We all understand the differences between mobile and fixed telecommunications services - or do we? Third generation mobile technologies or '3G' may completely alter our views over the next three years, when the volatility of the Internet invades the previously predictable world of cellular services.

3G is already a major driver of corporate transactions and unfolding strategies in global telecommunications markets and has captured the imagination of companies as diverse as Microsoft, Vodafone, Lucent, BT, Yahoo!, Motorola, Sun Microsystems and Nortel. In Finland, which enjoys the worlds greatest mobile penetration, Nokia is driving it as a new information infratsructure vision. Governments in North America, Europe and Asia are all now planning their 3G policies.

Juha Rapeli, chairman of Special Mobile Group 5 of the European standards body, ETSI, has cryptically described 3G as a set of services "which we cannot imagine today with a technology that does not yet exist for user needs which we don't know". The promise of 3G is elusive, yet it has the potential to alter markets.

So what is 3G? As a rough approximation, imagine a Palm Pilot with a complex high-resolution screen with Internet functionality and almost no bandwidth limitations. It supports not only voice and e-mail but mobile-specific and functionally rich Internet content including news headlines and sports results, on-line banking, bill payment, shopping and share trading as well as CD quality audio and even video conferencing.

Streaming audio while you walk, comparison shopping on the World Wide Web while you are in a store, reviewing street directions as you move, booking a hotel, airport transport and theatre tickets in London on the way to the airport in Sydney. The mobile phone will become your automated teller machine (ATM) card, diary, e-mail interface and Web access tool.

As mobile networks can already locate users within network cells they will in the future be able to provide personal positioning services and advertising. When your user profile and location are linked you can be delivered advertisements for stores you are passing or be warned of traffic jams and advised of alternative routes.

Analogue systems such as Advanced Mobile Phone Service (AMPS) were the first generation of cellular technology and digital standards such as Global Service (for) Mobile (Communications) (GSM) and Code Division Multiple Access (CDMA) were the second. The transition from the first to second generations brought better voice quality and some additional features, including limited data functionality, but did not change our view of cellular services. However, 3G promises to alter fundamentally the manner in which we view mobility - a true generational change delivered through significant bandwidth and data functionality.

Currently, there are only around 2.5 million mobile data users worldwide and data forms less than 2% of all global wireless traffic. However, miniaturization, improved bandwidth utilization and the expanding development of content specifically for mobile handsets may present a very different retail proposition in the future, when broadband Internet is embedded in a pocket-sized handset.

Microsoft predicts that sales of cellular phones with 2G Internet access will surpass sales of laptops by next year and Forrester Research predicts that in the United States alone over $8.4 billion will be spent on wireless data services by 2005.

While current cellular services support data transfer at a speed of around 9.6 kbit/s, 3G mobile networks are expected to provide users with data rates of between a mobile 144 kbit/s and 2 Mbit/s in fixed mode. That means a web page photo in 0.4 seconds instead of 83 seconds using 2G technology.

Already the weathervane United States market has produced a welter of content deals to serve 2G and 3G networks. In June Microsoft launched its MSN Mobile portal after acquiring OmniBrowse. Redmond's most famous company is also a major investor in NexTel and a participant in a joint venture with Qualcomm to create wireless applications. Netscape and Lucent are working to develop wireless applications and Yahoo! has acquired Online Anywhere as well as closing deals with PageNet and Sprint PCS.

However, there are real questions about the services that are actually suitable for display on a palm-sized device. Are consumers interested in mobile browsing? How will revenue be generated from mobile content? Is advertising on a hand-held screen plausible using so-called 'micro ads'? Will consumers used to free PC-based access accept subscription fees in a mobile environment or will content simply stimulate airtime charges?

Wireless data may follow shifts in the wireless voice market. As the quality of mobile voice improves and price declines, mobile data services will increasingly become almost as ubiquitous as basic wireline services. 3G may piggyback on this explosion in wireless usage.

