The European experience

The most popular methods applied in 3G licensing processes in European countries have been auctions and

“beauty contests”. On average, Europe-wide, four licences were offered, with from two (France) to six (Austria and Germany) licences actually awarded.³³ The auction process, used in the United Kingdom, Germany and Italy, for instance, invariably led to higher fees being paid for licencesalso a reflection of the buoyant telecoms bubble of late 1999 and early 2000. The huge investment in fees thus incurred by operators has inevitably had an adverse impact on their ability to invest in equipment manufacture and network development, and their reluctance has been compounded by the tough licence requirements and subsequent downturn in the financial markets. The result has been delayed readiness for 3G deployment, and a spiralling climate of caution and doubt. It is interesting to note that, whereas “beauty contests” mostly resulted in national players being awarded licences, auctions attracted more multinational operators: Across Europe, 72 per cent of licences awarded by “beauty contest” are held by national operators, while 68 per cent of those awarded by auction were allocated to multinational operators.³⁴

Within in the European context, the Nordic countries have been mobile trendsetters, with Finland, Norway and Sweden in particular attaining sky-high levels of mobile penetration (around 80 per cent). Sweden is an noteworthy example in that, not only have high levels of mobile penetration been attained, but there has been a remarkable level of alliance-building and infrastructure sharing between operators.³⁵ For example, Hi3G, Europolitan and Orange (Sweden), fully share their networks, including site, radio access network equipment

and some core network equipment. But the example of Sweden is also interesting in that, in attempting to meet economic and market demands on one hand, and consumer and environmental concerns on the other, harmonious sharing arrangements are not always easy to achieve: the issues raised, including issues of rental charges (described more fully in the section below), may provide interesting lessons for future network development elsewhere in Europe.

5.5.1 Swedenbeauty  can be bought, if the price is right

As in other Nordic countries, such as Finland and Norway, mobile took off rapidly to reach among the highest penetration rates worldwide. Internet growth has also been strong in Sweden, with 58 per cent of households having Internet access. However, as in other countries with a high level of mobile penetration, the pace of growth slowed during 2001. This may not seem surprising: in a population of some 9 million, and with mobile penetration (measured as the number of active subscriptions divided by the population figure) at around 80 per cent, saturation is not far off. Sweden had 7.15 million mobile telephone subscribers at the end of 2001, up from 5.16 million subscribers at the end of 1999 (see Figure 5.7, left chart).

Prepaid cards now account for 49 per cent (3.53 million) of total mobile subscriptions, with 49 per cent of subscribers holding normal GSM subscriptions, and two per cent NMT 450³⁶ subscriptions. The NMT 900 network, which never achieved the levels of coverage reached by GSM and had roaming capacity that was limited to the Nordic countries, is no longer in operation. Private subscriptions account for 79 per cent of total mobile subscriptions, while organizations hold the remaining 21 per cent.

5.5.2 Mobile data services in Sweden WAP and SMS services

As elsewhere in Europe, WAP services never really took off in Sweden, and for much the same reasons:

slow download times, high charges and poor quality of content.

Like overall mobile growth, the growth of SMS messaging slowed in 2001. Although the number of messages sent more than doubled from 494 million messages in 2000 to 1.02 billion messages in 2001, there was barely any increase between the first six months of 2001 (463 million messages) and the second six months (557 million). For comparison, in 2000 the number of messages sent more than doubled in the second half of the year to reach 333 million, from 161 million during the first half of the year (see Figure 5.7, right chart). Multimedia messaging services (MMS) are not yet available in Sweden, although Hi3G, Telia and Europolitan/Vodafone have all awarded MMS contracts in the last year.

The price for sending SMS remains high, despite repeated complaints from the Swedish regulator, the National Post and Telecom Agency (PTS). They went down from Sk 2.50 (around 26 US cents) to Sk 1.50 per message in early 2000, but have not budged since, with the major operators still charging between Sk 1.30 (around 13 US cents) and Sk 1.50. A couple of minor actors offer lower rates, such as Spray Smart Mobile and Universal Smart, which both charge Sk 0.95. One subsidiary of Telia (Halebop) offers a special SMS package formula for Sk 49 (around US$ 5) per month, allowing the user to send unlimited messages.

