back it will also see that co-operation was also key for accelerating the speed of take-up of new services. GSM players worked hard at making international roaming widespread. Looking back it was the ease with which business users (then consumers) could call wirelessly from one country to another that provided a substantial uplift in GSM's popularity. The power of international roaming has not been lost on today's 3G operators and this phenomena is likely to happen much faster than during the early GSM era.

Similarly the wireless industry learned from early GSM days that co-operation could also promote the faster growth in revenues from non-basic services. In the nineties interoperability was the foundation for text messaging's (SMS) success. Typically the infrastructure is build first, because that is the phase of building the "Big Machine". Terminals are consumer products developing all the time and waiting for the technology to become mature and especially cost-efficient for volume production. Once both parts are in place, the mass market can start. While more recently those at the forefront of 3G roll out have moved with an inordinate amount of speed to facilitate MMS interoperability between both local and international carriers. We can expect the same high degree of co-operation when all the 3G operators in a country have launched commercial services.

2. Help outsiders understand the business case better

Many observers of the wireless industry continue to demonstrate a lack of understanding of the business basics of the sector. Telecoms require a solid infrastructure, and infrastructure has always been a long-term issue. This isn't something that can be done fast and inexpensively.

It took 125 years to reach 1 billion fixed line customers, but only 25 years to reach 1 billion mobile customers. Faster but still not an overnight success. According to the ITU, in 1986 there were just 1.4 million mobile subscribers compared to 410 million fixed telephone lines. In the late 1990's the number of mobiles overtook the number of fixed lines in some countries such as Finland. This outcome would have been laughed at in 1986!

The lesson for the industry's 'outsiders' is that 3G's growth momentum can only begin when the infrastructure build out process has been largely finished. We must remember that it was only after this phase was completed that GSM was ready to begin its mass-market success story. In conclusion, the mass media of today are somewhat premature when they pronounce on 3G's demise before the infrastructure elements are in place, i.e. widespread coverage, expanded capacity, stable/reliable systems and end-user devices in volume quantity.

Similarly 'outsiders' have a poor appreciation of the financials of the wireless industry. It is easy to pick up on analyst forecasts and foretell of a gloomy future. The numbers appear awesome to the inexperienced. Analysts have estimated that each 3G service provider will have to pay out between $1 billion and $3 billion, depending on the size of its network before 3G can seek to fulfil its destiny.

These are very large numbers but they were of a magnitude that featured in the operator's 3G business plans at the turn of the millennium. The sophisticated cost-benefit analysis carried out prior to acquiring their 3G licenses typically showed that the payback period would be many years- perhaps up to 20 years in some countries.

However many of those critical of the maths of 3G forgot that these kinds of criticisms were levelled at 2G too. A research consultancy (The Research Room, UK) reported recently that the GSM, TDMA and CDMA networks cost more than the current 3G networks to build, and at the time of build, there were even lower expectations of success compared with 3G!

In fact, if you examine some of the early mobile subscriber forecasts (from the mid-90's) the subscriber penetration generally peaked at around 5-10%. And yet the mobile operators still built their expensive 2G networks because they understood that telecoms is always a long haul when it comes to payback. The 3G industry of today also understands the same as its pioneering GSM forefathers. It is important for others to share the same perspective.

3. Satisfy subscriber's preferences even faster

There is one party in the wireless business that needs the earliest possible attention -- far, far in advance of the launch services; that is the potential customer.

Many critics said that the industry was slow to meet the needs of this audience 12 years or so ago -- and remind us of the prohibitively high pricing, the limited selection of handsets, all of them bulky and subject to confusing user interfaces. As things turned out, these factors never stopped the industry enjoying the unprecedented growth we highlighted earlier.

People say that this same scenario now being played out in parts of Europe and Asia Pacific region as 3G rolls out -- at least in terms of the end user experience. However history has shown that the early adopters of new wireless technologies (as GSM was once) are a forgiving bunch, and also that the wireless industry has always managed to find solutions to enable the mass market to easily become long term buyers of their services.

What the GSM industry showed was a great capacity to remove barriers to adoption as it uncovered ways to make its service appealing to all kinds of new users -- through the introduction of pre-pay making it easy for the general public to afford a mobile service, the ingenuity employed to create smaller and multi-function handsets, and the evolution of smarter, more intuitive user interfaces.

These lessons have been clearly learned by today's 3G players. Week by week, we hear about innovations in user interface design (Design Unit, Korea www.designunit.co.kr); handset functionality (Motorola, USA) and applications and services ("Live!" - Vodafone, worldwide).

The media attention on the apparent 'lateness' of 3G misses the point. The lessons of GSM have been learned by today's executives: namely, don't rush out a 3G system until the essential requirements of the end user can be satisfied -- low trade up cost, a wide selection of handsets in sizes that are similar to what they own already, and just as easy to use. Looking back, the early adopters of GSM were obviously more forgiving than today's experienced and demanding mobile user. That's why many 3G operators are taking their time -- to get it right from the start.

