whereas 2.5G placed new demands on operators in terms of upgraded networks and on
handset manufactures who have to offer new functionalities and user interfaces, 3G am-
plifies the requirements. This has created an unseen level interdependence among market
players and forced particularly handset manufactures and network operators to form stra-
tegic alliances at an unprecedented pace. The greatest challenge is not the technology be-
hind advanced handsets, but in making interoperable handsets and networks. Thus, exten-
sive interoperability tests between each network and terminal manufacturer is among
other things required.5
5.1 Operator and Handset Alliances
In this section we comparatively analyze the alliance strategies of two “flagship firms”
(Whalley, 2004) in the European network operating market, the new entrant “3” and the
incumbent Vodafone, in terms of their selection of handset manufacturing partners.
5.1.1 “3”’s Alliance Strategy
On October 2nd 2002, “3”, owned by Hong Kong based Hutchison Whampoa, launched
its 3G services in the UK and became the first 3G network operator in the European mar-
ket. “3” was a new entrant in the European market with no customers and no existing net-
works.6 It had an explicit strategy of being a first-mover in the new technical subfield of
3G, which differed from its competitors, who had postponed their launch due to technical
errors and the lack of compatible handsets.7 Many competitors including Vodafone, O2,
T-Mobile and Orange argued that the system did not work and that a premature launch
would create bad publicity for the 3G market as a whole. “3” on the other hand hoped to
achieve first-mover advantages and to sell their phones at high prices due to their initial
monopoly position. The firm invested an estimated $12 billion to buy 3G licenses in 10
countries in 2000-2001. Its European presence include Austria, Denmark, Ireland, Italy,
the UK and Sweden, which should generate synergies through cross country work with
5 Global Telephony: “The Handset Bottleneck”, October 2001, 9/9, p. 31-32.
6 Some of the different “3” subsidiaries are formed with partners established in Europe and the mother-
company Hutchinson Whampoa has previous experience from other telecommunication ventures in Europe
e.g. the formation of Orange. However, these facts are less important here.
7 B0rsen, September 10 2002.
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