America rides the wireless wave
economist.com
It is never easy for Americans to imagine that anybody
can beat them technologically. That makes the current
consensus in America that Europe is far ahead in wireless
all the more surprising. From Los Angeles to New York,
analysts, investors and the press agree that America?s
technology companies will find it hard to make up the
ground that they have lost.
Behind this consensus lie Europe?s high
mobile-penetration rates. They are in part the
consequence of a decision by European governments to
impose a single standard, GSM, on squabbling
mobile-phone companies. Once mobile phones could talk
to each other, penetration steamed ahead, and Europe
built a stable of powerful mobile companies, such as
Vodafone, Ericsson and Nokia. In America, disunity
dogged the industry and slowed the pace of take-up.
Yet before America?s pessimists write off their
compatriots, they should look at what happened in
another industry. In the early 1990s, Europe, with
services such as France?s Minitel, had a lead in
packet-switched networks and services. Then along came
the Internet, and all the might of Europe?s governments
could not maintain its lead in that technology.
One reason for doubting the current consensus is that
Europe?s lead has been somewhat exaggerated. Granted,
in some Scandinavian countries, two out of three
households have cellphones?more than twice the rate in
America (see chart). But rates in big European countries
such as France and Germany are actually lower than in
the United States, and penetration in some of America?s
urban areas now reaches Scandinavian levels. What is
more, America is still far ahead in Internet use, which
means that Americans are likely to take up wireless
Internet services faster than Europeans. Existing Internet
firms can simply extend into the new wireless world.
True, Europe and Japan have rather better networks.
Even in Silicon Valley, coverage can be patchy. Japan, in
particular, is pushing ahead to deploy the next generation
of wireless networks, known as 3G, which will make
possible new bandwidth-intensive services such as
real-time video. American carriers, however, are busily
deploying transitional technologies such as GPRS and EDGE
that are powerful enough for most services?and a lot
cheaper.
Many subscribers in Europe and Japan do use their
handsets for more than voice calls. In Europe, 12 billion
short text messages were sent last year. But that does not
mean that wireless data is non-existent across the Atlantic:
Americans have pagers for their messages.
Anyway, at the end of the day, these differences will
hardly matter. All industrialised countries will soon have
similar wireless penetration rates and infrastructure. What
will count is how the new networks are used.
And this is where America has two great advantages.
First, it has an ?innovational complex??those thousands
of entrepreneurs, venture capitalists and
engineers?unmatched anywhere in the world. They are
now beginning to do for wireless what they have already
done for the Internet. Secondly, America has more
money than anywhere else. AT&T raised $10.6 billion
from its sale of shares in its wireless division this week,
making it the largest initial public offering ever. And as
Internet retailers have fallen out of favour, so venture
capitalists are pouring money into wireless firms.
Recently, for instance, Brience, a San Francisco firm,
raised $200m to develop wireless data software for
broadband services?one of the largest investments ever
in a software firm.
These advantages have allowed America to forge ahead
in three crucial areas:
?Hardware. Two years ago, Motorola lagged far behind
its Scandinavian rivals, Ericsson and Nokia. Now, after a
big push, the company has shipped 1m web-enabled
phones, while its competitors are only now starting to sell
handsets with a browser.
Qualcomm, a company based in San Diego, owns
important patents for a radio technique called CDMA
which will most likely become the standard in wireless
networks, and currently makes 90% of the chips that run
CDMA networks. It could become a sort of Intel of the
wireless age.
America has also taken the lead in wireless devices that
are not telephones. Last year, 3Com?s handheld division,
since divested, launched the Palm VII, which allows users
to surf a limited number of websites. Research in Motion
(RIM), a Canadian firm, has been successful with its
Blackberry?a pager-sized wireless device that can send
and receive e-mails.
?Software. WAP, short for wireless application protocol,
the standard for connecting cellphones and the Internet, is
all the rage in Europe. But it is based on technology
developed by an American company, Phone.com?a
small piece of software installed in a cellphone, known as
a microbrowser, that can display data sent from a WAP
server. In 1997 the firm convinced the telecoms industry
to make WAP the de facto standard for the wireless
Internet.
Among companies developing ways to use wireless
Internet is 724 Solutions, which is based in Toronto. It is
a leading provider of software allowing financial
institutions to offer services over wireless devices.
Citigroup is planning to implement the company?s
technology worldwide. InfoSpace, based in Seattle, is
establishing its product as the platform of choice for
wireless content and commerce. So far, 25 carriers
worldwide are using the firm?s software, including
Vodafone and AT&T.
?Services. AirFlash, a Silicon Valley firm, has developed
algorithms that find the closest hotel or cinema to a user?s
cellphone, taking into account geographical barriers such
as rivers and, in the future, traffic conditions.
OracleMobile.com and Strategy.com, respectively
subsidiaries of Oracle, a database supplier and
MicroStrategy, a data-warehousing firm, allow users to
select information they want to receive on their wireless
devices from corporate websites. If a flight is arriving late,
the shares of a company drop below a certain level or a
favourite team has won, alerts are automatically sent out.
Yodlee, also based in Silicon Valley, allows consumers to
aggregate information from websites where they have an
account, such as their bank or their brokerage. Originally
launched as a web-based service, it now allows
consumers access to the data via a WAP-enabled
cellphone.
IQorder and Barpoint have come up with a new kind of
comparison shopping. When users are in a store
considering whether to purchase an item, they can punch
in its bar code number on their phones. The service then
provides information about that product, such as a list of
the lowest prices?and a way to order it.
Vicinity is planning to use its database of more than 4m
physical businesses, which already helps web surfers find
the nearest Levi?s store or FedEx drop-off point, to allow
retailers to transmit discount coupons to the cellphone of
a consumer who happens to walk by?and lure her into
the store.
Trapped in a walled garden
In building a standardised infrastructure, it has served
Western Europe and Japan well to have strong
governments, national carriers and dominant cellphone
makers. But the Silicon Valley innovation model, with its
start-ups financed by venture capital, has generally done a
much better job of developing innovative applications.
Much depends on whether the big telephone companies
will allow start-ups to flourish. The Internet?s success is
due not least to the inability of telephone companies to
control what services were offered over their networks.
Similarly, i-mode has taken off in Japan because NTT
DoCoMo, the country?s leading wireless carrier, has
adopted an Internet-type model: anybody can set up a
site which is then easily accessible with a browser phone.
There are now thousands of i-mode sites. The service has
proved so popular that NTT DoCoMo said last week it
would stop selling i-mode-enabled handsets to ease the
load on its infrastructure.
In Europe, on the other hand, carriers appear to be
leaning towards a ?walled garden? model akin to the early
versions of online services such as America Online and
Compuserve, where access to the web was possible but
difficult. Such arrangements have their attractions in the
short term. They allow carriers to control which services a
subscriber can receive and to make money from service
providers by charging for placement on a mobile phone?s
display. In the long run, though, such restrictions hamper
competition and innovation, so both consumers and
companies suffer.
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