Wi-Fi threatens 3G profits

In their haste to kick-start 3G revenues some mobile operators are embarking on risky strategies as they try to compete with public wireless local area network (Lan) services, analysts claim.

A study by Analysys found that some 3G operators are offering 'all you can eat' packages or attempting to replicate wireless Lan pricing, while others are offering 3G services in the home, in their efforts to displace fixed services such as DSL.

But the analyst firm warned that mobile operators should "proceed with great caution", as such strategies threaten to damage the economic prospects for 3G at an early stage of its development.

"While 3G offers substantial throughput, capacity and cost advantages over 2.5G technology, operators must avoid pushing 3G beyond its limits," said report co-author Alastair Brydon in a statement.

"Head-to-head competition with DSL or public wireless Lan could kill profitability. Such strategies may fill 3G networks with low-margin internet traffic, leaving no space for more profitable services such as voice telephony, small-screen messaging and video content."

Mobile operators should try to find a more profitable way of co-existing with other services. "Some operators are taking an early lead in integrating public wireless Lan and 3G services to achieve the best of both worlds," added Brydon.

"This may give higher 3G margins, avoid network congestion and allow mobile operators to control the emerging public wireless Lan hotspot market."

Operators moving away from volume-based 3G charging are taking a big risk, according to report co-author Mark Heath.

He said in a statement: "Several operators are experimenting with time-based and unlimited-usage tariffs. Such schemes may be simpler for users, but they inevitably jeopardise revenue per MB, and hence profitability."

Some mobile operators are offering common pricing across both technologies, added Heath, but he warned that this could "result in the worst of both worlds ð being uncompetitive with independent public wireless Lan services while generating unacceptably low revenue per MB on 3G networks".