3G Update

Well following my post last week about Vodaphone and 3G in Europe there seems to be more news today that backs-up the argument questioning the economic viability of the thing.

Firtsly shares of NTT DoCoMo, the world’s No. 2 mobile-phone and the leading 3G operator, just had their biggest one-day drop ever after the company said operating profit may drop 25 percent and sales may fall (by 2.5%) this year on more competition in Japan.

Meantime Investment bank Nomura are predicting that Hutchison Whampoa could walk away from its loss-making 3G mobile business by end 2006. Their analyst reckons HW could rack-up operating losses of about $2.7 billion this year simply on the 3G operation alone.

Normura failed to see how Hutchison 3G (H3G) can achieve an economic return on capital and value the company at a negative HK$63 billion. “Our Hutchison Whampoa estimates include an assumption that the company walks away from its 3G ventures by the end of the full year of 2006,” James said.

The survival of 3 Italia was also called into question despite signing up the highest number of 3G subscribers among Hutchison’s 3G business. The company announced in March that it had 453,000 customers in Italy.

Obviously the DoCoMo situation is not all down to 3G, and in some ways it could be declared a success: DoCoMo had 3.05 million 3G users at the end of March 2004 compared to 330,000 a year earlier. However finding a realistic pricing model to extract revenue seems to be a problem, and they have now announced that they will be offering unlimited mobile internet on their 3G FOMA service for a monthly flat fee of 3,900 yen. At current rates that is about a manageable 29 euros a month. Which would be fine for a lot of users, but then you have to subtract the downside: all those ADSL customers who may decide to switch over. As I said, great idea, but the economics are far from clear.

If we don’t succeed, we run the risk of failure.”
J Danforth Quayle

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “3G Update

  1. It certainly seems that way to me. If the 3G nets can turn an operating profit selling permanent broadband at ASDL prices I’d say that the future of the technology is secured. And yhea! for that, it’s really to nifty to loose –
    That just leaves the question if they can also pay of the capital costs of the licences. Does anybody know the operating costs so we can take a wild stab at how much money they can make selling broadband to everybody and their sister at 30 Euros/month?
    Certainly this seems to be a buisness model that should work really well in the third world (and other largely barefield enviorments) if they can get the licences cheap/free. Phone and data-service in one neat package.

  2. “Isn’t the loss of adsl custom somebody else’s problem?”

    Not in the case of the National Champion Telecoms it isn’t. Of course for Vodaphone….

    “if they can also pay of the capital costs of the licences.”

    This is where the Euro Tunnel example comes in. Potentially profitable, but not if they’re hamstrung with debt from the start.

    “a buisness model that should work really well in the third world”

    Of course, I suspect that many parts of the third world are going to be much bigger beneficiaries of some of the new technologies much more quickly than people imagine. For the simple reason they often don’t have such huge ‘vested interest’ incumbents to get out of the way first.

    Again they don’t have to bother with gsm compatability problems if they didn’t have gsm in the first place.

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