1 TECHNICAL REPORT SERIES The Future of Mobile Communications in the EU: Assessing the potential of 4G EUR EN European Science and Technology Observatory Institute for Prospective Technological Studies
2 About the JRC-IPTS The Joint Research Centre (JRC) is a Directorate General of the European Commission, staffed with approximately 2,100 people, coming in the vast majority from the 15 Member States of the European Union. The Brussels Support Services (including the office of the Director General and the Science Strategy Directorate) and seven Institutes located in five different countries compose the main organisational structure of the JRC (http//:www.jrc.org). The mission of the JRC is to provide customer-driven scientific and technical support for the conception, implementation and monitoring of EU policies. The Institute for Prospective Technological Studies (IPTS) is one of the seven Institutes making up the JRC. It was established in Seville, Spain, in September The mission of IPTS is to provide prospective techno-economic analyses in support of the European policy-making process. IPTS prime objectives are to monitor and analyse science and technology developments, their cross-sectoral impact, and their inter-relationship with the socio-economic context and their implications for future policy development. IPTS operates through international networks, drawing on the expertise of the best high level scientific experts in Europe and beyond. It analyses the results of this scientific work and synthesises them into timely and policy relevant reports. Most of the work undertaken by IPTS is in response to direct requests from (or takes the form of long-term policy support on behalf of) the European Commission Directorate Generals, or European Parliament Committees. IPTS sometimes also does work for Member States governmental, academic or industrial organisations, though this represents a minor share of its total activities. Although particular emphasis is placed on key Science and Technology fields, especially those that have a driving role and even the potential to reshape our society, important efforts are devoted to improving the understanding of the complex interactions between technology, economy and society. Indeed, the impact of technology on society and, conversely, the way technological development is driven by societal changes, are highly relevant themes within the European decision-making context. The inter-disciplinary prospective approach adopted by the Institute is intended to provide European decision-makers with a deeper understanding of the emerging science and technology issues, and it complements the activities undertaken by other institutes of the Joint Research Centre. The IPTS approach is to collect information about technological developments and their application in Europe and the world, analyse this information and transmit it in an accessible form to European decision-makers. This is implemented in the following sectors of activity: Technologies for Sustainable Development Life Sciences / Information and Communication Technologies Technology, Employment, Competitiveness and Society Futures project In order to implement its mission, the Institute develops appropriate contacts, awareness and skills to anticipate and follow the agenda of the policy decision-makers. IPTS Staff is a mix of highly experienced engineers, scientists (life-, social- material- etc.) and economists. Crossdisciplinary experience is a necessary asset. The IPTS success is also based on its networking capabilities and the quality of its networks as enabling sources of relevant information. In fact, in addition to its own resources, IPTS makes use of external Advisory Groups and operates a number of formal or informal networks. The most important is a Network of European Institutes (the European Science and Technology Observatory ) working in similar areas. These networking activities enable IPTS to draw on a large pool of available expertise, while allowing a continuous process of external peer-review of the in-house activities.
