4G is being touted as the panacea for the UK economy, for consumers wanting faster downloads - but is it all that it's cracked up to be?
Over a decade ago, the UK government was the leading nation in the planned deployment of 3G services. The Department for Trade and Industry formulated an auction process that would yield billions for the Treasury and set an express timetable for the rollout of these services in the UK. However, for the operators this left a dilemma.
The existing four UK mobile providers felt obligated to participate in the auction to gain access to the new spectrum that would enable 4G services to work. The cost would have to be recouped from consumers, but how?
Several attempts were made to introduce consumer services, such as music and ringtone downloads. Video calls looked promising, but the operators simply could not make the numbers add up. They were out of their comfort zone when it came to provisioning and developing consumer services on the feature phones that existed in the pre-smartphone era.
Bidding for 4G
Today, however, the UK is perceived by some to be clinging on by its fingernails as many 4G services have already been launched in other territories, such as the USA, Europe, Asia and Australia.
The difficulty this time has been caused by delays in the switch-off of analogue TV to make spectrum available for 4G. There have also been legal obstacles to overcome because mobile operator EE (formerly Everything Everywhere) has been keen to launch 4G services on its existing 3G spectrum in a limited capacity before the end of the year to get ahead of competitors.
Other prospective bidders for 4G licences will have to wait for the bid process to take place at the beginning of 2013. There will also be further costs related to updating the mobile operator's infrastructure.
However, this is unlikely to be anywhere near as large as the infrastructure costs associated with 3G build-out as the operators were upgrading infrastructure primarily designed for voice traffic.
"Much of the cost of upgrading the infrastructure will be in the backhaul. About half the cost will be in microwave and the other half will be in upgrading the fibre," says Professor Will Stewart, chair of the IET's communications policy panel, whose remit is to provide guidance to the industry, government and the public.
More important for the operators is the upgrade to the backhaul, which will have to deal with a significant increase in data traffic. But what improvements in broadband will consumers notice? As other countries have already launched 4G services UK users should have a fairly good idea.
However, unlike 3G before them, 4G services are not going to be the panacea for all the ills of what currently exists with these services. It all sounds painfully familiar.
Punditry by consumer tech journalists and spin by mobile operators appear to paint a picture of a super-fast broadband service that will allow users to download and stream video content without pixilation, frame dropouts and buffering associated with current mobile multimedia content.
"The net capacity is limited by the spectrum. There will be more capacity, but the gain is not that great," claims Stewart.
Additionally, research commissioned by EE suggests that the UK economy could benefit by as much as half a percentage point in GDP with the adoption of 4G. But this is the headline figure which, according to the research, won't kick in until 2020.
Much of the increase in GDP will come from less time waiting for content to download - 37 million hours a year. But this assumption does not consider any increase in the size of sites being downloaded.
Mark Pragnell of Capital Economics, the report's author, also claims that it "shows how giving Britain a world-class digital infrastructure will make it more globally competitive and attract new business start-ups".
These are bold claims. In fact, US technology news website CNET claims that the iPhone 5 sold nine times more quickly than its predecessor, the iPhone 4S.
But while phone companies queue up to make hefty profits with their shiny fast devices, those who make the infrastructure are being squeezed.
Mobile operators are likely to trim budgets for the slower 2G and 3G networks, and the impact of low-cost Chinese competitors Huawei and ZTE is partly to blame. Operators are likely to drive harder bargains with suppliers such as market leader Ericsson.
Data traffic overtook voice on mobile networks in early 2009 and is expected to be 15 times today's level by 2017, according to Ericsson, when there will be three billion smartphones in use, up from 700 million.
But each new generation of network does more for less. Cut-price Chinese competition and technological advances have pushed prices down 10-15 per cent a year in recent times, cancelling equipment vendors volume growth and efficiency gains.
In fact, the mobile network infrastructure market is only marginally bigger than the $55bn it was in 2000, despite huge increases in mobile phone subscriptions, mobile broadband use and smartphone sales. As 4G drops in, 3G will drop out.
In 2009 Nordic operator TeliaSonera rolled out commercial 4G services and now two-thirds of Swedes have access to 4G at home, while in Denmark it's three-quarters.
"It has happened within the existing capex budget," boasts Hakan Dahlstrom, president of TeliaSonera's Mobility Services unit. "As it is today, there is spare capacity in the 4G network."
Operators in North America, Japan and Korea have also been early adopters, but Ericsson reckons that only 5 per cent of the world's population had access to 4G in 2011.
Over the past 10 years, there has been significant contraction among telecom infrastructure companies. Nortel Networks collapsed in 2009, and Motorola left the sector. Nokia and Siemens merged their equipment units in 2007 in search of critical mass, as did Alcatel and Lucent in 2006. Marconi collapsed at the start of the new millennium.
Alcatel-Lucent's presence in the US, where spending on 4G has been heaviest, did not stop its revenues falling 2 per cent between 2010 and 2011. They have dropped 12 per cent since the company was formed.
Huawei and Ericsson, the top two players in telecoms equipment, are extending their lead into the 4G world - Ericsson with $5.24bn revenue at the end of the first quarter and a market share of 38 per cent.
Huawei has grown its market share to nearly 20 per cent in just a few years, backed, critics say, by cheap money from the Chinese state that has allowed it to undercut rivals.
Vodafone and O2 said last month that they would pool their 4G network spend, and some are also merging 2G and 3G networks to make savings.
The lessons of the 3G auctions are being heeded by the operators this time around. The dividend for the UK Treasury will be reduced, there will be no bonanza for the network providers and crucially, in the long run, there will not be a huge price hike for consumers.
"Initially, the cost will be more expensive, but I expect within a year the price will start to drop as the competition begins to heat up," predicts Stewart.