Hi, Lance - 'Another device besides that small phone?'
Sorry for the late response; your post left me thinking, over the last few days.
'It looks to me like you are separating voice and data in your assumptions and I am unwilling to do that.
No, I'm not separating the two; as I pointed out, the eventual emergence of VOIP will eliminate that distinction. Nor did I suppose that certain types of 'bursty' apps would be eliminated. On the contrary, I think the additional capacity provided by 2.5 - thru 3G will find use and acceptance by the general public. I mean such things as email, sports, news headlines, weather: minimal stuff, really.
My point about market segregation boils down to a look at the customer profile, as opposed to the strategy of the telcos in 3G.
In saying that Joe Six-pack won't care much about the data-carrying capabilities of cell phones, what I'm really saying is that those users who want more in data, will likely opt for a laptop, handheld, whatever, and a wireless ISP, perhaps with a national footprint, or at least with roaming privileges.
And those users are not Joe Six-pack; for the most part, neither are their needs those of Joe Six-pack. So what I'm saying is that -
(a) Telcos will be unable to offer the services required by the more sophisticted user on a reliable basis. Growing usage, emergency events, and the additional imposition of data itself will once again constrain capacity.
(b) A minimal set of data features will typically be enough for the average user, on his or her cell phone.
(c) The remaining users, who want more from wireless, including reliable high throughput, real-time data will opt for a second device, and will pay for the service.
Joe Six-pack will be content with what the telcos give him. He won't need, or ask for more - indeed, he will be annoyed if he gets saddled with unwanted features that end up increasing the cost of his minimal service.
On the other point,
'And my view of the present spectrum buys, and infrastructure buildout by the telcos is that ultimately it will be their demise. They will be unable to draw sufficient high-paying customers on that little device to recoup their investment. True, the increased capacity that it will give them will serve them well, but there's going to be a lot of wreckage before they are well-served.
- see the following.
It goes back to your original point, about watching, not only what's being said, but who's saying it.
Best regards,
Jim
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***Asterisks added...***
Investors Beware of Partisan Promises (1/5/2001)
One sure sign of a bear market is the proliferation of doom and gloom merchants. The once unshakeable mobile phone industry is no exception, particularly since Europe's third-generation licence auctions saddled most operators with mountains of debt.
Unfortunately, independent analysis of 3G business models is rather thin on the ground. To pay off all their debt, operators have employed armies of investment bankers to sell fresh equity and re-finance loans. Nearly every large bank is involved and the quantity of truly independent analysis has nose-dived.
All this has placed a premium on the handful of industry consultants, such as Forrester Research, able to offer a non-partisan view. Its latest conclusions are dramatic.
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"A 15 per cent drop in average revenue per user by 2005 will destroy profits, unleashing major business failures and industry consolidation," predicts analyst Lars Godell.
To make matters worse, when mobile operators default on debt payments, European bond markets will implode, forcing the European Central Bank to raise interest rates in response and thus weakening the euro and the 2 per cent of European gross domestic product derived from mobiles.
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Even Forrester admits that macro-economic forecasting is not its strong suit, but the analysis that leads up to this scenario is compelling.
Mr Godell's thesis is that the days of steadily rising revenues from voice calls are over, while the promised explosion in internet and data traffic will not be enough to offset higher 3G operating costs.
It is easy to see why operators should be worried about traditional sources of growth. Yesterday's fourth-quarter subscriber figures from Orange and its new parent, France Telecom, suggest the Christmas sales boom has left two-thirds of the UK population owning a mobile. Penetration rates are even higher in countries such as Sweden and Italy, while Germany and France are catching up fast.
Given that few infants or pensioners use mobiles and that most of us can have only one conversation at once, 80 per cent penetration seems the upper limit.
People use phones for longer as prices continue to fall and average revenue per user (ARPU) has so far continued to grow.
However, 3G auctions have introduced a series of operators and caused others to consider selling wholesale airtime to so-called virtual network operators. Forrester estimates the proliferation of new suppliers chasing dwindling numbers of phoneless will cause a price war that will devastate ARPU and profit margins.
The trend should be particularly acute in countries where the ratio of networks to adults is higher, but even big markets such as Germany expect fierce price competition with several new entrants.
This will not be news to most operators already coping with tough price competition. What is surprising is how far the analysis suggests ARPU has to fall and how quickly this can hit profits.
After interviewing executives at 26 operators, Forrester concluded revenues per customer from voice and text messaging will fall 36 per cent in five years' time to 313 ($297m).
Meanwhile, growth in access calls and subscription fees from internet-enabled phones will not be enough up from an average of 1 per user today to 73 by 2005. Revenues from internet content fees, e-commerce, advertising and location-based services will grow steadily from about 0.60 per user today to 33.45 in 2005.
If true, operating profits will disappear in 2007 and take six years to return, forcing all new entrants out of business and leaving just five pan-European groups.
Understandably, this conclusion is fiercely rejected by operators particularly by new entrants, such as Hutchison in the UK, which point out that it is unfair to judge their business model on the basis of how existing operators are faring.
However, Forrester's report will be interesting next to the positive research expected next week from banks involved in the initial public offering of Orange.
With so much uncertainty over the effect of internet revenues on the overall business model, investors may have to adjust to the fact that 3G will not be the icing on the cake; more the uncertain trial of a whole new recipe.
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