Mobile Multimedia? 3G May Prove a
Little Thin on Bandwidth
By Nick Watson
Senior European Correspondent
7/26/00 6:45 PM ET
LONDON -- Why let the facts get in the way of a good
story?
Telecommunications companies have been promising
customers and investors alike a brave new world of
exciting multimedia functions (teleconferencing, for
example) at the touch of a mobile-phone button when
they roll out Universal Mobile Telephone Systems, or
UMTS, over the next few years.
Now, however, the industry is beginning to admit that
the bandwidth for UMTS won't be great enough to offer
such services after all. This could have serious
consequences, because if the mobile operators can't
provide these features, they won't be able to offset the
drop in revenue from voice and recoup the huge amounts
of money they are pouring into the whole
third-generation mobile project.
When UMTS was first mooted several years ago, the
industry talked about speeds of 2 megabits per second,
fast enough to offer video teleconferencing on mobile
phones. But according to Falk Muller-Veerse of
investment and research bank Durlacher, it became
apparent such speeds would only be reached within the
confines of a building and, indeed, with some further
development to the technology. As a result, the industry
lowered expectations to a more modest maximum
capacity in metropolitan areas of 384 kilobits per second
by 2005.
Now that figure is in doubt.
According to Keith Woolcock of the investment bank
Nomura, the world's largest mobile-phone maker Nokia
(NOK:NYSE ADR - news) told him during a trip to
Finland earlier this month that the expected data rate on
a third-generation network would only be 156 kilobits per
second, less than half of what the industry is saying will
be available. Nokia did not return phone calls.
And even this speed may be too optimistic. "Some
industry insiders have told us that in the early years 3G
networks might only carry data at 30 kilobits to 60
kilobits a second," says Woolcock. That's little more
than what the interim mobile technology -- General
Packet Radio Service, or GPRS -- is expected to offer.
If Woolcock is right, then it would be a huge blow to an
industry counting on the principle that you can never
give people too much bandwidth.
The mobile-phone industry stands to lose significant
revenue from the drop in average revenue per user
because of a continuing decline in prices for traditional
voice services. For example, a survey by the U.K.'s
telecommunications regulator, Oftel, found that the
prices of mobile-telephone services fell by 17% during
1999.
To offset this, the mobile-phone operators are counting
on vast new revenue streams from mobile commerce --
such as advertising, billing, banking and transaction
charges -- which will be possible from the large amount
of bandwidth that comes with UMTS.
And they need this money sooner rather than later. Last
month, the credit-rating agency Moody's Investors
Service issued a report warning that the high costs of
obtaining UMTS licenses in Europe could lead to
significant rating pressure on the credit quality of some
of the European telcos.
Although it appears the 150 billion euros ($141 billion)
that Moody's estimates the mobile-phone companies
would need to obtain these licenses will be less
because of the wave of alliances these operators are
striking up, the rating agency reckons they will still have
to invest 150 billion euros on network construction over
the next three or four years. That's a considerable
amount of money for a company like Vodafone
AirTouch (VOD:NYSE ADR - news), which analysts
say needs to increase its earnings by $1.5 billion per
year for the foreseeable future to satisfy its
shareholders.
So how easy is it to increase the bandwidth of UMTS?
Not very, says Woolcock. "3G will require profound
improvements in both base-station and mobile-handset
technology to deliver high data rates," he argues.
Unfortunately, it's not just a case of simply peppering
the country with more base stations. Aside from the
increasingly vocal public disquiet about the potential, but
as yet unproven, ill effects from these base stations,
Woolcock says that there will quickly come a point
when interference between base stations becomes an
issue.
"Mobile-data applications are much more sensitive to
interference than voice traffic," says Woolcock.
Although neither Vodafone nor Orange would return
TSC's calls for comment (Vodafone said it was too busy
preparing for Thursday's annual general meeting and
Orange was sticking to the 384 kilobits speed), some
argue that the mobile-phone operators won't actually
need such a huge amount of bandwidth in any case.
Mark Zohar, a senior analyst with research firm
Forrester, says that there is actually no market for
real-time videoconferencing applications or multimedia
services on mobile phones, the services that require lots
of bandwidth. Instead, he argues, "customers want thin,
mobile, and simple applications that are personalized,
action-oriented, and location-relevant" -- services that
can be achieved without 3G technology.
Mobile-phone users want personalized content and
location-based services, such as finding the nearest
Starbucks coffee shop, Zohar says. And as demand for
location-based services takes off, carriers will find new
revenue sources in charging customers and content
providers usage fees for accessing these services.
The argument over bandwidth is sure to continue for
some time to come, not least because, as Nomura's
Woolcock notes, nobody is really sure what 3G
technology is capable of. What is certain, though, is
that those who don't buy the 3G revolution will use this
as further proof that 3G is more fiction than fact.
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