4. The killer app is probably here now, look harder

GSM went through a torrid time over its first five years. And without the benefit of precedent it just had to fight its corner as best it could. The arguments that rained down on it included the following:

- Do we really need this new technology?

- Why is it taking so long to build out the networks?

- Where are the handsets?

Today's critics fire the same questions but two that have had more press than most are:

- The industry doesn't know how to price 3G, and

- Shows no consensus about what will be the killer application.

But at the same stage of GSM's development the same accusations could have been made.

It is the stuff of legend now that within the initial GSM proposition, the value of SMS as a service for the end user was not understood at all. It could never have been expected that in GSM's early days 'texting' would emerge later to become a service adopted primarily by the youth market (with approximately 25 billion messages a month sent worldwide).

Similarly prepay was seen by the leading players in GSM as both expensive to implement and of marginal interest as a marketing tool. We can see with hindsight that prepaid services turned out to be one of the most significant drivers in both mature and developing GSM markets.

Both pricing and applications were priorities in the mid-nineties.

They remain so today. There are more tariff schemes being tried and tested by 3G operators than at the same stage of GSM's history. Likewise for 3G, the numbers of people involved in service creation exceed those in similar roles during the boom times of GSM a hundredfold. The wireless industry has a proven track record in discovering the tariffs and services that appeal to the masses. In 3G more effort than ever in the history of wireless is being invested in discovering the keys to mass-market appeal.

One can easily see history repeating itself, in that 3G will throw up it's own particular milestone moments as GSM, making us reflect on how "silly of us not to have seen that as the killer 3G app!" -- as was the case, for GSM with texting.

5. Manage expectations with realistic promises

However launching a brand new step change in technology is never easy (e.g. like going from fixed telecommunications to wireless communications). The learning curve for the industry and the end users can be steep, and difficulties can arise.

For example, GSM sometimes made itself hostage to fortune. Its commercial launch in Europe was slated for July 1st 1991 and it launched six months later. The heavyweights that are on the verge of moving into 3G like T-Mobile, Orange and Vodafone have learned that lesson. Their approach with respect to 3G is to work at meeting their service promise. Some say they are too cautious with announcements about their 3G intentions.

But they have learned through GSM, WAP and GPRS that it's less what you do but more what you promise that sharpens the pens of your critics.

3G can expect to go through a 'teething trouble' phase -- everything new does that, from babies to space exploration programmes -- and 3G will not be any different, nor was GSM.

Adopting this approach of better managing expectations will mean that 3G's management can fare better than their GSM predecessors. The lesson is to take control, manage your audience's expectations -- and bring them back to reality.

Never has the wireless operator side of the industry been in such a powerful position. It has the wherewithal to ensure all elements of the 3G mix are in melodious harmony -- or say, "we are not going to release this for public scrutiny (i.e. criticism)". Do otherwise and 3G will leave itself exposed to the detractors again.

There is nothing wrong with rolling out 3G more slowly than was promised. GSM did as much -- two years after its introduction there were still only 36 GSM networks operating in 22 countries. This didn't turn out to be the cause of any long-term financial calamity for the sector.

3G is even better off because the nascent GSM business had no other revenue streams except from its tiny core business. 3G has its large GSM revenues with which to build a prosperous future.

Conclusion

In many ways 3G has it a lot easier than when 2G was launched. At the birth of GSM, there were no application developers for GSM in the early days. Vendors according to set standards developed product features and functionality. Then operators themselves developed services almost fully in-house. At the birth of GSM, operators did choose an unproven digital system (at that time), as opposed to the then standard, often national, analogue cellular systems like TACS in the United Kingdom and AMPS in the United States. Sure 3G is a great advancement in mobile technology, but it is still just an evolution of 2G, the telecommunication success of the century.

In other words today's 3G doesn't require the investment in faith that GSM did. In the late 1980's the founding fathers of GSM had to dig deep and believe that advancement in digital signal processors and compression algorithms would come through and so allow the fulfilment of their original 2G launch criteria:

- Good subjective speech quality

- Low terminal and service cost

- Support for international roaming

- Ability to support handheld terminals

- Support for range of new services and facilities

- Spectral efficiency

All of that came to pass -- and 2G has been a great success.

By understanding how 2G moved through its difficulties, many of which had no precedent -- its successor, 3G finds itself in a powerful position. The executives running the mobile industry in 2003 enjoy the illuminating benefit of hindsight, not available to their 2G predecessors.

To conclude, the greatest challenge facing the players in the wireless sector is to apply to 3G the early lessons of GSM so that the evolution from voice to multi-media is fast, inexpensive and rewarding for all.

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