Pricing 3G Mobile Services

Dr Tim KellyHead, Strategies & Policy Unit

(SPU), International Telecommunication Union,

GPC6, Barcelona, 15 February 2001

Note: The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Tim Kelly can be contacted by e-mail at Tim.Kelly@itu.int.

Pricing 3G Mobile: Pricing 3G Mobile: AgendaAgenda

The 3G pricing arena Factors to consider Technology trends Mobile Internet dilemmas

Selected national scenarios Finland Japan Uganda

Lessons for pricing

Pricing 3G mobile services

[Simple in a vacuum]

Pricing 3G mobile services

[… hard in the real world]

Respondingto competition

Recuperatinglicense &

spectrum fees

Stimulatingcontent

development

Handlinginterconnect

issues

Handlingcontent service

partnerships

Migration of existing 2G user

base to 3G

Handlingroaming

agreements

Covering highnetwork roll-out

costs

Average price per pop. of Average price per pop. of European 3G licences (US$)European 3G licences (US$)

0

0

10

17

36

88

160

175

562

595

Sweden

Finland

Norway

Switzerland

Portugal

Austria

Netherlands

Italy

Germany

UK

Source: ITU, http://www.itu.int/ti/industryoverview/at_glance/UMTS2001.htm

1990 1995 2000 2005

Terminalsize

Multi-functionMulti-function

MiniaturizationMiniaturization

IMT-2000 (3rd Gen.)Multimedia

intermediate Gen.Voice/Data

Multi ModeMulti BandMulti ModeMulti Band

Single ModeSingle BandSingle ModeSingle Band

384kbps-2Mbps 384kbps-2Mbps 57-115kbps 57-115kbps7- 28.8kbps7- 28.8kbps

Cellular/PCS (2nd Gen.)Voice/Data

Cellular/PCS (2nd Gen.)Voice/Data

Analog CellularVoice (1st Gen.)

Analog CellularVoice (1st Gen.)

Technology trendsTechnology trends

Source: ITU IMT-2000 Task Force.

Mobile Internet dilemmasMobile Internet dilemmas In the Internet world:

Access is generally unmetered, flat-rate E-mail is perceived to be a “free” application Content providers gain revenue principally through

advertising or subscription In the mobile world:

Access is generally metered, per-minute Voice mail and messaging are charged by air-time Content providers share airtime revenues

In a mobile Internet world: Which business model takes precedence? Who does the billing? How are revenues shared between content provider,

service provider and portal?

Example 1: FinlandExample 1: Finland

0

10

20

30

40

50

60

70

80

91 92 93 94 95 96 97 98 99

Mobile

Fixed

Source: ITU, “Mobile/Fixed Interconnect: Finland case study”

Access in FinlandAccess in Finland

0

10

20

30

40

50

60

70

80

90

100

12.9

61.

972.

973.

974.

975.

976.

977.

978.

979.

9710

.97

11.9

712

.97

1.98

2.98

3.98

4.98

5.98

6.98

7.98

8.98

9.98

10.9

811

.98

12.9

81.

992.

993.

994.

995.

996.

997.

998.

999.

9910

.99

11.9

912

.99

1.00

2.00

3.00

% O

F H

OU

SE

HO

LD

S

fixed only both mobile only no telephone

Source: ITU, “Mobile/Fixed Interconnect: Finland case study”

Pricing 3G services in FinlandPricing 3G services in FinlandA good starting point

Early licensing process (March 1999), based on a Beauty Contest

A consensual (if incomprehensible) interconnect regime

Universal service achieved >98 per cent of families have telephone access 20 per cent of families now use only a mobilephone Only 15 per cent of families now have only a fixed-

line telephoneThe market opportunity

3G market opportunity may lie in fixed-line substitution, esp. for Internet access

Example 2: JapanExample 2: JapanNumber of Mobile Internet subscribers Number of Mobile Internet subscribers (millions)(millions)

0

5

10

15

20

25

30

June 2000 Dec 2000

J-SkyWeb

EZ Web

i-Mode

Source: www.tca.or.jp

NTT DoCoMo: 3G PioneersNTT DoCoMo: 3G Pioneers

3G service (FOMA: Freedom of Mobile multimedia Access), to be launched, May 2001

Current i-Mode pricing structure ¥300 (US$2.60) per month fee ¥0.30 (2.6 US cents) per packet downloaded Content subscription fees set by provider (ranging

from 0 to ¥300 per month) Average revenue around ¥2’500 (US$21.50 per

month)BUT: I-Mode = 9.6 kbit/s; FOMA = 384 kbit/sSO: how to price FOMA without undercutting

profitable I-Mode market?

Example 3: UgandaExample 3: Uganda3G in an African LDC3G in an African LDC

One of first African countries to permit competition (three mobile operators)

Mobile overtook fixed-line in mid-1999 BUT:

Low levels of literacy (64%) Even lower levels of IT literacy (PC ownership <1%)

AND: Fixed-line network in poor state of repair Wireless ISDN used for by businesses, hotels and embassies

SO: Market opportunity for 3G is for fixed locations: Simple to install Internet access for consumers High speed Internet access for businesses

Lessons for pricing policyLessons for pricing policy

Price 3G as a service not as a “technology”Price structure will be closer to Internet than to

today’s mobile networks3G will enter different markets in different ways:

In some countries, it will be a fixed-line replacement In other countries, it will be as a consumer device In other countries, it will be as high-speed Internet

access for businessesIn the developed world, 3G take-up will be

primarily driven by young, mobile consumers In the developing world, 3G take-up will be

primarily driven by fixed-location businesses