One, Two, 3G

With the introduction of third-generation (3G) mobile telephony, the latest handsets have been flying off the shelves in Malaysia, as tech-savvy consumers sign up for the new services. With a second 3G service set to go live in early July, and the widely anticipated award of two additional licences, competition is also going to get tough.



The first 3G service to bring its streaming content and video calls to handsets was launched by Celcom on May 17, World Telecommunications Day. Celcom is the mobile telephony division of Telekom Malaysia Berhad (TM) - the former state telecoms company, in which the government retains a 45.9% stake.



A soft launch of the service took place in 2003 with a pilot network covering the centre of Kuala Lumpur. This was used to test voice, messaging, location-based and video phone services. Prime Minister Abdullah Ahmad Badawi was also treated to a preview of the services during a visit to TM in April 2005. As well as experiencing a range of the services offered, the prime minister spent 10 minutes speaking with TM's senior executives via a video call.



The new full service was launched simultaneously in the Klang Valley, Penang, Johor Bahru and Malacca. Most demand is expected to come from the Klang Valley, around the nation's capital. The north-western state of Penang was chosen as part of the Celcom 3G initial rollout due to its reputation as Malaysia's Silicon Valley and for the "Multimedia Super Corridor" area being developed in the state.



Some surprise was in store at the final cost of delivering the services. With initial estimates of RM4.3bn ($1.13bn) over 15 years, Celcom claims that in view of the stability of the technology used and the competition between 3G equipment suppliers, the initial rollout has involved an investment of less than RM300m ($78.9m).
Meanwhile, rival licensee Maxis Communications is hot on Celcom's heels, planning its initial rollout for early July. With prices finalised and arrangements made for inter-network connections on video calls, Maxis's 3G coverage will cover Kuala Lumpur's central business district, Sri Hartamas and the KL International Airport at first. Coverage will then be extended to Penang and Johor Bahru next year.



"This plan is based on our current GPRS [General Packet Radio Services] data usage patterns, where we have identified heavy data usage in those three areas," Nikolai Dobberstein, head of 3G at Maxis, told the press recently.



Around half of Maxis's current 850,000 GPRS customers are in the Klang Valley, yet of these only 100,000 are currently what are called "active data users". Despite having access to the various services offered with 2G, the vast majority of subscribers only use their handsets for voice calls and text.



Indeed, according to Maxis figures quoted in business press, data traffic made up 16% of the firm's total revenue last year - a figure that is expected to rise, although not rapidly given the current usage patterns of data customers.



Analysts and industry players all predict that the take up of 3G services will be slow after an initial surge. Firms are therefore concentrating their coverage on developed commercial areas where they believe the services will be in highest demand.



Malaysia has one of the most well-developed mobile telephony markets in the region. Evidence for this includes the comparatively early launch of 3G services, along with some of the highest penetration rates in South-east Asia.



After rebounding from the 1997 Asian financial crisis, subscriptions rose astronomically with growth as high as 88.5% in 2000. Although growth has slowed down since, numbers have continued to swell and the country has an estimated 60% penetration rate for mobile phones - representing around 15.8m users.



Operators and technology suppliers have therefore seen the market as a growth opportunity for quite a while. For example, French telecoms network equipment maker Alcatel has invested over RM200m ($52.6m) since 2003 to develop Malaysia as the hub for its 3G business in South-east Asia.



"The Asia-Pacific region is a real hotbed for proving viability of 3G mobile applications and services," Constantin Scordidis, vice president for South-east Asia and the Pacific Islands at Alcatel, said recently. "We see a lot of opportunities in South-east Asia, which is why we are choosing to open a centre in Malaysia first, rather than in Korea or Japan."



Providers of network equipment could well be in for more business too, with recent news that two more licences are on the way.



"The government is currently holding two more blocks of 3G spectrums and, in order to create a more competitive environment, may consider awarding it in the near future," announced Deputy Prime Minister Najib Razak back in May. "In an increasingly competitive world, the cost and quality of telecommunications services play a key role in establishing the attractiveness of the country as an investment centre."



Once licences are awarded, the services from new providers are expected to take less time to go live than Celcom's and Maxis's offerings. The newer operators are also expected to enjoy the advantage of being able to shop around for content to provide for subscribers by the time they rollout their 3G offerings.



Indeed, with the uptake of 3G services expected to be slow for the next few years the market will be ripe by the time they enter. The challenge rests with Celcom and Maxis to ensure a loyal subscriber base before the competition heats up.



However, although an operator may not reap great profits from its 3G services given slow take-up and stiffer competition, the true benefit of developing 3G services could be that foreign technology suppliers will start using the country as a base to develop markets in the region. This will allow Malaysian-based content providers to develop the skills, technology and products to be marketed in neighbouring countries. If and when that happens, it could truly be something to video-call home about.