3 The Future of Mobile Communications in the EU: Assessing the potential of 4G An ESTO Project Report Carlos Rodríguez Casal, Jean Claude Burgelman, Gérard Carat (IPTS) (Editors) Erik Bohlin, Sven Lindmark, Joakim Björkdahl (VINNOVA) Arnd Weber, Bernd Wingert (ITAS) Pieter Ballon (TNO) (Authors) February 2004 EUR EN
4 European Commission Joint Research Centre (DG JRC) Institute for Prospective Technological Studies Legal notice Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. Technical Report EUR EN European Communities, 2004 Reproduction is authorised provided the source is acknowledged. Printed in Spain
5 Acknowledgments The editors of this report take responsibility for the text. However, a number of key individuals and organisations made an essential contribution to the completion of this report. Invited external experts made some perceptive remarks on early draft deliverables at project meetings and workshops. In particular, we would like to thank: Michel Berne, INT (Institute National des Télécommunications) Arthur Drewitt, BWCS (Baker Wilde Consultancy Services) Simon Forge, SCF Associates (Simon C. Forge Associates). We would also like to thank Bernard Clements, Head of the IPTS-ICT Unit, and Duncan Gilson (IPTS) for their valuable comments. ESTO partner organisations contributed as follows: - ITAS (Institut für Technikfolgenabschätzung und Systemanalyse): Arnd Weber, Bernd Wingert, with the assistance of Asae Yokoi Chapter 1 - TNO (Nederlandse Organisatie voor Toegepast-Natuurwetenschappelijk Onderzoek): Pieter Ballon Chapter 2 - VINNOVA (Verket för INNOVAtionssystem): Erik Bohlin, Sven Lindmark, Joakim Björkdahl, with the assistance of Niklas Fredelius, Martin Lockström, Mikael Olsson Chapters 1 and 3 plus synthesis and project co-ordination. The Future of Mobile Communications in the EU: Assessing the potential of 4G Editorial support from Eva Burford and Patricia Farrer is gratefully acknowledged. 3
7 Preface Even before the so-called third generation (3G) of mobile telecommunications technologies has been fully deployed, new mobile broadband technologies are appearing on the market. The IPTS technical report on Prospects for Third-Generation Mobile Systems, published in June 2003, highlighted the significant influence these alternative technologies could have on the adoption of 3G technologies. It also called for a study of the fourth generation (4G), which would consider the various technologies and services likely to be used and the opportunities that they may bring. This suggestion was taken up by the JRC-IPTS, and the study was carried out under the FISTE project 1 by the IPTS and the ESTO network. ESTO (European Science and Technology Observatory) is a network of research organisations with experience in the field of scientific and technological foresight, managed by the IPTS. Its core competence is in independent prospective analysis and advice relating to Science and Technology developments relevant to the EU. This study focuses on 4G mobile communications over the next ten to fifteen years. It does not, however, address the long term integration of all communications by 2020 and beyond, when the Ambient Intelligence (AmI) paradigm is expected to become a reality. Moreover, as the roadmaps show, 4G technology is, as yet, very immature and a range of alternative scenarios are still possible. As a result, all the forecasts are by definition open to criticism. The authors are therefore well aware that this is not the final word on the topic. Despite its limitations, this study does, however, offer an integrated analysis (covering technical, business and demand-related aspects) of what the future 4G environment might be like. It also builds on the IPTS study on 3G which had a strong European perspective and therefore continues to closely reflect the concerns of European stakeholders in its analysis of 4G. Finally, we decided to include a series of annexes providing detailed support to the study. The Future of Mobile Communications in the EU: Assessing the potential of 4G The editors 5 1 Foresight in Information Technologies in Europe (http://fiste.jrc.es)
9 Table of contents Executive summary 11 Introduction Technology roadmap for 4G Overall assessment of wireless network technologies Assessment of WLAN versus 3G Core Issues Spectrum policy Quality of Service Power Issue Software-defined radio Ad-hoc Networking Other Issues Roadmaps and plans Conclusions 29 2 Business Models: the European actor space in 4G Short-term visions G Visions and strategies G-related organisations world-wide Eurescom: The operators vision on 4G Wireless Strategic Initiative and Wireless World Research Forum Non-Europe-based organisations Individual players 4G strategies Implications for Europe 41 The Future of Mobile Communications in the EU: Assessing the potential of 4G 3 wireless telecommunications technologies, investments and growth Introduction The evolution of public WLAN Predictions of the future public WLAN market The stand-alone public WLAN business case WLAN as a new niche Strategic value? G-linear Business case Who will back up future telecommunications system investments? The fallout in the telecommunications sector 57 7
