The Rollout of commercial services on European 3G Networks is likely to be delayed until at least the end of 2002 or mid 2003, by the lack of availability in significant numbers of "dual mode" handsets capable of working with both 3G and existing 2G networks.
UK
mm02 Plc which was de-merged from BT Group in November 2001 has recently stated that the timetable for the rollout of 3G mobile services in its major markets was roughly six months behind schedule, citing the lack of availability of "dual mode" handsets.
Hutchison 3G, the only 3G licence operator without an existing 2G network, has planned to launch the UK's first 3G network in mid 2002, although it is now stating that it is looking towards the second half of 2002 for the launch. In the UK this will mean that although some parts of the UK cities can have services as early as mid 2002, a significant volume of users will not be able to use the services until the first half of 2003. Even then, there is a further question mark about the capability of the network and the applications which will be available for deployment at that stage.
In January 2002, H3G awarded BBC Technology a five year contract to manage the production of content to be provided through it's 3G network.
Other European Countries
3G Networks in other EU countries are also allegedly well behind schedule even before the issue regarding handsets is factored into the situation. France Telecom recently stated that its 3G services will not be available until 2003, preferring instead to concentrate on GPRS (2.5G) in 2002.
The French Government which was left in the embarrassing position of only managing to sell two out of four 3G licences to Orange SA and SFR in its award process held in 2001 has been attempting to sweeten the offer of the remaining two licences to potential bidders by setting the tax to be levied on revenues for the operation of 3G networks in France at only 1%. The French Government raised only 619 million Euros each from the sale of the two licences, plus the annual levy, which was drastically reduced from the estimated 4.95 billion Euros each prior to the award process.
The French regulator ART has recently announced that the award of the remaining two licences will take place by 30 October 2002. Deadline for applications for the two licences will be 16 May 2002. So far no potential bidders have emerged. However, media and construction conglomerate Bouygues SA, which have recently struck a commercial pact with Japanese company NTT Docomo for the possible introduction of its I-Mode mobile service in France are thought likely to bid.
In Belgium the delays in obtaining equipment and the long running dispute between the 3G Mobile Operators and the Belgian government concerning the issue of building permits for antennae has meant that the September 2002 launch date for 3G services set by the government is unlikely to be met. Belgacom mobile unit Proximus has already asked the government for an extension of 1 year to September 2003, and the other operators who won 3G Licences, France Telecom's Mobistar and KPN Orange Belgium are likely to follow suit.
The Irish regulator ODTR finally announced the details of the much delayed competition for 3G licences in Ireland at the end of December 2001. The intention is that four licences will be issued by means of a comparative assessment process rather than an auction. Unlike other European countries, Ireland will offer operators a moratorium which will allow payment for the licences to be deferred for several years until the services are up and running. The regulator has also stated that it will look favourably on any bids that include proposals for infrastructure sharing in order to ensure that services are rolled out quickly and with the minimum environmental impact.
Of the four 20 year licences, three "B" licences will cost 115 million Euros each and are expected to be awarded to the existing Irish mobile operators, Esat Digifone (BT plc owned), Eircell (Vodafone owned) and Meteor (80% owned by U.S. based Western Wireless Corp). "B" Licences must cover Irelands five major cities. The fourth "A" licence at 51 million Euros is reserved for a newcomer and mandates 80% population coverage. The "A" licence is also likely to provide extra spectrum for Mobile Virtual Network Operators (MVNO's)
The deadline for tenders for the licences is 27 March 2002 and the winners will be chosen by a panel of experts within ODTR combined with advice from outside consultants. Rollout of 3G services is intended to begin by January 2004.
In Germany, Europe's largest 3G market, two out of the six 3G licence holders, Vodafone and Mobilcom recently announced that they intend to start offering 3G services in the second half of 2002. Vodafone the second largest mobile operator in the German market with 22 million subscribers, plans to be the first to launch in Autumn 2002, significantly ahead of its major competitor Deutsche Telekom's T Mobile, the largest mobile operator, which has stated that it only intends to launch its first 3G service in the third quarter of 2003.
Mobilcom which successfully connected its first test calls in December 2001 will launch its commercial service in and around 12 towns in the Frankfurt area towards the end of 2002. Mobilcom has stated that, for a number of technical reasons, it does not intend to cooperate with other operators in respect of the build out of the first phase of its 3G network which it has estimated will cost 1.5 billion Euros.
