In-Stat: 2.5G Strong, But Initial Demand For 3G Weak

SCOTTSDALE, ARIZ. — High costs to buy spectrum, delays in handset introductions, and slow consumer adoption will dampen short-term prospects worldwide for high-speed wireless third generation (3G) services, but 2.5G service has far brighter short-term potential, research company Cahners In-Stat Group concluded.

3G services will enable video calls, high-speed Internet access, multimedia services and other features.

For the report, In-Stat considers such technologies as GPRS, EDGE, cdma2000 1x and 1x variants as either 2.5G or 2.5-plus G. The 3G technologies are defined as W-CDMA, cdma2000 3XRTT, and other air interfaces that will be implemented in new spectrum, not spectrum already populated with 2G service.

In 2002 the number of worldwide 3G subscribers will be only 4.8 million of a worldwide subscriber base of 1.05 billion, Cahners In-Stat projects. In 2002, 2.5G and 2.5-plus G subscribers will number 200 million, double 2001's projected 100 million.

In 2005, 3G will account for 210 million subscribers, or 13 percent of the worldwide subscriber base of 1.6 billion, but 2.5 and 2.5-plus G subscribers will account for 48 percent of the worldwide subscriber base in that year.

In-Stat doesn't expect 3G to be deployed in the United States until late 2003, while Europe is expected to start in 2002, and Japan later this year.

"3G is not for those [carriers] with weak hearts or shallow pockets," said analyst Ray Jodoin, citing what he called the enormous costs of purchasing rights to airwaves that carry 3G signals. "The financial impact of mega-spending for spectrum, followed by seemingly unreal financing arrangements, has taken its toll."

The profitability of 3G will be largely determined by spectrum licensing costs, he added.

In-Stat found that wireless carriers spent more than $8.5 billion in 2000 on one 3G technology, W-CDMA, which is second only to the amount spent on GSM, the world's most common 2G technology. The total spent worldwide by carriers on wireless technology exceeded $28.5 billion.

In-Stat also concluded:

• Japan will be the first country to widely deploy 3G services, but will not have nationwide coverage until late 2002 at the earliest.
• In Europe, it will be mid-2003 before carriers enjoy "moderate subscriber uptake" for 3G service.

Cahners In-Stat Group (www.instat.com) is a unit of Cahners Business Information, the parent company of TWICE.