Migration of GSM users to 3G will drive 3G traffic

In most markets, the majority of mobile users are still supported by 2G (mainly GSM) networks, so 3G networks are only supporting a minority of cellular users. Within the next five years, the vast majority of 2G customers of incumbent 3G operators will migrate to 3G services. Furthermore, as these customers migrate to 3G services, they are more likely to access usage-intensive services, which will substantially drive 3G traffic volumes.

The proportion of cellular customers with 3G devices has been increasing steadily in developed markets in Western Europe and Japan, as shown by the operator examples in the figure below.

3G penetration for selected 3G operators, March 2005-March 2009

Following slow initial 3G adoption following the launch of its 3G services, NTT DoCoMo undertook a major 3G coverage enhancement initiative and significantly expanded its range of 3G handsets. These significantly increased customer migration from 2/2.5G to 3G services, with 3G penetration (of cellular users) reaching nearly 90% by March 2009. While other countries have so far experienced lower 3G adoption than Japan, many operators have now focused on improving 3G services. In the 12 month period ending March 2009, Vodafone reported 3G penetration increases in the UK, Spain, Italy and Germany of 11.1, 9, 7.3 and 6.1 percentage points, respectively. We expect continued large annual increases in 3G penetration in developed markets in the next five years.