First signs of 3G business case emerge: Study evaluates financial feasibility

Carriers in mid-size and large markets may find third generation networks financially viable, but operators in small markets likely won't, concluded The Strategis Group's report, "3G Wireless: Demand, Standards and Technology."

Only recently has the wireless industry begun to seriously consider the financial aspect of 3G networks.

"In the beginning, discussions centered on the technology choice," said Yiuman Leung, senior manager of the CDMA product line at Northern Telecom. But one of the questions most frequently asked by carriers today is, "What's it going to cost?" Some wireless players are now trying to provide an answer to that question.

The Strategis Group study examined the opportunity for carriers in different sized markets to implement 3G technology. The study considered the net present value, which calculates the total investment vs. the total return. A positive net present value indicates an investment worth making. Although the results show that small markets generally won't be able to support a 3G network, some small markets can find success in 3G. If one operator in a small market captures at least 75% of the 3G subscriber base, that carrier could operate a profitable 3G network (see table).

Operators can capture a majority of customers by being first to market with 3G services or merely by constructing a 3G network in an area that competitors may not find attractive, said John Zahurancik, director of Internet and telephony at The Strategis Group. Spectrum ownership may play a role in certain carriers taking a lead, he said.

Leung envisions two possible scenarios for the rollout of 3G networks that may also determine the success rates of operators. The first he calls the niche market scenario. "That will happen if the standard doesn't deliver what operators want in terms of capacity and coverage and vendors can't provide the equipment at the right price," he said.

The second scenario would occur with the development of equipment that meets carriers' needs and would involve ubiquitous 3G coverage. In this case, "[operators] would look at 3G as a base for a natural evolution," Leung said.

Even though some industry followers have criticized 3G as being totally driven by manufacturers, it makes sense that vendors would drive this development. "Manufacturers have to precede the carriers by several years to build equipment to meet future demands," Zahurancik said. Carriers are focused on running their businesses now and developing applications for tomorrow.

However, an increasing participation by carriers in 3G discussions may further develop the business case for 3G.

AirTouch, for example, is developing a vision for the types of services that 3G might allow. Its model breaks down services into categories that note the context, such as machines to people. It also considers the factor of time in information delivery. Craig Farrill, vice president of strategic technology at AirTouch, said he hopes this model will soon be refined and possibly begin to be used throughout the industry as generic terminology.

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