January 19, 2006

Advanced 3G Mobile Phones Gain Momentum

TOKYO -- When Hong Kong lawyer Maureen Chow was expecting her first baby she bought her 84-year-old grandmother, who was in confinement, a high-speed advanced mobile phone so she could see her great-granddaughter via video phone.

"Before I had the baby, she used it every day. After I had the baby, she knew my schedule would become tighter, so she called once in a couple days," Chow, 32, recalls. "She just pressed my number and then pressed a special button. It was just like calling a voice phone."

After years of empty promises, advanced mobile phones are finally enabling the use of phones in new ways.

So-called third-generation (3G) phones -- differentiated from first-generation analog models and second-generation digital devices -- are capable of accessing the Internet, sending and receiving video and downloading data at high speeds.

The technology, which has been slow to take off due to insufficient coverage and clunky phone designs, is gaining momentum in Asia, especially Japan and     South Korea, even as U.S. and European operators struggle to convince their users to upgrade to the new networks.

3G usage is still too small to break out in the United States and remains stuck in single digits in Europe.

"Mobile operators (in Japan and South Korea) are much more aggressive in terms of rolling out new technologies," said Jeffrey Bernstein, a consultant for McKinsey & Co. "They're much more involved in developing handsets."

At the end of December, 47.7 percent of Japan's 90 million mobile users were on 3G networks. KDDI Corp., the country's second-largest mobile operator, has led the trend with about 95 percent of its customers on 3G, while No. 1 NTT DoCoMo Inc. ended the month with 40 percent of its 50.4 million customers on its 3G network.

In South Korea, the dominant mobile operator SK Telecom Co. Ltd. has also signed up about 40 percent of its customers to its 3G network.

Hong Kong's Hutchison Whampoa Ltd., which operates 3G networks in markets such as Britain, Australia, Hong Kong and Sweden, said in October that it had more than 10 million 3G subscribers worldwide.

"We now have some reasonable experiences with what to expect in 3G ... what's possible, what's selling and what's not," said Australia-based Gartner analyst Nick Ingelbrecht.

Elsewhere in Asia, operators in Singapore, Australia and Taiwan are just launching 3G services while China, the world's largest mobile market, is expected to issue 3G licenses this year.


Expectations for 3G have been toned down from six years ago, when industry optimists saw the new technology generating a surge in revenue for operators as users would clamor for the latest services and spend more money on data downloads.

Operators are still seeking the magic feature that users will not be able to live without, but for now they are finding that 3G services at least give them a new weapon with which to target customers in an increasingly saturated market.

3G networks, which provide more capacity than older networks, are allowing operators to offer services such as full music downloads, pinpoint navigation, graphically-detailed action games, multimedia e-mail capabilities and video calling.

In Singapore, MobileOne Ltd. offers a drama series on 3G phones, while rival StarHub Ltd. provides mobile data services using technology licensed by Japan's DoCoMo. 3G adoption rates are still slow but growing in the city-state.

Japan's DoCoMo and KDDI have both reported the proportion of customers leaving their services at record lows of around 1 percent, while average monthly revenue per user has started to tick up for the first time in several years despite price cuts.

For the first half of its business year to September, DoCoMo reported monthly 3G data revenue of 3,090 yen ($27.06) per user, more than twice the 1,360 yen recorded for its older service.

Overall revenue per 3G user, including voice, was also 50 percent higher than for 2G at 9,070 yen ($79.43).

DoCoMo said in October that revenues were strong because customers who switched to its cheaper 3G network were still spending just as much or more than they did before, particularly on extra data services.


Still, the biggest challenge facing mobile operators remains convincing the average customer, who tends to choose services based on phone design and price, to upgrade to a new service that can appear to be confusing and unnecessary.

"The biggest expectation I have toward a mobile phone is its ability to contain enough features that I can get rid of clutter in my bag," said Noriko Toyoda, an IT consultant in Tokyo, who uses her 3G phone to play a legal role-playing game that is only available via 3G network.

A common complaint by 3G users has also been that mobile Internet sites are becoming weighed down by extra images and taking longer to download, despite the higher speed.

"Having Internet on-the-go is useful, but it really depends on the cost, the size of the phone and the battery life," said Hoe Kai Yee, a corporate manager in Singapore.

"I'm a very basic phone user. It's just voice calls and text messaging for me. A thin phone is more important to me than a cool phone."

(Additional reporting by Doug Young in SHANGHAI, Kim Miyoung and Rhee So-eui in SEOUL, Jennifer Tan in SINGAPORE, Michael Kramer in TAIWAN, Shailendra Bhatnagar in NEW DELHI, Santosh Menon in LONDON and Sinead Carew in NEW YORK)