So how's that 3G coming along? Funny you should ask..

Yeah, was a momentous day, October 1, 2001. On that day eight years ago NTT DoCoMo of Japan launched the world's first 3G network. And also, by coincidence, a certain 3G consultant guy from Nokia went into his business to provide you all with more insights into this new mobile opportunity. So how is that 3G getting along? Some pretty silly 'experts' suggested 3G would bankrupt the total mobile industry, and many many financial analysts and 'experts' for many years peddled that nonsense that the 100 billion dollars spent on the 3G licenses was the biggest waste of financial resources. Yeah, but you, my readers, kept firm, trusted my books and numbers and forecasts, and now know the truth. 3G turned its corner and is no longer the big news. It is quitely moving along.

But there are probably more than a few who wonder, exactly what did happen to this - 'the world's biggest infrastructure investment of all time' as the total expenditure to the 3G networks and licenses did run over 300 billion dollars all told? And for a while there, there were many who said the phones would not take off, the network providers wouldn't make money and the customers wouldn't use the services.

So, reality check time. We have the latest numbers effective first half of 2009, from the GSM Association, and the other less common 3G network technologies, CDMA2000 EV-DO and TD-SCDMA. In total, as of June 30, 2009, there were 522 million paying subscribers using 3G based phones or other 3G devices such as data cards and dongles, connected to 3G networks. Not all are necessarily 'surfing the mobile internet' but essentially all consume at least some mobile data in the form of basic SMS and other basic mobile data services, but that is not really the point; any paying subscriber connected to a 3G network adds to the revenus of the 3G mobile operator, even if they only place voice calls. And 3G subscribers use on average far more of their mobile services than non-3G users in the same countries (and on the same networks) so this is all good news to the operators/carriers.

522 million. Boy, that is a big number. Half a billion people are already connected to high speed mobile networks around the planet. Out of all mobile phone subscriptions it is still only 12%, but that includes all those markets and countries where 3G has not even been launched yet. But if we count it against the main markets where they have been deployed - the industrialized world, 3G already forms over 40% of all mobile phone accounts and over half of Western Europe, and approaching 100% in Japan and South Korea.

So is there any money in it? My consultancy, TomiAhonen Consulting has tracked the 3G revenues since the beginning and for this year, we will pass 350 Billion dollars of total revenues generated by 3G worldwide. And yes, boys and girls, that is about 40% of all mobile telecoms service revenues globally. We are nearing the half-way point, where half of the industry income is generated on 3G devices. There is no doubt this industry 'adventure' has turned out to be a total success. And yes, for those who doubted that 100 billion dollar licence fee expenditure - note that for this year alone, the 3G industry will earn so much in its pre-tax and pre-capital expenditure income, that they could pay off that full 100 billion easily out of their operating profits from just this one year (I mean obviously EBITDA income, for those accounting-minded, the mobile industry global EBITDA margins are above 35%..  yes.. this is a lucrative business indeed). So to those who came to me back in 2000 and 2001 and bought my books in 2002, asking 'Tomi, will 3G ever make money' yes, it is clear,3G did turn out to be a big money-generating machine. If we assign just that 35% EBITDA margin to the 3G income, it means that the operating income for the 3G industry is well in excess of 120 Billion dollars. Not revenue coming in, profits made by the 3G industry...  And thats just the mobile operators/carriers, not even counting the various other players in the eco-system, such as 3G handset makers (anyone heard of an iPhone 3GS?) or the services and apps that the consumers buy (Apps Store, anyone?). How big is 120 billion dollars? Its as big as all the revenues - not profits, revenues - of the music industry, the videogaming industry, the hollywood and all other motion picture industries, put together. And still bigger. All this in eight years.

Abi Research said a while back, that this will be the first year when more 3G handsets are sold than 2G handsets. We are at various turning points, more handsets sold this year, more Industrialized World subscribers on 3G than 2G by next year, more than half of the total mobile services revenue income coming out of 3G than 2G soon thereafter. But yeah, I was there, at times it seemed I was all alone, promising it would happen, and wrote books about what that future of 3G would look like. It is now quite amazing to see that idea had blossomed to a global industry, and it makes me quite proud of having been there at the start, when nobody knew what 3G might be, and how it might make money. Not many people can say they wrote the first book on how a new three hundred billion dollar industry will make its money.. Cool. 

I will go dig up some of the forecasts from that period, and return to examine the main assumptions and predictions. I think it will be interesting to see where we got it right, and where hideously wrong haha..

And yeah, obviously, I still peddle those forecasts and statistics, eight years later. If you want to get a complete picture of the mobile industry size and its main sub-sectors, pick up the TomiAhonen Almanac. It includes for example the total handset population migration rates from 2G to 2.5G to 3G.. You can see many of its stats and graphs at the sample pages on the e-book ordering page.

Comments

[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 :-)