Last year marked a turning point for 3G in the Asia-Pacific region, with adoption set to ramp up significantly over the next five years (see chart). The balance of 3G subscribers will be shifting to emerging markets as the timely combination of government initiatives, opex benefits and steadily declining device ASPs work together to help drive the 3G penetration rate to nearly 40% in the Asia-Pacific region by 2014. The adoption and application of 3G will help emerging markets in the region meet their demands at a governmental, economic and societal level.
Key drivers
For governments and regulators, issuing 3G licenses provides an opportunity to increase competition. The combination of providing greater broadband coverage along with standard voice and messaging services is enticing given that it addresses two issues prevalent in most emerging markets: low fixed-line broadband penetration and inefficient mobile market competition.
In addition, allowing mobile operators to provide internet access services through 3G networks immediately boosts competitive pressure on incumbents, since the trend toward fixed-mobile substitution can be leveraged with wireless mobile broadband packages to provide attractive bundles.
Furthermore, spectrum is used by governments to create new revenue sources - another major driver behind 3G licensing. As 3G technology is repositioned from being suitable mainly for data-centric multimedia in developed markets to also being appropriate for low-end subscribers and mass-market business models, the value of licenses in emerging markets will rise.
From an economic point of view, two things are working in unison to lower operating expenses for carriers rolling out 3G networks. First, greater demand for 3G infrastructure is driving down prices, particularly as global vendors work to keep up with the price erosion caused by Chinese vendors ZTE and Huawei. The outcome is that depreciation costs decrease for operators, positively affecting bottom lines.
Second, improvements in design are resulting in more power-efficient and smaller base stations, lowering power and site procurement costs. Power savings can equate to the equivalent of 12-15% of 2G consumption levels, and some 3G base stations are small enough to be carried, allowing co-location within current 2G base station sites.
The long-term goals for any operator should be to leverage the benefits associated with 3G rollouts into greater market share at both ends of the economic spectrum. A large and loyal customer base provides a strong foundation for a platform from which many different customer segments can be engaged and, ultimately, monetized. The declining cost of 3G related devices will enable operators to achieve more creativity and be more flexible in their offerings to consumers.