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* 3G Auctions: A License To Bill?
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About 3G

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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