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« Others on South Africa, two great blogs | Main | Musings on Mobile from Decidedly Un-3G 'Third World' »

October 27, 2009


Paul Jardine

Yeah, but that was not really the point. Of course 3G makes money, it enables new services and is now used by most of Europe and expanding across the world.
The interesting comparison would be between countries that did not run an auction for the spectrum (beauty contest) and those that did. How has the growth and innovation varied?
Also, another interesting comparison would be to see how the take up of data services, and the amount spent, has differed in countries that do not yet have 3G compared to those that do.
My main objection was the auction process, which more or less forced operators to bid high or die, especially if the predictions for 3G had been true (in the timeframes the excitement had generated). Many operators have received 'refunds' in one form or another, so the initial effect has been diluted, but I still wonder what would have happened if one of the big operators had not bid for 3G spectrum? Would they still be in business today?

Tomi T Ahonen

Hi Paul

Good points. First, a common misconception, "if the predictions for 3G had been true" - actually, the original predictions prior to the auctions best symptomized by the UMTS Report number 9 of October 2000, the most widely referenced analysis and forecast for the 3G opportunity globally, have been uncannilly accurate. Uncannilly accurate. UMTS R9 predicted 500 million subscribers of 3G by 2009 ! wow, that is 'spot on' considering UMTS R9 came out a year before any 3G existed anywhere.. A forecast nine years into the future and they nailed it.

As to revenues, UMTS R9 predicted premium mobile services at 101 Billion dollars by 2008. The non-voice service actually were worth 189 B according to Informa, so they predicted accurately a 100 billion dollar magnitude totally new revenue source, but they under-estimated the actual size, which was obviously nearly twice as big.

This was typical of UMTS R9 and most forecasts in the 2000 time frame such as those released by my consulting and econometric modelling department at Nokia and essentially all of my rivals from Ericsson and Nortel to Motorola and Siemens. Note UMTS R9 estimated total world mobile phone subscription rate to explode to 2 billion users (when the world had under 650 million at the time) - when reality is exactly twice that, we passed 4 billion subscriptions at the end of 2008. Again, UMTS R9 was remarkably accurate with other 'relevant' forecasts, ie internet users they predicted would hit 1.7 billion (reality 1.4B) and fixed landlines at 1.4B (reality 1.25B) at the end of 2008.

The forecasts PRIOR to the 3G auctions were very good, and proven to be founded on great analysis and understanding, more under-estimating than over-hyping the 3G opportunity, clearly.

Now, what happened around the auctions and soon thereafter, every major player started to 'outbid' each other with their forecasts, and we got ever more weird predictions. Those came in 2001-2002. That is where we get this image that 3G did not fulfill its promise, because some players - famous Sonera forecasts from Finland for example, who bidded for a German 3G license and essentially the company went broke with that 'investment' and was sold to Sweden's Telia, and was forced to return the 3G licence, one of very few operators to do so globally. But Sonera 3G predictions were that something like two thirds of total 3G revenues would be data servies by something really dumb, like 2005 or 2006 or so..

But as I promised in the blog, I will do a review of some of the forecasts from October 2001, just when NTT DoCoMo launched 3G in Japan, as well as my main predictions from that moment, as I had just launched my own company and was 'free' from any Nokia PR 'restrictions' and 'guidelines' to what I could say... I think it will be intersting and you were there Paul, you remember, you will see many familiar claims and promises and forecasts and predictions, some more bizarre than others haha.. Will write it shortly..

Now, to your actual point - what of 3G adoption in countries of high 3G auction license fees vs no fees. Great comparisons. The two countries that took over half of the 100 billion, and the only ones where auctions were arguably 'prohibitively' expensive, were the UK and Germany. 11 licenses in total across those two countries which cost on average about 5 billion dollars each in round terms. If your radio network - the biggest infrastructure expenditure of a modern 3G network - only costs 1 billion in rough terms, and the license costs five times that, obviously this is severely significant in investment decisions.

Meanwhile the first two countries to award 3G licenses, Finland and Japan, gave them away for free. Sweden is a special case where the 3G license was free but a 'beauty contest' with so severe requirements that it was called a hidden auction, and actually national incumbent and by far biggest 2G operator of Sweden, Telia, was unable to win a 3G license and became the first incumbent not to own a 3G network - they ended up doing a network sharing deal with their biggest rival, Tele 2.

So, we have the only 2 counties of 'prohibitively' expensive 3G licenses, UK and German, and the first 2 countries where 3G was given for free. Plus and intersting 'hybrid' country.

Japan has been a total 3G success in every way, users, traffic, revenues, services, handsets, etc. Obviously. But the interesting part is what of the UK? Together with Italy, Europe's first commercial 3G launch country. By most measures, for Europe, with the exception of Austria and Italy, the UK is a leading 3G country. By 3G migration rate, by data services, by handset. And what of Finland? As the license was free, they should be 'ahead' but are behind the UK and roughly on par with Germany. Germany itself has pulled into the mid-field of European countries where they were a laggard in 2G, and Sweden? has been falling back into the pack from a leadership position in 2G to only upper tier, about on par with UK and Denmark, clearly behind Austria and Italy, in 3G.

You make a very good argument, and there is a lot of interst - no, not that there is, there SHOULD be a lot of interst, what hindering or expediting effects did the 3G auctions bring, and what economic damage in reality did they bring to the operators. None of the 5 UK operators with a 3G license, and only one of the 6 German operators with a 3G license ended up abandoning them. All remaining operators are in business today.

Yes, the 3G licenses were expensive, and definitely it was good that not all countries imposed a 5 billion dollar tax to each 3G license, but did they cripple the 3G industry - not in the least. A couple of operators have died, but out of several hundred that launched 3G, its less than 2% of the total that have failed in 3G (including the first US operator on 3G, Monet). That is typical of new business, but seems to have no correlation with the 3G license cost. If it did, we should have seen the majority of the 3G failures explicitly in the UK and Germany..

Good comments, talk to you later again Paul

Tomi :-)

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