Generation Next?
Some big missteps are threatening to undermine Europe's leading wireless communications
By DAVID PRINGLE
June 25, 2001
Paul Stonadge's handset is zipping through WAP pages with gusto. After reading the first couple of paragraphs of a news story on technology stocks, the senior product manager with Vodafone Group PLC presses a button and the next installment arrives just a few seconds later.
"It's quite a difference," he says, explaining that the Motorola T260 maintains a continuous connection to the wireless Internet, allowing it to access WAP sites far faster than previous models.
Similar technology has been in use in Japan since early 1999, but for European telecoms executives the gleaming silver T260 is a sight for sore eyes. The first WAP, or wireless application protocol, sites were set up more than 18 months ago. But few Europeans have bothered to visit them because they need to go through the slow and often-frustrating process of dialing up a connection every time they go online.
"The mobile Internet is just beginning in Europe," Chris Gent, chief executive officer of Vodafone, told investors at a presentation in London in March.
The T260, which became widely available in late May, is the first phone to be equipped with GPRS, or general packet radio service, technology that allows users to immediately pick up surfing where they left off at the end of the last session. Mobile-phone operators hope that GPRS will give both WAP and their data revenues a new lease on life.
Late Starter
But GPRS technology originally was scheduled for launch in the first half of 2000 and its delay threatens to undermine Europe's valuable lead in wireless communications. That lead has spawned a broad ecosystem of companies and consultants that sell wireless technology products and expertise around the globe, ranging from the giant Finnish handset maker Nokia Corp. down to 70-employee start-ups, such as Dublin's Network365 Ltd.
The World Gets Connected
Although Europeans are the most enthusiastic users of mobile phones in the world, WAP has given the wireless Internet a bad name here that will be hard to shed. Forrester Research forecasts that even by the end of 2002 fewer than 5% of Europe's mobile users will have GPRS phones.
On the day that Vodafone launched its consumer GPRS service in the U.K., Alan Clegg was browsing inside one of the operator's stores in the City of London. After studying a big poster promoting "games in the garden" and "headlines at the hairdressers," the investment banker wasn't inclined to buy a GPRS handset. "I don't have a WAP phone, but I have had a play with one," he says. "I don't think the services are particularly of interest."
Such sentiments are more bad news for Europe's handset makers, who have seen their fast-growing market come to a screeching halt in recent months. Nokia issued a profits warning in mid-June and said it no longer expected the global handset market to grow significantly this year.
Understanding Packet Data
But for Europe's wireless industry, the arrival of GPRS is still a landmark event, because the technology is widely seen as a test-bed for higher-capacity third-generation networks, which are scheduled to go live in Japan later this year and Europe in 2002. Both GPRS and 3G networks deliver data in small packets, rather than as a continuous stream.
Without GPRS in place, European mobile-phone operators have been unable to demonstrate either that wireless packet technology works or that there is sufficient demand for wireless data services, such as Internet access, to justify the billions of euros they have spent licensing and building third-generation networks.
"We need a few more years to test GPRS and understand packet data," says Ali Pourtaheri, who until recently was chief executive of UbiNetics, a Cambridge-based company that tests mobile network infrastructure and handsets on behalf of operators. "3G is coming four or five years too early."
Worse still, some analysts mock the notion that 3G technology should be rolled out to cover most of Europe's population, as operators' expensive licenses stipulate. In May, scores of fund managers and venture capitalists crowded into a conference room in investment bank Nomura's offices in London to hear a series of presentations about alternatives to 3G. "To borrow a phrase from Tom Wolfe, operators are about to be mugged by reality," Keith Woolcock, an analyst with Nomura, said to a ripple of laughter.
Mr. Woolcock and some other analysts argue that the high cost and limited range of 3G base stations means that the technology will not be viable outside densely populated areas such as Japan and the Netherlands.
Arto Karila, a consultant who sits on the boards of three Finnish wireless technology companies, believes that most consumers won't be prepared to pay the service charges necessary to recoup European operators' investments in 3G licenses and networks. "How necessary is real-time mobile multimedia? I go home and put my hand-held device in a cradle and get a 10 megabits per second connection," he says.
Fixed networks are not the only threat to 3G revenues. In the U.S., short-range wireless technologies, which can deliver data far faster and much more cheaply than 3G within small-defined areas, are being rolled out in airports, hotels and other public places. U.S. operators' license conditions do not oblige them to offer 3G services to consumers and if short-range wireless technology does prove to be more effective than 3G, the U.S. could leapfrog ahead of Europe.
