Rise of HSPA and mobile broadband driving uptake of 3G devices

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3G-capable devices are accounting for an increasing share of operator handset portfolios due to improved 3G network coverage, lower device costs and a focus on mobile broadband services. According to a new Wireless Intelligence study*, 3G devices accounted for two-thirds of operator device portfolios in mature markets on average, and almost half of the devices offered by operators in emerging markets. The study found that dedicated mobile broadband devices such as dongles and laptop datacards represent around 15 percent of the total devices offered by global operators.

The study is based on the handsets offered by operators via their online retail stores so does not reflect unit volumes or sales to end users. Despite the rise in compatible handsets, 3G still only accounts for around a third of operator connections in mature markets and one in ten in emerging markets. Globally, the study found that WCDMA (Family) mobile connections – WCDMA and WCDMA-HSPA – recently passed the 550 million mark to represent 11 percent of the world’s 5 billion connections.

Sweden was deemed to be the world’s most advanced 3G market, the study found. Over 90 percent of the devices offered by leading Swedish operators TeliaSonera and Telenor Sweden are 3G-enabled and both operators have more than half of their total customers migrated to 3G. This is significantly higher than the 3G share of total connections in Western Europe, which stands at 36 percent. In this region, standard WCDMA connections have recently started losing share to WCDMA HSPA. The faster technology now represents 46 percent of the total WCDMA (Family) connections in the region, compared to 30 percent a year ago. This trend reflects the increasing number of HSPA-enabled handsets in mid price segments, as well as the ongoing marketing push behind mobile broadband services. Our study found that, on average in mature markets, the vast majority of 3G devices offered by mobile operators are HSPA-enabled, with only 5 percent of devices supporting only standard WCDMA.

Meanwhile, most operators are still supporting widely-deployed GSM/EDGE networks via more affordable EDGE devices. According to our study, EDGE-enabled GSM devices account for 25 percent of operator handset portfolios in mature markets and 36 percent in emerging markets. In many cases, EDGE is still seen as a substitute for WCDMA networks as it benefits from better network coverage. In Brazil, for example, TIM Brasil is covering 75 percent of the population with its EDGE network compared to 47 percent for WCDMA; some 16 percent of EDGE devices offered by the operator are dedicated mobile broadband devices such as dongles and laptop datacards. In Russia, MTS boasts over 1 million mobile broadband connections to date with 32 percent of its handset portfolio HSPA-enabled and 44 percent as EDGE-enabled; 40 percent of its HSPA devices are dedicated to mobile broadband services.

In many emerging markets where fixed-broadband penetration is very low, HSPA networks typically provide the first means for consumers to access the Internet. As a result, mobile operators in such markets tend to offer full-HSPA services with a ‘fall back’ option onto EDGE, hence giving less prevalence to non-HSPA 3G devices. For instance, in Indonesia, two thirds of XL’s (Axiata) portfolio is HSPA-enabled with the vast majority of devices dedicated to mobile broadband. In contrast, in the Philippines, mobile broadband represents a lesser share of Globe Telecom’s portfolio, which is still offering non-HSPA 3G devices to address this segment. Some 16 percent of the operator’s devices portfolio supports standard WDCMA, out of which 14 percent are dedicated to mobile broadband.

Large operator groups that benefit from economies of scale tend to organise their portfolios around a ‘global portfolio’ for mature markets and offer more customised devices for emerging markets. Among the larger operator groups, Vodafone is consistent across most of its European markets with 60 percent of its device portfolio 3G–enabled on average. Telefonica O2, however, is less consistent with its share of 3G devices ranging from 30 percent in Argentina to 72 percent in Spain, and a mobile broadband portfolio in Czech Republic and Spain that is more than twice that available from its subsidiaries in the UK, Slovakia or Argentina. Smaller – or more localised – operators tend to offer fewer 3G devices than the larger groups. For instance, in France and Germany, just half of Bouygues Telecom and E-Plus’ handset portfolios are 3G-enabled with EDGE accounting for 38 percent and 26 percent, respectively.

Joss Gillet, Senior Analyst, Wireless Intelligence:

3G handsets have improved considerably in the period between the launch of the Motorola A835 in 2003 (UMTS, 24.2mm, 2.2 inches display, 64MB internal memory) and Apple’s iPhone 4 (HSPA, 9.3mm, 3.5 inches display, 32GB internal memory). The initial slow adoption of 3G networks in Western Europe was primarily linked to poor network coverage, the high prices of service and poor handset designs. Heavy 3G handset subsidies and unlimited data plans have since helped to boost the adoption of high-speed services. Nevertheless, the recent introduction of Apple’s iPhone 4 marked the end of unlimited data plans for many operators, which are now switching back to usage-based pricing models. This shift in strategy creates an opportunity for operators to attract more value from heavy data users, optimise network utilisation and pave the way for the marketing segmentation required for upcoming LTE services. The way operators shape their handset portfolio tells us a lot about technology migration. At present, the main gap in operators’ device portfolios is within the low to ultra-low cost WCDMA segments, which is still dominated by GSM/EDGE. The highest priority has been the high-end consumer segments and the drive to generate added-value from data services and boost users’ migration from prepaid to contract. Nevertheless, in order to see 3G device portfolios grow to a level close to the most-advanced Swedish benchmark, network coverage will have to improve considerably in many markets. Even though only one third of devices cataloged by operators are GSM, the second-generation network still accounts for around two thirds of connections in mature markets, and as much as 90 percent in many emerging markets.

Device portfolios and connections by technology (selected markets, average), Q1 2010
Source: Wireless Intelligence

^* Wireless Intelligence’s handset portfolio research was conducted in the opening quarter of the year, spanning 36 key mobile operators in 19 countries around the world