Alternatively, narrowband wireless data may begin to carve a niche in preparation for 3G. Already, mobile carriers across the Asia Pacific region are launching mobile 2G online banking and share trading services often using wireless access protocol or WAP. Many 3G applications will be trialed on 2G extensions such as General Packet Radio System (GPRS) to allow users to get used to higher speed cellular data applications. 2G may be pressed to its limits before investments are made in 3G networks.

3G may prove to be a technology that causes a major shakeout of existing mobile operators. Mobile players in most major markets are now deciding whether to make the jump to 3G or focus on second generation. The UK market is an example of how prospective 3G licensing has led to intense corporate activity.

Earlier this year Vodafone, Ericsson and Motorola jointly achieved the first 3G call in the UK as part of Vodafone's wideband CDMA trials. British Telecom will begin offering simple data services such as calendaring and e-mail over its existing GSM networks by the end of the year and Orange has announced the proposed launch of a videophone using GPRS.

The world's major equipment vendors are already positioning their products. Alcatel is working with Schlumberger and Sendit AB to develop a wireless e-mail application and Ericsson has a joint venture with Ginger Media Group to provide radio programmes through mobile handsets. Qualcomm has developed a pdQ smart phone and Motorola has agreed to a $1billion, 10 year venture with Sun Microsystems announced in June this year. Nortel and Samsung Electronics are developing a handset and system capable of handling images to be piloted in Canada, the US and Australia later this year. Lucent has pursued a range of mobile data products.

Governments across the world have already set aside spectrum for 3G and are beginning to plan for its allocation. This is in line with the International Telecommunications Union's (ITU) objective of the commercial launch of 3G from 2002. They have also appreciated the lucrative windfall to be made through spectrum auctions.

Japan is set to lead the world with 3G deployment. It originally planned for a launch in March 2001, although its timetable has recently slipped. The EC has decided to introduce the Universal Mobile Telecommunications System (UMTS) (Europe's preferred 3G standard) in 2002. Finland has been the first country in the world to issue UMTS licences (via a comparative bidding process) and Norway has already held auctions of trial UMTS licences. German UMTS licences are expected to be announced by the end of the year.

The UK 3G auction process has been delayed by legal wrangles over Oftel's attempt to make 2G national roaming agreements a prerequisite for 3G bids. It now plans to start the auctions before April 2000 and UK potential bidders will include incumbent mobile operators One 2 One, Orange and Vodafone and fixed operator Energis plc. In the United States new mobile data services are set to be launched well before the anticipated commencement of 3G in 2003-2004. Even South Africa plans to grant a combined 2G/3G licence to its third mobile licensee in a bidding process that is currently underway.

So where is Australia in this unfolding drama of a mobile future? The Radiocommunications Consultative Council (comprising government, industry and consumer representatives) has formed a special working group to examine 3G in Australia. The council includes representatives of the ABC, Cable & Wireless Optus, Vodafone, AAPT, Ericsson, Lucent, Telstra, NEC and the Department of Defence. It will complete an interim report on 3G spectrum planning by October of this year. The Australian Communications Authority plans to allocate the frequency from around the year 2000 (depending on commercial demands). We can therefore expect commercial activity next year and services by late 2002.

While, public awareness of 3G remains negligible it is certainly a high priority for our carriers. Vodafone Australia is now part of the largest mobile group in the world as a result of Vodafone plc's acquisition of AirTouch (a leading proponent of 3G in the United States market and one of the more sophisticated 3G exponents worldwide). Cable & Wireless Optus is also well aware of 3G developments as a result of its links with the UK market and the extensive global mobile assets of Cable & Wireless plc. In March this year Telstra announced that it had signed an agreement with Canada's Nortel for a third generation mobile infrastructure service that transmits data at 144 kbit/s. OneTel, Hutchsion (now rebranded as Orange) and APPT must also address 3G options as they deploy new 2G networks.

Prepare for sophisticated 2G mobile handsets with data service capability. We then need only await the promised world of broadband mobility. Of course, we can then decide if we need it.

For further information on this topic please contact Michael Reede at Gilbert & Tobin by telephone (+61 2 9367 3000) or by fax (+61 2 9367 3111) or by e-mail ([email protected])
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