3G for the masses: Vodafone's launch of consumer 3G services is a major milestone for the mobile industry—but it's still business as usual

Telecommunications International, June, 2004 by Ken Wieland

The moment which has been so eagerly awaited has finally arrived ...

So starts the Vodafone press release, issued last month, declaring the commercial launch of 3G services for consumers in Germany and Portugal. And it seems like the wait has been a lengthy one. Since the 3G licence awards in 2000, numerous 'deadlines' for commercial launch have been set and broken by all mobile operators. Now, 3G from Vodafone is here. More of the mobile operator's key European territories are scheduled to follow with consumer 3G in the coming months.

But what does it all mean? Well, initially at least, not much from the point of view of service choice. Vodafone has branded the service as 'Vodafone live! with 3G', indicating that it wants the faster network to be seen, primarily, as an enhancement to its existing range of consumer data services.

Technically, though, the Vodafone 3G launch for consumers is significant. CEO, Arun Sarin, had repeatedly stated that Vodafone would not launch a 3G consumer service until it was absolutely certain that the handsets and network could work together to provide a demonstrably better user experience than could be had over GPRS. The mobile operator also wanted to make sure that all interoperability issues were resolved for call handoff between 2.5G and 3G networks. By launching 3G for consumers, Vodafone has given a vote of confidence to the handset and network vendor community.

Some, however, may raise an eyebrow to the '3G' reference in Vodafone's marketing of the service. This, after all, is a technical allusion. Hasn't the mobile industry learned its lesson from trying to promote a technology as it did with WAP? Vodafone--obviously--doesn't think this will be a problem. "The feedback we have had from our customers who would be willing to buy this service already have a perception of what 3G is," says Jon Earl, senior group communications manager at Vodafone. "So why do something else? Why push uphill?"

Nigel Deighton, an analyst with Gartner, agrees. "3G is not a bad selling point," he says. "You've got to find some way of differentiating it from other services [based on GPRS]."

Video calling is a 3G service differentiator from GPRS and is available on the Samsung Z105 handset used to launch the 'Vodafone live! with 3G' service in Germany and Portugal. More UMTS handsets are due to 'follow shortly', including the SonyEricsson Z1010.

Vodafone, however, no doubt taking note of the general lack of enthusiasm for video calling in Japan--as well as the European territories where Hutchison has launched 3G services in 2003 (UK, Italy and Austria)--does not view video calling as a flagship 3G service that will persuade GPRS users to opt for a 3G upgrade. "Video calling is only one part of the service mix," says Earl. "The success or otherwise of 3G will not solely depend on that."

Gartner's Deighton concurs. "I don't think video calling is going to be a driver for any significant degree of data adoption, and possibly won't ever be so," he says. "The ability to download sports and movie video clips does, however, offers more [data revenue] potential."

The marketing strategy of Hutchison 3G UK, with its growing emphasis on cheaper voice calls and text messages (compared with the established mobile operators), also implies that selling the benefits of video calling is a difficult task. Common sense says that it's far easier sell services that consumers already understand and see a value in than trying to sell an entirely new service. (By the end of 2003, Hutchison 3G UK had managed to attract around 361,000 subscribers onto its network, well short of its one million target that it set at service launch in March 2003.)

"Social engineering doesn't happen overnight," adds Deighton. "But if a technology comes along which helps people do better what they are already doing, that usually attracts a faster adoption rate. In that sense, 3G augers well for Vodafone live!.

Vodafone live!

Vodafone live!, the consumer data service launched by Vodafone in October 2002, has been relatively successful in terms of attracting subscribers. By the end of 2003, Vodafone reported that it had 4.5 million 'live!' customers across 15 countries.

Comprising a colour-display portal to access a range of services other than SMS--such as e-mail, instant messaging, picture messaging and previously downloaded applications and ringtones--Vodafone reported that for the six months ended 30 September 2003, ARPU for a 'live!' customer is seven per cent more than non-live! subscribers.

While this is encouraging, the number of Vodafone live! subscribers has not been enough to have a significant impact on the mobile operator's ARPU figures as a whole. In its key European markets of Germany, the UK and Italy, blended ARPU (contract and pre-paid) has remained pretty flat over the period Vodafone live! has been in operation (Table 1). It is also not clear from Vodafone's financial results if this percentage increase is high enough to cover the inevitably higher subscriber acquisition costs (SACs) needed to attract Vodafone live! customers.