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The Networker: Why the 3G gamble looks a busted flush
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John Naughton
Sunday July 8, 2001
The Observer
Way back in the early Sixties, when a Rand engineer named Paul Baran came up with the idea of a packet-switched digital communications network, his toughest opposition came from AT&T, the world's biggest Telco. The AT&T folks were dismissive of this new-fangled digital stuff and refused to have anything to do with it.
In the end, Baran withdrew his proposal because it would have to be implemented by AT&T, and he figured they would screw it up. It was a rational fear. 'First,' a senior AT&T executive told him, 'it can't possibly work, and if it did, damned if we are going to allow the creation of a competitor to ourselves.'
In 1972, after the Arpanet was up and demonstrably running, AT&T got a second bite at the cherry. The Pentagon asked the company if it would be interested in taking on the network. Once again, AT&T declined.
Spool forward four decades, and nothing's changed. Telcos are still the corporate world's equiva lent of the Ultrasauros, the dinosaur that stood six stories high, weighed 50 tonnes and had a brain the size of a walnut.
Actually, the comparison is unfair to dear old Ultrasauros, for he probably had better strategic judgement than the Telcos, who shelled out $150 billion for 3G phone licences and are now contemplating spending a further $150bn to build the networks which will be necessary in order to provide 3G mobile services.
This crazed profligacy, as the Economist tartly observed, 'may well turn out to be the largest investment in the shortest time by any sector in history'.
Quite so. Now nobody minds companies making massive investments if there are reasonable grounds for supposing that vast revenues will one day flow from them. The really striking thing about the 3G gamble was the fatuity of the ideas for earning revenue from the increased bandwidth provided by the technology.
How were Vodafone, BT and their peers going to get back the (borrowed) cash they paid for their 3G licences? Why, by providing subscribers with novel, must-have, cutting-edge services such as, er, sports scores, stock market prices, travel updates, news flashes, health tips, best-buy information, premium-rate porn (sshhh...) and 'localised content' based on the fact that 3G phones know where they are.
Or, to put it another way, the Telcos are going to recoup their investments by offering the kind of brain-dead content which has already proved a commercial flop on the wired Web. And, just in case anyone thought the technology would come to their aid, the companies are discovering that delivering 3G networks is technically more difficult than expected. Apart from anything else, the phones have to be bigger because they have to be able to function as 2G phones whenever they cannot reach a 3G base station.
There are really only two conceivable uses for a 3G phone. One is as a paperweight. The other is as a high- speed modem. The original 'killer app' of Baran's Arpanet was email. The killer app of mobile phones is an inferior form of email called SMS. The main reason users like me are looking forward to 3G is as a way of getting broadband connectivity from anywhere. What we're after is a way of keeping in touch with one another, not with CNN, HSBC, Nasdaq nor even, God help us, Arsenal.com.
What we want is a way of connecting our laptops to fast, reliable, always-on, ubiquitous email. And therein lies the Telco problem: there is no money to be made from email because the user owns the content (shock, horror!) so there is no way of raking off a percentage from content providers. There is no way of intruding ads or sponsorship, either. So how will 3G be funded? Answers please on a stamped, addressed Marconi share certificate.
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