10 Table of Contents The capital market Conclusions from financial analysis 60 Annex 1: Regional roadmaps for 4G 61 A1.1 Introduction 61 A1.2 Wireless technology development within IST: Overview 61 A1.3 WWRF Book of Visions 80 A1.4 The Wireless Foresight study 88 A1.5 US visions 89 A1.6 Japanese initiatives and roadmaps 91 A1.7 Korea 95 A1.8 China 97 A1.9 India 101 Annex 2: Current and emerging business models for mobile services 105 A G and 3G 105 A2.2 WLAN 113 References 121 List of acronyms LIST OF FIGURES AND TABLES Figure 1: Trade-offs between mobility and data rates in mobile communications 20 Figure 2: Battery development over time 25 Figure 3: BMW envisages that every car will transmit information that is of use to drivers Figure 4: Business models: conceptual framework 31 Figure 5: Potential timelines for the immediate 4G scenarios. 42 Figure 6: Potential timelines for the linear 4G scenarios. 43 Figure 7: Number of hotspots world wide. 49 Figure 8: Number of users (millions world wide). 49 Figure 9: Number of public WLAN users in Europe (million). 50 Figure 10: Annual revenues from public WLAN, world wide (US$ billion) 50 Figure 11: Cost of network investment ( million). 51 Figure 12: Cash outflow components. 52 Figure 13: Required number of users for positive NPV. 52 Figure 14: Investment in 4G for UK reference operator ( m). 56 Figure 15: 4G penetration. 56 Figure 16: Required average revenue per user ( per month)
11 Figure 17: Comparative credit ratings of major European telecommunications operators, Figure 18: Total debts for some operators in the end of 1998 vs. August 2001, and the debt per equity value. Figure 19: 4G as the integrator of present and emerging technologies 62 Figure 20: Clusters on Mobile Communications 67 Figure 21: An overview of project technologies 76 Figure 22: Project technologies: aggregated view 77 Figure 23: Gantt overview of the cluster projects 77 Figure 24: Coverage/mobility and bit-rate chart 78 Figure 25: Evolution of mobile communication systems and related EU research programs Figure 26: Mitsubishi Megapixel mobile camera phone prototype 92 Table 1: Comparison between different technologies with respect to some features Table 2: Summary of potential 3G and WLAN business models 33 Table 3: Overview of 4G-related organisations 41 Table 4: Scenarios for the Linear 4G vision 42 Table 5: Four Scenarios for Immediate 4G 42 Table 6: SWOT analysis of Europe s position regarding 4G 45 Table 7: European operators that have launched public WLAN. 47 Table 8: The largest public WLAN providers (world wide). 48 Table 9: Assumptions of network deployment and cost. 51 Table 10: Pricing schemes for some public WLAN providers. 52 Table 11: Network coverage per 50 percent of population. 55 Table 12: Overview of areas addressed by IPs and NoEs in the Mobile and Wireless Systems Beyond 3G objective, call 1 of FP6 IST Table 13 (a): Re-Configurability Cluster Projects 68 Table 13 (b): Systems beyond 3G Cluster Projects 69 Table 13 (b): Systems beyond 3G Cluster Projects (cont.) 70 Table 13 (b): Systems beyond 3G Cluster Projects (cont.) 71 Table 13 (c): Advanced Antennas Cluster Projects 72 Table 13 (d): Advanced Mobile Satellite Systems Cluster 72 Table 13 (e): Location Based Services Cluster 73 Table 13 (e): Location Based Services Cluster (cont.) 73 Table 14: An overview of FP5 Mobile cluster projects 75 Table 15: System evolution according to the WSI 83 Table 16: GPRS operators in Europe 106 Table 17: 3G introduction in Europe 107 Table 18: Overview of WLAN hotspots in selected EU, North American and Asian countries (August 2003) The Future of Mobile Communications in the EU: Assessing the potential of 4G 9
13 Executive summary This report examines some of the technological and business trends in mobile communications systems, taking into account both developments currently underway and the longer term outlook for socalled fourth-generation (4G) mobile communications technologies. How mobile communications unfold over the coming years will depend on the interaction of a number of factors. These include the progress made in developing the various technologies, the emergence of new applications, and the adoption of new services by users. Although the technology is an essential element, a viable business model is clearly the crucial factor. Focusing on the development of the technology, two broad scenarios have been identified for further analysis. The first scenario is an extrapolation from current trends towards increasing the bandwidth delivered by mobile communications and envisages the widespread availability of 4G mobile communications some time around This scenario projects forward the view of mobile communications as having evolved through a series of successive generations, a view that it is implicit in the term fourth generation. (This scenario is referred to in the report as the linear 4G vision ). The alternative scenario (referred to in the report as the concurrent 4G vision ) considers the possibly disruptive impact of the emergence of public wireless local area network (WLAN) access. To a limited extent WLAN access is already available today, and plans are afoot to deploy large numbers of so-called hot-spots offering semi-mobile Internet access. This approach enables a highbandwidth service to be offered at relatively low cost in specific locations where usage is likely to be concentrated After reviewing current and future technological trends, the analysis given here examines some of the proposed business plans, focussing on those of telecom operators, telecoms equipment vendors, and IT companies. It also takes into account the implications for value propositions and organisational structures. The Future of Mobile Communications in the EU: Assessing the potential of 4G Clearly it is in the long-term interests