Mm02 subsidiary Viag Interkom has postponed its launch of 3G services, originally planned for mid 2003, until the end of that year
Reports in the German media have recently speculated that at least one of the six German 3G licence holders may surrender its licence to the government due to financial problems. Analysts have identified Quam, a joint venture between Spain's Telefonica and Finland's Sonera as the most likely candidate to drop out due to financial difficulties caused by the high cost of the 3G Licences. The German 3G licences sold for 8.4 billion Euros each 18 months ago but strict licence conditions mean that they cannot be traded and must be returned to the government without compensation in the event of the insolvency of the holder.
Both the German regulator RegTP and the German Government have so far strongly resisted calls to modify the licence conditions in order to ease the burden on the operators. The two largest 3G mobile operators in the German market, Vodafone and Deutsche Telekom's T Mobile have stated that if one or more of the licences are surrendered, they are intent upon preventing any newcomer from taking advantage of the current industry crisis by obtaining a licence at a symbolic price.
(Other country specific information for the roll-out of 3G networks in Europe is available upon request.)
Even after rollout, technical difficulties in providing certain advanced services, in which the network provides information based upon the users geographic position such as online maps or city guides, will mean that service revenues in the early years for many of the networks will be dominated by voice traffic that could easily be carried on today's networks.
Thus far there are a limited number of 3G only handsets currently available to network operators from one of the major Japanese manufacturers NEC. NEC has a lead over most of the European handset manufactures due to the fact that 3G services have already successfully been launched in Japan, whilst European based manufacturer Nokia, which supplies around one third of all current 2G handsets sold in the global market, has only recently brought out its first GPRS (2.5G) handset.
A number of manufacturers have been seeking to collaborate on 3G handset production namely Sony Ericsson who combined their operations earlier in the year, whilst German manufacturer Siemens proposed collaboration with Japanese manufacturer Toshiba looks to have stalled.
NEC and fellow Japanese manufacturer Matsushita are planning to establish a project for joint development of 3G handsets in China, potentially the worlds largest mobile phone market.
The first 3G network of a wholly owned subsidiary of the UK operator mm02 Plc, located on the Isle of Man and operated by Manx Telecom, were switched on during the first week in December 2001. It is also Europe's first fully operational 3G network. This trial network, which will initially operate using around 200 3G only handsets manufactured by NEC of Japan, will provide user trials in preparation for the introduction of other 3G networks across Europe.
The Second located in Monte Carlo was launched in mid December 2001 by Monaco Telecom, 55% owned by Vivendi Universal. The network was built by Siemens with NEC supplying the handsets.
Other small networks have similarly been launched in Sweden and Finland in the last week of December to meet the roll out conditions of the 3G licences imposed by the Regulators in those countries despite the lack of handsets.
3G Mobile Network Infrastructure sharing
The trend amongst European mobile companies for sharing network infrastructure continues with the announcement at the end of November that the Spanish Government plans to allow Telefonica Moviles SA and Vodafone Espana to share their 3G networks.
In Norway Tele 2 AB and Telia AB are in discussions to reach an agreement on network infrastructure sharing, similar to the agreement reached between the two companies in Sweden in January 2001. The Government of Norway has indicated that it may be willing to alter the country's stringent licence terms in the face of growing industry doubts about the near term economic potential of 3G and allow operators to share a single network in the more remote parts of the country, while maintaining separate networks in Oslo.
In Sweden newcomers Orange Sverige, and Hi3G Access have both entered into a tri-partite agreement with incumbent operator Europolitan Vodafone to set up a joint venture company to build and share a 3G network to cover up to 70% of the population. Each operator will be an equal partner in the venture. They will continue to build their own networks in Stockholm, Gothenburg, Malmo and Karlskrona and will also compete for customers across the entire country. The network sharing agreement will allow each of the three operators to reduce the costs of building their networks and reduce the number of cell towers.
The German regulator Reg TP announced in June 2001 that it intended to interpret licence conditions to permit network co-operation and infrastructure sharing in the German market.
