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Monday, February 17, 2003

3G Reality Check

After all the hype, the future of 3G mobile phone services seems as cloudy as ever. In 2002 sales of mobile networks around the world declined to 39bn dollars, down some 25 percent from their peak in 2000. This year another 10 percent decline is forcast, and every week sees mobile operators trying to find new ways to cut their network investment budgets even further. Tens of billions of euros have been written down by Europe's mobile operators in the past 18 months, an acknowledgement that they hugely overspent on acquisitions and radio spectrum licenses. Most firms are starving for cash. Even in the most advanced wireless communications countries like Japan and South Korea, where fast mobile data services were introduced last year, data traffic makes up less than 25 percent of total revenues and average revenue per user is flat. These and other problems will give the mobile operators gathered this week in Cannes plenty of food for thought.

High on many shopping lists might be Edge, a rival network standard that was written-off three years ago in Europe, but which has subsequently gained a lot of appeal because it is cheap, efficient with bandwidth and offers connections which, although not as fast as the full-fledged 3G technology known as WCDMA, still give plenty of speed to play with. It is rumoured that Nokia and Ericsson are going to push Edge, which some analysts reckon might even find buyers in Europe despite the legal obligations for operators to roll out 3G networks. This situation is not receiving a great deal of comment, but it was only a couple of years ago that the EU technocrats were waxing lyrically about the benefits of their regulated, common standards, system. Now it seems those very 'benefits' might turn into a deadweight which, given the EU administration's lack of flexibility (and inability to recognise a bad mistake even with hindsight - somehow I cannot help visualizing Wim Duisenberg and Otmar Issing at this point) could easily allow Europe to drop behind once again (of course unfavourable demographics aren't going to help either, as with each passing year the proportion of young people available to drive these innovations forwards goes down).

And just to add to their troubles mobile hardware makers are going to have to turn their minds to the looming competitive threat from Intel, Microsoft and a host of other Asian electronics companies. What stumps me is what they imagine people are going to use all the flashy bandwidth for after the predictable initial streaming-video craze has died down. It's a lot of cash to lay out on what might only become a passing fad. After all, why pay a second time for the discomfort of a mobile service when you already have a broadband internet connection at home?

Executives from Nokia Oyj, Orange SA and Vodafone Group Plc will tout the prospects for faster cellular services at the telecommunications industry's annual meeting in Cannes this week. What will be in short supply are the phones themselves. Nokia, the world's biggest mobile-phone maker, hasn't begun selling its first so-called third-generation handset yet. Sony Ericsson Mobile Communications Ltd., ranked No. 5, hasn't even unveiled such a product. The few phones that have been announced so far leave much to be desired, executives said. "They're huge as bricks, battery life is appalling and the price for the handsets is too high," said Richard Brennan, executive vice president at Orange, in an interview. "Until we get those problems sorted, we won't market 3G." After spending $100 billion on permits to build new networks, Orange and European rivals need the phones to be able to offer services such as watching music videos and holding video conferences. Nokia and Motorola Inc., which also sell network equipment, are counting on the phones to entice consumers to buy new handsets as markets near saturation and prices fall. For operators and phone makers, introducing attractive 3G handsets "is probably the biggest challenge they all collectively face," said Ben Wood, an analyst at market researcher Gartner Inc. Global handset sales fell for the first time in 2001 and barely budged last year, as markets neared saturation and users put off upgrades. Earlier technologies designed to help move data over wireless networks have flopped because consumers found the services difficult to install and unreliable.
Source: Detroit News

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