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3G launch sets scene for price war

By Pia Turunen

3G whistles and bells, but the rollout has been plagued by problems.
3G whistles and bells, but the rollout has been plagued by problems.

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CANNES, France (CNN) -- A pricing war is looming as mobile operators gear up for the long awaited European launch of 3G phones.

Hutchison, the Asian telco giant, plans to roll out full third generation services next month in the UK and Italy and many other operators like Vodafone and Orange are expected to follow suit this year.

Network operators have invested heavily in 3G technology, which allows full multimedia like video and games on phones, in the hope of extracting more cash from each subscriber.

But the rollout of phones, first in Asia and now in Europe, has been hit by delays as mobile companies struggle to balance the books.

Industry pundits meeting this week at the 3GSM congress in Cannes, southern France, predict prices for both network subscriptions and services will drop as new companies from Asia and the U.S. fight for a share of the European market.

And they say prices will come down even more dramatically as they did with GSM voice-only services soon after they were launched to mass markets in the late 1980s.

Bengt Nordstrom, CEO of wireless consultancy Northstream, says the new entrants to the market are likely to be the main forces putting pressure on prices.

"Under the current model, based on GSM, the market is restricted to just a few players.

"The arrival of 3G will bring a whole host of new companies to the market. Some of these firms are not public companies and with no responsibility to shareholders they will be able to enter the price war with loaded guns.

"This will then force the major operators to lower their prices in order to keep up with the market.

"More competition is always welcome and the arrival of new players can only be good news, both for the industry and customers."

Julian Harris, marketing manager for content technology company 3GLabs, says many operators will first try to hike up prices to test the water.

"Services and subscriptions to data services will be initially expensive, but once the customer demand increases, prices will come crashing down," he added.

However, research published on Tuesday at the 3GSM conference showed GPRS, the technology billed as the step towards 3G, has failed to catch on.

The study by wireless analyst EMC found out that less than one percent of the world's mobile phone subscribers currently use GPRS.

Of the 4.3 million GPRS users, 2.6 million are in Europe. The total mobile subscriber base is 1.134 billion.

"Operators will certainly have a bloody fight in their hands over who will win most customers," said one industry observer.


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