Investors' uncertainty about both the financial and technological case for 3G has limited heavily indebted European operators' ability to raise fresh capital, curbing their global expansion plans and hitting local equipment suppliers' sales. British Telecommunications PLC had to sell off stakes in Airtel Moviles SA of Spain, Japan Telecom Co. and its J-Phone mobile-phone unit for a combined $6.9 billion (8.07 billion euros), while Deutsche Telekom AG and France Telecom SA have been unable to fill gaping holes in their geographic portfolios.
Spending Slowdown
"About a month after the auction in the U.K. for the 3G licenses everything sort of stopped," says Gerry McKenna, the chief operating officer of Logica PLC's mobile networks operation, which supplies operators with wireless Internet software. "The knock-on effect in the business has been huge."
A number of European wireless start-ups, such as CitiKey of Stockholm, went under last year, while CMG PLC and some other established IT groups have issued profits warnings linked to the telecoms spending slowdown.
Still, the financial pressure on operators was alleviated in June when the German telecoms regulator said it would allow them to share some 3G infrastructure, cutting the cost of building the new networks. Moreover, there are those who think that the auctions have not seriously damaged the European wireless industry. "We don't think the licenses are that expensive," asserts Tim Devine, a wireless specialist with the U.K.'s PA Consulting Group, which advised operators on 10 3G license bids across Europe and is developing 3G terminals on behalf of handset makers.
Mr. Devine envisages that 3G technology will allow mobile-phone operators to suck in a much greater proportion of consumers' spare cash than they do today. "The [U.K.] confectionery market fell by 25% over the last two years, because teenagers were buying prepaid [mobile-phone] cards," he says.
PA expects mobile phones to become increasingly central to Europeans' lives, so that they use them to do everything from downloading music to checking e-mail. Although Mr. Devine acknowledges that consumers could download content over a fixed network, "that would be the nerdy way to do it," he says, arguing that using wireless networks will be less hassle. On the desk in front of him in PA's high-tech Cambridge offices, a light on his hand-held computer flashes periodically, showing it is hooked up to a mobile-phone network.
The GSM Factor
Indeed, the world-wide adoption of GSM, or global system for mobile telecommunications, has left Europe in a strong position. NTT DoCoMo Inc. of Japan is the only non-European mobile-phone operator that can claim to have any kind of global reach, while three of the world's four largest handset makers -- Nokia, Telefon AB L.M. Ericsson and Siemens AG -- are based here. Moreover, a far higher proportion of Europeans than Asians and Americans own mobile phones.
Among the succession of high-tech buildings that line the M4 motorway running between London's Heathrow airport and Vodafone's headquarters in Newbury are several wireless research and manufacturing facilities of global importance, such as Japan's Matsushita Electric Industrial Co.'s GSM center in Thatcham. As Vodafone has expanded to become a global company it has opened more than 50 offices in Newbury and is now building a giant headquarters outside the historic market town. The presence of global operators and handset makers in Europe has also helped turn cities like Cambridge, Stockholm, Helsinki and Dublin into major centers of wireless expertise.
But unlike GSM, 3G is not really a European technology. While Ericsson and Nokia are winning the bulk of 3G infrastructure contracts, analysts believe it is unlikely that European handset vendors will be able to retain the 70% share they have of the global market today. DoCoMo is set to be the first operator in the world to roll out a major 3G network, giving its Japanese handset suppliers, such as NEC Corp. and Matsushita, an early opportunity to perfect the technology.
Although a whole clutch of companies own patents relating to 3G, PA Consulting says that Nokia and Ericsson are the only European companies with a strong claim to significant royalties on equipment sales. PA says that the Japanese trio of DoCoMo, Matsushita and NEC have strong claims, together with the U.S. giants Lucent Technologies Inc., Qualcomm Inc. and Motorola Inc.
Moving East
Raomal Perera, chief executive of Network365, is one of many European wireless entrepreneurs who now take their lead from Tokyo, rather than Stockholm or Helsinki. Equipped with a Powerpoint presentation showing forecasts of exponential growth in mobile data traffic, Mr. Perera was one of an army of Irish software engineers touring Dublin's financial institutions in 1999 cap in hand. Mr. Perera raised about 18 million euros of funding in two rounds and set about developing a suite of wireless commerce software.
But by the middle of 2000 it became clear that WAP wasn't going to take off in Europe any time soon and Network365 has since focused on the Asian market, opening offices in Tokyo and Singapore. "Japan is the most advanced wireless market in the world," says Mr. Perera. "We put all our energies into it." |