In the Netherlands the Dutch Telecommunications Act and the Dutch Competition Act allows Network operators to share infrastructure but the joint use of core networks and frequencies is not allowed.
Similarly, the French regulator ART has stated that it is in favour of Network Operators sharing infrastructure as long as they do not share frequencies. Operators can share passive sites and equipment such as antennas, base stations and radio network controllers, as long as they keep control of the key elements of the network that allow them to exploit independently the frequencies allocated to them. ART has also stated that geographic sharing is possible, but cannot be accounted for by an operator to fulfil its territory coverage requirements.
In the UK, provided that the rollout obligation contained in the 3G operators Wireless Telegraphy Act Licence (80 % of population coverage by 31 December 2007) is met there is nothing to prevent infrastructure sharing amongst 3G operators. In fact, Oftel issued a guidance note jointly with the DTI and Radiocommunications Agency in May 2001 which positively encouraged infrastructure sharing on environmental grounds. However the Radiocommunications Agency has recently stated that they would draw the line at Operators "pooling Spectrum" (Further information is available upon request.)
Mm02 Plc's UK business, BT Cellnet and Hutchison 3G have recently agreed commercial GSM (2G) Roaming terms. The agreement fulfils BT Cellnet's PTO mobile GSM (2G) licence obligation to provide the new 3G market entrant with GSM Roaming. This will allow H3G to launch a full nationwide service before completing network infrastructure. Under the agreement H3G will have access to BT Cellnet's 99% population coverage for GSM calls and text messaging. The agreement goes further than the licence obligation in that it also allows for roaming provision onto BT Cellnet's GPRS (2.5G) service. The agreement will commence following the launch of Hutchinson's 3G network, currently stated to be available in the second half of 2002.
Hutchinson 3G has concluded a similar GSM roaming and 3G site sharing agreement in the Italian market with Telecom Italia Mobile.
Had Hutchinson 3G been unable to reach a commercial agreement with any of the UK's four existing GSM mobile operators, the Director General of Telecommunications could have imposed a national roaming agreement on either mm02 or Vodafone as part of their GSM licence conditions. Orange and One 2 One's GSM licences do not contain such conditions.
Mm02 has similarly announced that it intends to enter into agreements (currently non-binding) with One 2 One on infrastructure sharing on the rollout of their respective 3G networks and GSM Roaming subject to regulatory approval.
The advantages for operators in network infrastructure sharing are that costs associated with network rollout are reduced, i.e. not having to duplicate competing systems. They can bring their networks to the market sooner and provide greater geographic coverage and thus bring revenues on stream sooner.
There are also disadvantages to network infrastructure sharing, as an operator can risk losing control of their networks, in particular where a partner to any agreement may become insolvent.
Competition Issues
Network infrastructure sharing agreements may however be subject to regulatory approval on an individual basis under EC or National Competition Law.
Articles 81 and 82 of the EC Treaty respectively prohibit anti-competitive agreements and concerted practices (Art 81) and the abuse of a dominant position (Art 82).
In the UK such agreements are governed by the UK Chapter 1 competition prohibitions (Art 81) which prohibit agreements which have the object or effect of preventing, restricting or distorting competition and that may affect trade within the UK.
The UK Competition Act 1998 which came into force on 1 March 2000 grants powers to the DG of Telecommunications, exercisable concurrently with the DG of Fair Trading, for the enforcement of prohibitions against anti-competitive agreements in relation to "commercial activities connected with telecommunications". The Competition Act gives those regulators investigative powers, the power to impose interim measures and enforcement powers including the imposition of substantial financial penalties and prohibition orders.
Operators may ask Oftel for guidance or a decision under the Competition Act as to the compatibility of any infrastructure sharing agreement with the competition rules. They may also apply for an exemption if they apply for a decision. An exemption may be granted if the agreement satisfies the criteria set out in the Competition Act but may be subject to conditions imposed by the DG Telecommunications.
The European Commission can similarly grant an exemption if the conditions in Article 81(3) EC Treaty are met.
(More detailed information on the impact of EC and UK Competition Law on the Telecommunications Sector is available upon request.)
For information or advice on any of the above topics please contact David Roberts Telecoms and Technology Team, CMS Cameron McKenna, on +44(0)20 7367 3000 or e-mail david.roberts@cms-cmck.com
