It is clear that 3G connections are growing rapidly in Asia Pacific's developed markets. Ovum forecasts that in Singapore and Hong Kong close to 20% of connections will be 3G by end the year. 3G connections will overtake 2G in Singapore by the end of 2008 and in Hong Kong, Australia and Taiwan by the end of 2009. 3G connection growth is very clear. However, what is not so clear is take-up of 3G data services.
3G services have generally driven few of the upgrades to 3G. Rather 3G connection growth has been driven by 3G handset improvements and the natural upgrade cycle. The only services that we believe have driven a small amount of upgrades are full-track music downloads, mobile-TV, adult content and exclusive sports content. However, the impact of even these services in driving migration has been minimal. This lack of wide spread success indicates generally low user interest and use of 3G services.
Although only a few users are joining 3G because of the services, it is still possible that once 3G users services are being taken up. To differing degrees this is what operators state is occurring. According to most 3G operators, 3G users are higher data users. For example, Telstra reported in October that 3G ARPU was 34% higher than 2G, and the differential was constant. But initial higher data ARPU on 3G is inflated by early adopters, and at most operators it is edging back toward normal levels with more mass market adoption.
3G handsets are beginning to dominate operators' portfolios. The natural upgrade cycle therefore means users, often voice and SMS centric, are opting for 3G models. Often these users are unaware of new 3G capabilities and are thus not changing spending habits. This was illustrated by Vodafone, which noted in May that across its operations 3G ARPU was 11% higher than 2G, but by August it was only 5-8% higher.
Various factors are contributing to slow take-up and use of 3G services. Despite operator efforts, these include high data costs, poor user interfaces, bad past user experiences, limited content on narrow portals, poor coverage for services and initial 3G speeds which didn't provide a huge improvement on 2.5G.
However, despite the general slow take-up in use of 3G services, there is definitely slow but steady growth. And we expect this growth will continue. One reason for this is that 3G speed alone is not the only driver behind growth in 3G services and data use is generally increasing.
Many factors are contributing to data growth. This is shown by the fact that almost all Asia-Pacific operators, both 2G and 3G, are reporting growing data revenues. A majority of operators now receive in excess of 20% of their revenue from data. Data use and growth is not just attributable to 3G services, but in fact most is dominated by SMS and SMS-based services (which represents approximately 75% of data revenue). Many of the data services such as BlackBerry email or gambling being accessed (even on 3G) also do not require enhanced speeds.
Data-friendly devices
We believe increasing data use is also a function of improved data friendly handsets (which are often 3G enabled with soft-keys to portals or services that encourage take-up), consumer awareness of non-voice applications, an understanding of services, improved content and strategies, faster speeds and general enhancements in the user experience.