The announcement from Vodafone in September 2004 that it would launch consumer 3G services to the mass market in time for the Christmas holiday period this year marks a major step forward in the industry – and only three years late. And what is emerging is less a revolution than a steady evolution in the mobile telecommunications market, more akin to the transition from analogue to digital than a paradigm shift in communications: voice is, and will remain, the “killer application” for mobile telephony. This does not, however, mean that the arrival of 3G services is irrelevant.
Vodafone’s announcement, that it would be starting to sell 3G handsets in November from manufacturers including Samsung, Sharp, Sony Ericsson, Motorola, NEC and Nokia, marks a major advance on its launch of datacard services in European markets in early 2004. The range includes what the company claims is Europe’s first 2 megapixel camera phone, the Sharp 902, as well as the Sharp 802, the Motorola E1000, V980 and C980, NEC’s 802N, the Sony Ericsson V800, Nokia 6630, and the Z110V and Z107V models from Samsung. The handsets will be available, and will be able to roam between, all Vodafone controlled operations with the exception of Australia and New Zealand. Vodafone will then challenge Hutchison directly in its home market of the UK.
The 3G frenzy that shook the industry in Europe has had permanent effects. Operators like BT and Deutsche Telekom have struggled with the debt load from the licence auctions in their countries, leading to the divestiture of the mobile arm from the British incumbent. Across Europe, the ground has been littered with failed service providers and returned licences from operators who despaired of making a commercial return from rolling out 3G networks. 100 billion was spent on these licenses in the 2000-2002 period; it seems uncertain how much of this money has simply been wasted. Telecommunications has never seen such a bubble of speculation, collapse, and ‘creative destruction’ of investment.
Some parts of the industry are still smarting from the disappointments of the past few years. Dave McGlade, CEO of BT’s demerged mobile unit, O2 UK, stated the position in response to Vodafone’s announcement. "As an industry we have a track record of hyping technology before it is ready. Instead we should be launching it only when it has the right customer experience… 3G will be a central pillar for the mobile industry moving forwards – but we won’t see mass market adoption of this technology until late 2005." As this is pretty much the exact position taken by Vodafone’s Arun Sarin in 2003, it seems to be a question of timing and judgment, rather than doubts about the value of the 3G mobile proposition in and of itself.
A number of operators, including both O2 UK and Orange UK, have launched data only 3G services in 2003, and have not yet declared their intention to commence conventional handset and voice services on their UMTS networks. Many European operators, faced with the frustrations and disappointments of trying to launch 3G services in the last two years found themselves eyeing up a booming demand for mobile data services that was leaking off into new, unregulated Wireless LAN services – WiFi. Deutsche Telekom, Swisscom and many other major operators have invested heavily in WiFi services to maintain their hold on mobile data before 3G was up and running. This strategy has continued with the launch of 3G datacard services providing mobile data access for laptop computers, accepting that the consumer demand for advanced non-voice mobile services has failed to match expectations, and that current handset technology is simply not well suited to encourage heavy use of mobile data.
Hutchison Whampoa’s Three has been a lonely standard bearer for 3G in the European market for over a year. The company set itself a target of a million subscribers in the UK by Christmas 2003, a target it finally claimed to have reached in August 2004. Worldwide, the 3G mobile phone network operator had 3.2 million subscribers at that time, a net gain of 2.5 million customers in six months. Growth has massively accelerated as its other operations, in Italy, Denmark, Sweden and Austria, come online, and as the company turns to aggressive pricing and launches prepaid plans in a burst for growth. Early problems, with poor availability of sub-standard handsets, poor network coverage and resilience, and poor distribution networks compounded by expensive tariff schemes, have largely been overcome. The company has also had success in attracting high-spending and inquisitive customers from other operators and is experiencing demand for its new services, such as video clips and multimedia –but the company continues to burn cash, reporting negative EBITDA of HK$4,153m for the first half of 2004. The industry has decided that 3G is here, and is here to stay – but there is a long way to go before the boom times come.
The business realities of Mobile Content and Mobile Data
Roundtable with Paul Budde and industry experts – Wednesday 20 October 2004
Cost: $325 per person (excluding GST) – this includes morning/afternoon coffee and lunch
Venue: The Observatory Hotel, 89-113 Kent Street, Sydney
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