NEWSLETTER JUNE 2003

GROWING 3G PHONE ACCEPTANCE TO LEAD TO MARKET GROWTH FOR UMTS BASE STATIONS

While the euphoria surrounding third-generation (3G) mobile phone networks that caused operators to invest heavily in licence fees has long evaporated, 3G networks are beginning to be launched in Europe and Asia-Pacific, albeit slowly. Universal mobile telecommunications system (UMTS) handsets are already becoming available and the now widely accepted wideband code-division multiple-access (WCDMA) technology represents a particularly important and growing market for base station equipment manufacturers. As a result, 3G equipment is forecast to capture nearly 80% of the base station market by 2007.

Hurdles to 3G introduction have included unrealistic projections by operators, complexities in network infrastructure, handset interoperability and stringent regulatory conditions. However, in the long run, operators will finally have to upgrade to 3G, not necessarily for data handling but to meet demands for additional voice capacity and multimedia ? the capacity of a UMTS aerial node being in an average configuration more than eight times greater than that of a GSM node for a unit cost of only 1 to 1.5 times that of GSM.

The many benefits of European-developed GSM technology are gradually leading to its leadership of the global cell phone market. UMTS is therefore now expected to dominate globally, offering a range of new and faster voice and non-voice services ? from data transmission to advanced mobile MMS (multimedia messaging services) adding pictures and sounds to well-established SMS services. And WCDMA technology is set to make serious inroads in the 3G market, even in North America where proponents of time-division multiple access (TDMA) have long held sway.

UMTS represents an evolution in services and data speeds from current 2G mobile networks. It uses fresh radio spectrum to support increased numbers of customers with demands for high-speed data services. It has also become synonymous with the use of WCDMA radio access technology. Some 112 licensees worldwide have already selected WCDMA. Japan launched the world's first commercial WCDMA network in 2001, and UK operator Hutchison opened its own 3G network to customers at the end of 2002. Pilot and pre-commercial trials are operational in other areas of Europe.

More than 200 operators around the globe are already giving their customers a taste of faster data services with so-called ?2.5G? systems based on general packet radio service (GPRS) technology. GPRS offers 'always-on', higher capacity, Internet-based content and packet-based data services, and is a steppingstone towards UMTS. Many operators are also advancing plans to deploy so-called enhanced data rates for GSM evolution (EDGE) technology to increase the speed and capacity of mobile services offered in their current GSM frequency allocations.

WCDMA networks are at an advanced stage of construction in many countries and the world's leading equipment manufacturers are now presenting their first WCDMA/UMTS handset models, with many of them featuring in-built cameras. Most models in this first wave of UMTS terminal designs are multi-band and multi-mode, allowing users to switch seamlessly between UMTS, GPRS and GSM services in different frequency bands as they travel around the world.

According to Allied Business Intelligence (ABI), the market for wireless infrastructure is under constant pressure to adapt to new markets, technologies and changing standards. In its recently updated report on wireless base stations for 2G, 2.5G and 3G systems, it makes the point that this market has been difficult for the past few years, and equipment vendors are looking to make gains in the markets that count. Targeting the markets that are going to grow will be key for survivors in this market.

ABI sees extreme pricing pressure and market competitiveness affecting base stations ? the key element of cell phone networks. Therefore, 3G equipment represents a major area for revenue growth. ABI forecasts the 3G base station market share will quadruple from 20% this year to nearly 80% in 2007. However, lack of visibility and tough pricing conditions could pose barriers.

The pressure is now growing on the base station equipment manufacturers to ensure that they can provide new generations of equipment able to handle the extended bandwidths of UMTS services cost effectively. This is an area selected by MEDEA+ for support in the original White Book and led to acceptance of the A104 SCUBA project to develop system-on-chip concepts for future base stations. SCUBA is already demonstrating valuable results at its halfway stage, with demonstrators of SoC devices and supporting algorithms. The resulting components and intellectual property will speed time to market for European equipment suppliers in this key area and help strengthen Europe?s position in this critical worldwide market.