Third-generation roll-out

Although 3G services have not yet been deployed in Sweden, three third-generation licences were awarded by “beauty contest” in December 2000, for a total of US$ 44.1 million—a relatively low sum compared to those paid in the auctions elsewhere in Europe. The awardees were Telia, Tele2 and Europolitan/Vodaphone.

The ground for future 3G deployment was significantly prepared in Sweden with the introduction of GPRS by the three 3G operators in late 2001. The progression to GPRS certainly seemed like a sound move: WAP has never really taken off successfully in Sweden, and market potential for GPRS should be good, given that nearly all new phones are GPRS-enabled. In November 2001, Telia and Tele2 offered free GPRS for a limited introductory period. Since then, an array of different payment models have been introduced by providers.

CHAPTER FIVE: CASE STUDIES 119 Figure 5.7: Nearly hitting the ceiling with mobile

Mobile subscribers in Sweden 1999-2002 (millions), and Number of SMS messages sent in 2000 and 2001 (half-yearly, millions)

Mobile subscribers, millions

9.0 7.1

5.1 6.3

1999 2000 2001 Total pop.

SMS m essages, millions

557m 463m

333m 161m

1st half 2000 2nd half 2000 1st half 2001 2nd half 2001

Source: ITU World Telecommunication Development Indicators and Svensk Telemarknad 2001.

Telia, for example, started with two subscription formulas. One of these was charged at a high rate of Sk 300 (about US$ 31) per month for 25 megabytes of communications, the other was charged at a lower rate of Sk 100 for 5 megabytes. Telia later added a third service, with a charge of Sk 30 per month for 0.5 megabytes. Halebop, a subsidiary of Telia, offers a rate of Sk 0.05 per kilobyte. In February 2002, Telia started to offer its subscribers GPRS roaming in the four biggest Nordic markets, Denmark, Finland, Norway and Sweden. Europolitan/Vodaphone followed suit shortly afterwards, launching a service with GPRS roaming in the biggest European markets.

Box 5.8: Swedish operators: Sharing doesn’t come easy

As discussed in Chapter four, sharing networks and network resources is one way for operators to optimize investments and expedite network roll-out, while maintaining the all-important market stimulus of competition.

True to the strong Swedish tradition of forging alliances among telecoms operators―one which has set Sweden in good stead for rapid and effective network growth in the past―Telia and Tele2 have joined forces to create a mutual infrastructure company for the 3G network called Svenska UMTS-nät. Along the same lines, Hi3G, Orange and Europolitan/Vodaphone have jointly created a company called 3GIS (IS stands for “infrastructure services”).

With its more advanced national networks, the Telia/Tele2 alliance has a substantial advantage over its counterpart when in comes to radio mast coverage: Orange and Hi3G are relative newcomers to the Swedish 3G mobile market, and Europolitan/Vodaphone has less area coverage than its two GSM competitors.

This situation has resulted in a number of conflicts, including some dispute about fair prices for renting space on radio masts. 3GIS, for example, has expressed its concern that Telia charges Sk 200’000-250’000 (US$ 20’800-30’000) per year for access to a single radio mast, while Telia contends that the normal rent is Sk 100’000 (around US$ 10’400) per year.

Space sharing on newly constructed radio masts has also been a touchy issue, and harmonious solutions have not always been forthcoming. In one region, the two consortia are building 23 and 17 radio masts respectively, but only plan to share four of them.

In the meantime, following the weight of public opinion, local authorities have been expressing concern about the lack of coordination in infrastructure planning, which they do not want to result in an explosion of masts. This reticence has resulted in long waiting times for building permits for masts. The planning delays incurred may have an impact on the timing of bringing networks into service. The cost of sites for masts may be a further disincentive to network growth: one manager from Svenska UMTS-nät has complained about the rents demanded by the local authorities for radio mast sites, claiming that they ask as much as Sk 100’000 per year.

Source: PTS, Sweden.

Hi3G has begun to build content for its 3G network. It has, for example, purchased the exclusive 3G rights for first-division Swedish ice hockey and has concluded an agreement with Aspiro to develop “new age services” such as tarot and horoscopes. In a venture of a less frivolous kind, Hi3G has initiated a project to offer banking services, such as payments and other transactions, share trading and a news service, together with SEB, one of Sweden’s largest banks.