of the European telecommunications industry to remain up-todate with emerging trends in the mobile communications field, even if that may involve difficult choices about how to best recoup their past investments. And it is in the interests of Europe s citizens and businesses to have access to affordable mobile information society technologies in order for European businesses to remain competitive and European citizens to enjoy full participation in the information society. The situation is perhaps still changing too rapidly for specific policy recommendations to be possible, but clearly promoting research, facilitating the standards-setting process, and the allocation of spectrum are all areas in which policy-makers can exert some influence over the future direction of the industry. Overall, one of the key enablers for mobile data communications as a viable business will be a sufficiently strong base of computer literate users, therefore any measures building these skills are to be welcomed. Technology Roadmaps for the next generation of mobile networks The transition from a first generation of analogue mobile telephony in the 1970s-80s to the second generation of digital in the 1990s (in the form of the global standard for mobile, GSM, in Europe and many other countries) engendered a view of the development of mobile communications as a sequence of successive generations. On this view the next stage of mobile communications (based on the universal mobile telecommunications system, UMTS) after digital mobile telephony became widespread, which 11
14 Executive summary would enable full multimedia data transmission as well as voice communications, was dubbed the third generation (3G). However, the high cost and technical difficulties faced have led to delays in deployment. Meanwhile, the neat model of a succession of generations began to break down, first with the intercalation of a 2.5G in the form of GPRS (general packet radio service), enabling rudimentary Internet access from mobile phones, and then with the emergence of public wireless LAN technologies as potential competitors. Against this backdrop, the concept of a fourth generation is increasingly difficult to pin down precisely. Indeed, beyond UMTS or 3G, looking at the timeframe, the scenario is almost certainly going to be one of numerous interoperating systems each filling different niches of the mobile communications market. Factors that could have a significant impact on the deployment of mobile telecommunications technologies in this timeframe include radio access techniques enabling greater intelligence and flexibility to be built into transmitters and receivers (so as to use spectrum more efficiently), improved power supply technologies, and ad-hoc networking between mobile devices. The latter two factors could contribute to substantially cheaper phones and improved coverage, respectively. The most significant emerging technology at the moment is public wireless LAN. Wireless LAN technologies such as IEEE b (popularly known as WiFi ) were originally developed as a means of creating local area networks for homes, businesses, university campuses, etc. These networks use unlicensed spectrum and operate over short distances. There is no built-in security or charging mechanism, but encryption (using the wireless equivalent protocol, WEP, or the WiFi Protected Access, WPA protocol, for example) enables a degree of security and authentication to be implemented, opening up the way for access on a fee-paying basis. In their present state, WLANs cannot compete with UMTS (3G) in terms of Quality of Service (QoS), coverage and security, but their low deployment cost (particularly for fixed-line operators with spare backbone capacity) makes them attractive to users who are mobile but not necessarily in motion (for example, using a laptop from a café, hotel or airport). The equation could change, however, if cheap voice over IP (VoIP) communication materialises as a viable alternative for voice communications, as this could transform WLANs into direct competitors with 3G in the lucrative voice segment of the mobile communications business. As WLANs expand in urban areas, users with dual-mode phones might take advantage of the lower cost of calls while in town, leaving 3G operators to cover sparsely populated and hence less profitable areas. However the slow take-up of VoIP over fixed Internet connections places a question mark over the likelihood of this scenario. When looking at developments outside Europe, the US appears to lack a shared industry-wide view of how mobile telecommunications are likely to develop. The trend in the US is towards new proprietary technologies deployed over unlicensed spectrum, co-existing with new standards developed for use on both unlicensed and licensed spectrum. At the same time, more unlicensed spectrum is being made available and flexible spectrum management is supporting the interoperability of products and technologies offered by a more fragmented industry. It should come as no surprise, therefore, that the US is leading the way in the deployment of potentially disruptive technologies such as public WLAN. The main players in Asia (particularly Japan and Korea) are taking an entirely different approach by promoting a vision of a high data-rate public standard for the 4G system as a whole, building on strong demand for advanced data and entertainment services. Both Korea and China have adopted industrial policies intended to enable them to achieve leadership in mobile telecommunications. China, in particular, has the potential to produce very cheap equipment. Chinese mobile phone system operators offer low prices for calls over their 2G systems and even aim to undercut fixed line systems. 12 Is there a business case for 4G? Doubts about the market potential for mobile data and multimedia have lowered expectations for 3G, and the roll out of 3G services has run into difficulties. Nevertheless, 3G is still expected to be deployed
