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3G or not 3G?
By: John Button (10/09/01)
It is all too easy to believe that the depressing numbers that we are still seeing from the stock
markets result simply from the bursting of the 'dotcom' bubble - but that's far from the whole
truth. Technology stocks may have started the collapse - but it wasn't just those new kids on
the block who burned up the $billions.
In the UK, alone, BT, Orange and Vodafone between them paid a cool $34billion for licences
to operate a brand new type of mobile telephone system - 3G as it's called. To a greater or
lesser extent, that was a strategy followed by telcos around the world. Since then they have
invested billions more in developing the technology and buying the hardware to build the
physical infrastructures for their new networks.
So far these huge sums haven't generated a penny in revenue and surprise, surprise, two
years down the track BT has announced that things are running behind schedule and their
version of the new system won't be in place until late in 2003. Notorious as BT has been in
the past for missed deadlines, at least they've published one. Not so Vodafone who talk in
terms of making some of the planned 3G features available on their current networks. France
Telecom has just announced a warning that it has debt problems, while manufacturers of the
new handsets are reported as having difficulties too. Add to this an announcement by mighty
IBM that there just aren't enough skilled programmers around to develop the applications that
3G is planned to run and you might begin to smell trouble.
In short, it is the slow pace of infrastructure build and the sheer cost of servicing massive
long-term borrowings, that have destroyed so much shareholder value of hardware
manufacturers and telcos alike. One way of easing their problems might be for all the mobile
operators to club together and build a single network infrastructure that they could share.
This would probably halve the total investment needed and could work in much the same way
that multiple several gas suppliers use a single pipeline network. But, in the UK and other
countries too, anti-monopoly clauses in their licences make this difficult.
So, what exactly is it that the 3G network and smart new cellphones aim to offer users, when
they do finally arrive? Well, there's Internet and e-mail access on the miniature screen of that
new mobile phone. If your fingers are nimble enough, that will mean that you can surf and
send emails as well as picking them up. You'll be able to watch live video of a fairly eye-
straining dimension. And there will be high quality music that you can download or, just like a
Walkman, listen to on the move.
Oh! And don't forget that you should get a rather more reliable mobile telephone service than
we have today in pretty well every densely populated part of the world. If you happen to be in
a more thinly populated country though, you might do better with one of the Thuraya phones
that already combines existing GSM technology with satellite connectivity (and global position
location) throughout the middle- and far-East.
Next question. Are the services that 3G offers likely to earn the kind of revenue that is needed
to give a half-decent return on the massive investments involved? Doesn't the experience of
the past decade tell someone that the real earners for the mobile networks are millions of
commuters and business people calling to tell someone they are running late. Not to mention
the millions of kids sending short text messages from one classroom to the next. And all
those people you see in the street, chatting to their distant pals. Individually, each call may be
chicken feed. Together, they have driven the so far profitable growth of the entire mobile
sector.
High volume business traffic pays its share too, of course, when it cuts the call-out time of
service engineers or keeps other field workers in touch with base. But these are not people
sharing spreadsheets or trading on the stock market and very few are using their pocket
phones for email even though they can already. The interim WAP technology that links the
mobile phone to the Internet at a relatively slow speed hasn't changed that pattern to any
great extent.
In business, a mobile is mostly just another telephone, with the bonus that it can save you
having to leave messages on voice mail.
When business people are on the move, they use their laptops for serious business
communication. They plug them in to a telephone socket in the hotel room or the office they
are visiting. And, although 3G phones will be able to act as faster wireless modems for those
laptops, is there really a huge market out there of people who need, or even want to be on
line when they are walking the street, in a meeting or travelling in a cab or train?
Surely it is when they are boxed up for eight or more hours on a plane journey - even though
enjoying the comfort of business or first-class - that there's the need to be in serious contact
with the outside world. Isn't this why Boeing and others are investing in fitting their long-haul
planes with seat sockets that will link your laptop, via satellite, to the Internet and back to your
own office network?
So, where is 3G taking the telecoms industry and so much of the rest of the global economy?
Is it going to turn out like the impact that Concorde has had on the British and French aircraft
industries over the past twenty-five years? Huge investment in successful leading edge
technology but a market that turns out to be a lot smaller than forecast. Result: the demise of
some of the great names of a European industry and forced international collaboration to
compete with the better business strategy that brought us the Jumbo-jet.
Already, BT's Cellnet, which so successfully helped create the UK's mobile market, has been
re-named in readiness for sell-off, to lessen its parents' debt load. It will either to be absorbed
into another UK network or, more likely, become a small part of one of the few global
operators that are likely to survive the current telecoms bloodbath.
Or is there really the big money to be made from services like the one they show in that
wonderful Hewlett Packard TV commercial? You know, two guys toughing it out up a
snowbound mountain but able to keep up with their regular soap opera. "So that we can
watch our favourite TV wherever we are", the charming lady says.
Sure, but who goes anywhere nowadays where they can't get CNN or MTV?
About The Author:
John Button is a freelance business writer who counts major companies in the IT sector
among his clients, as well as contributing to the Financial Times and other business
publications. John Button Communications for 'Quest' magazine 010929
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