News

3G Wireless: Can the Reality Live up to the Hype?

• By John K. Waters
• April 30, 2001

The promise of 3G is nothing short of a new era of connectivity, and mobile operators around the world have shelled out big bucks for spectrum rights. At the most recent PCS auction, license winners spent nearly $17 billion on the spectrum. But exactly where these pending improvements in wireless data and voice communications (through a variety of proposed standards) will lead might be more of an open question than even its proponents recognize.

According to analysts at AMR Research, the difference between what 3G promises and what is actually possible is significant, and some old-tech alternatives may create renewed interest to solve immediate problems. In a recent AMR report, Dennis Gaughan and Rekha Waheed write, "The reality is that the cost and uncertainty around 3G's future could spell ruin for the [spectrum] auction's so-called winners."

The promise of 3G is compelling. Proponents see it as the solution that will support wired, Internet-quality applications streaming to mobile devices at 2 Mbps, approaching landline network speeds. But in their report, Gaughan and Waheed offer a 3G reality check. Those speeds, they point out, are theoretical. "[T]he only way applications will come close to that performance [level]," they write, "is if the user is perched in the cell tower and is the only one using the network." 3G speeds, the analysts say, will most likely top out at around 384K.

Also, improvements to the current 2G technologies could allow mobile operators to approach these speeds without requiring a Universal Mobile Telecommunications System (UMTS, the leading 3G vision) license. Between the United Kingdom, Germany, and the United States, close to $100B has been spent just for the right to use 3G airwaves. Those costs, researchers say, do not include the infrastructure facelift needed to begin using 3G services. They estimate replacement costs at from one- to three-times the cost of the license. "Much of the expense is because 3G services require more base stations to deliver the same level of coverage and services," the report argues. "It's a significant cost for the mobile operators to absorb and still be able to deliver compelling services at reasonable prices."

Carriers seem to be unconcerned about such additional costs. Mostly their solution is to provide extra services, such as location technology, that will generate additional revenues. But most carriers are likely to offer virtually the same sets of services, so it will be very difficult for any one carrier to distinguish itself in this new market. "[I]t boils down to coverage and price," the report concludes. "The operators are all improving their coverage maps by building out networks or through roaming agreements. And it will be very difficult to provide competitively priced services when you are carrying a significant burden of debt."