15 in Europe, although launch dates have been pushed back considerably. A survey of emerging 3G strategies and services in Europe reveals two main approaches. The first is to offer multimedia applications as a means of increasing revenues and the second, to use the technology to relieve congestion so as to better support and/or combine existing applications and services, and offer cheap mobile voice calls. In terms of the value proposition, operators also face something of a dilemma as to whether to position 3G as a complement to, or a substitute, for 2.5G. In the short term, 3G in Europe will be driven by traditional telecoms players, i.e. mobile operators and especially telecoms equipment suppliers. This approach, which emphasises an evolution based on 3G and the integration of heterogeneous networks, constitutes a definite opportunity and a potential strength in that it allows past investments to be recouped. Viable business models for public wireless LAN will depend on the cost of access to the backbone network, security, and charging mechanisms. As a public mobile technology, it could potentially evolve as a separate competitor to cellular networks (whether 3G or 4G) in the form of a network of hotspots or it could become more closely integrated within the cellular network. Although public WLANs cannot substitute entirely for 3G in terms of functionality, if they are able to offer most of the services users might want from 3G at lower cost, and before 3G has had time to become established, they may undermine 3G s already fragile business model. On the other hand, WLANs might stimulate demand for mobile broadband and create a cohort of users willing to pay to upgrade to higher quality 3G when they tire of the limited coverage, high demands on battery power, patchwork of hotspot ownership and congestion of WLAN access points. What seems less likely today, however, in the light of the problems faced by 3G deployment and in the context of emerging technologies, is a smooth linear transition to a homogeneous and universal fourth generation at some point in the medium term. The model put forward by Eurescom, the European Institute for Research and Strategic Studies in Telecommunications, which is mainly backed by the European Telecoms Operators, builds upon the operators existing strength in terms of their customer relationships, access provisioning, billing and branding, so they can act as trusted third parties in payments for data and service delivery. This approach would oblige operators to move away from competing on the basis of their geographical coverage and price towards competition on the basis of the services they offer, thus increasing cooperation between access network providers, service providers and mobile or wireless service users through service integration and personalisation. It is also foreseen that existing operators will face tough competition from unlicensed wireless access providers, virtual service providers who rent network capacity and newcomers who could acquire radio bands if further spectrum is released for mobile communications. In terms of timing, Eurescom sketches a migration path, where functionality is added to 3G from 2005 onwards, with a move to a system beyond 3G some time after 2008/2010. The Future of Mobile Communications in the EU: Assessing the potential of 4G Moreover, the vision of 4G shared by both the WWRF (Wireless World Research Forum) and WSI (Wireless Strategic Initiative) which represent telecoms equipment manufacturers more than operators emphasise the heterogeneity of networks and new service infrastructures, rather than increased bandwidth per se. The WWRF Book of Visions, in contrast to the network management oriented view expressed by operator-driven organisations, includes long-term visions with innovative approaches to wireless systems architecture and forecasts the commercial introduction of 4G in 2011/12. Asia, Japan, South Korea, and China, on the other hand, are taking a proactive role in promoting a standardised model of 4G. Their 4G visions have many points in common with those of Europe, but on the whole, they tend to be more in line with the original linear vision of 4G s developing as the next stage in the sequential evolution of mobile communications. They focus more on increasing mobile system data rates, and on developing new systems or system components, and less on the seamless operation of existing systems (though this latter strategy is increasingly included as the visions are developed further). 13
16 Executive summary These countries also envisage their governments taking an active role in driving domestic manufacturers to set early 4G standards. The situation in the US tells a completely different story. Although there is no representative body that articulates US visions for 4G, statements made by individual US IT companies, telecoms operators and standards organisations lead to the following observations. Some US mobile operators see 4G as a way of leapfrogging to next-generation mobile networks. Standards for broadband wireless access such as IEEE and have developed very rapidly. Also, a number of US-based IT vendors, such as IBM, Oracle, Sun and Microsoft, have explicitly identified mobile communications as a strategic target market. Financial analysis As the lack of demand for 3G has shown, it is extremely difficult to predict the likely market adoption of mobile wireless communications and the revenues that can be expected. Added to this uncertainty is the potential impact of Public WLANs. However, as yet, although operators have been deploying public WLAN networks for some years now, most have been unable to turn them into a profitable business. Calculations suggestion that standalone public WLAN services will probably not provide a sustainable business in the short-term, despite the free use of spectrum and relatively small investments required compared to 3G. As well as the technical limitations alluded to above, the intrinsic problem of achieving efficient usage of free bandwidth, in the absence of any sort of coordination (such as the market mechanism opted for in the case of UMTS bandwidth), could become critical as more players enter the field. Nevertheless, WLANs may prove to be of high strategic value and an important source of competitive differentiation. Even if the direct revenue impact of public WLAN is low, they may be important for subscriber retention, or as the means by which a fixed line operator could enter the mobile market. The business case for a linear evolution to 4G relies on customers generating significant additional revenue from advanced 4G-type services. The question therefore arises as to how these future investments will be financed. The downturn in the telecommunications sector caused by excessive operator debt and disappointment over market growth, as well as the extreme cases of vendor financing, makes it highly likely that it will be more difficult to secure financial backing for new investments in a future generation of mobile communications systems. It has been suggested that several 3G operators may not recoup their investments at all, and this will reduce the likelihood of operators investing in 4G by 2011, the date tentatively set by several equipment vendors for its introduction. Instead, for most operators, this investment is likely to be postponed a long way into the future. However, before more accurate predictions of operator investments in 4G can be made, 3G adoption will have to take off. It does not seem likely that a very highspeed mobile data network will gain user acceptance unless successful mobile data applications have been developed and commercialised with 3G. Overall conclusions The foregoing analysis suggests that three main issues need to be addressed in Europe: 14 - Firstly, operators in Europe have limited experience of advanced mobile data communications and there are as yet no signs of any increase in demand from users for these services (in contrast to Japan, which is the world s most advanced mobile market). There is clearly a need to abandon the technology push approach that has so far characterised European mobile communications in favour of a more user-focused perspective.
17 - Secondly, new technologies will emerge that will increase competition, and the pressure on prices will lead to cheaper mobile communications. However, the right balance is needed as too much competition could limit the possibilities for economies of scale. The right balance is also needed to harmonise operators and vendors diverging strategic visions. - Finally, on a regional basis, several countries are aiming for a leading role in 4G and Europe runs the risks of being a late starter in the race to deploy of 4G. In this situation, mobile telecommunications equipment will be built cheaply in Asia, causing Europe to fall behind in the production and deployment of mobile communications systems. The development and adoption of 4G in Europe will require the prior large-scale adoption of 3G. While European actors should certainly aim for a leading role in 4G in the future to avoid missing opportunities, efforts should also be made to consolidate 3G infrastructure as a means of supporting a multitude of co-existing applications and enable the continuous incorporation of emerging standards and technologies. The standardisation made possible by Europe-wide UMTS adoption is an opportunity, but does not mean that other emerging technologies and standards should be ignored. On the contrary, UMTS integration should be the priority in the coming years, encouraging other standards to be made compatible with UMTS, promoting its enhancement and ensuring the removal of any barriers to its adoption. It should include provisions for micro-payments, spectrum regulation harmonisation and interconnection issues, which would allow investments in 3G infrastructure to be recouped without missing the opportunities stemming from technological innovation in other areas. 4G should form a part of Europe s long-term plans for mobile telecommunications. However, the fragile business case suggests efforts should concentrate on creating a dynamic and sophisticated market for advanced mobile data and voice services based on 3G technologies. If this can be achieved, at the same time as integrating new technologies to improve the user experience further, the evolutionary path towards 4G will become clearer and will maintain its momentum. The Future of Mobile Communications in the EU: Assessing the potential of 4G 15