Glad to see you are back. Here is some more on the English driving problem. Hitting Nokia right where it hurts. Due to, well, see bold text.
Mobile phones run into static
Nokia's vision of the wireless future is expensive - and it's failing to convince the sceptics, writes Jamie Doward
Jamie Doward
Observer
Sunday July 2, 2000
The bods charged with delivering Nokia's wireless internet strategy could manage only the hastiest of interviews last week - in the back of a London taxi between Piccadilly Circus and Paddington Station.
Unfortunately, Ilkka Pukkila, director of Nokia's 3G marketing strategy, and Ukko Lappalainen, the company's 3G general manager, hadn't banked on the capital's atrocious traffic conditions and were thus running late for the interview. Admittedly, Nokia is a giant in the mobile communications market. But a hasty briefing in the back of a lurching black cab is probably not what the Finnish company has in mind when it comes to developing communications on the move.
When The Observer caught up with the pair, they had just finished a presentation to the City's finest in which they pushed the line that, honestly, the costs of rolling out the wireless internet of the future - also known as third-generation (3G) services - are not really going to be that expensive.
Unfortunately, fellow mobile giant Ericsson is not so optimistic. On Thursday the company's president, Kurt Hellstroem, warned that growth in the mobile market is likely to slow because of the costs of 3G licences. His comments focused investors' concerns on the wireless industry's massive capital requirements and sent the price of telecom shares plunging.
As the taxi weaved through thick London traffic, the two Nokia executives expressed incredulity that the city centre could be so jam-packed. 'It's because of all the telecom firms digging up the roads and laying thick cables,' the pair were informed.
In Nokia's world, of course, there would be no need for so many cables. Wireless base stations would act as substitutes for many of the inner city networks currently being laid across the UK to cope with the huge demand for new information services.
But the promised wireless revolution now seems to have hit a snag: how will it be financed? The key problem is that the industry is embarking on a roll-out of new technology which will transform mobile handsets into sophisticated devices capable of receiving and sending data wherever we are.
Revolution is something of a misnomer. Evolution is more the order of the day. This may look like semantic pedantry, but the fact that the mobile data explosion will roll out in stages has profound implications for the industry.
Already, consumers in the UK can buy Wap (Wireless Application Protocol) phones which allow them to download basic text services from the world wide web; soon, general packet radio services and, in the longer run, 3G technology, will be rolled out.
The problem is that each new technology requires huge investment. And this will come on top of the billions the mobile phone networks are now having to pay for the cost of 3G licences. Nokia estimates that it will take an incumbent mobile operator between five and seven years to claw back the costs of that 3G licence and of building a network in any particular country.
Analysts now talk of mobile phone operators having to spend more than £100 billion on licences and 3G technology if they want to build a global network. But other technologies are sucking up mobile operators' capital expenditure, such as Wap and GPRS.
Who is going to pay for all this new technology? You can almost hear investors stealing the best line from Jerry Maguire: 'Show us the money. Show us the money.'
Nokia suggests that 3G means operators can double their revenues and cut their costs in half. The latter can be done, apparently, because 3G networks will have 'scaleability' - that is, they will be able to adapt at little cost in the long run, thus bringing overall capital expenditure down.
Pukkila argues that there will be three key drivers behind the doubling of revenue growth: 'There will be services that are time-critical: you will be able to receive information in real time. There will be services that are person-sensitive: they know who you are and will arrange their services around you. And they will be location-sensitive: they know where you are. These factors will allow for the creation of premium services that will put some real value on the networks.'
Nokia believes consumers are prepared to pay for these services. 'People are already paying a little extra for banking over their mobile phone in Finland,' Lappalainen explained. Advertising and the application of the technology to other services - such as clever gizmos which help black cabs negotiate tricky driving conditions in central London - will also be big cash generators. The City has yet to be convinced.
As Alistair Scott, head of Asian Telecoms Research at Merrill Lynch, wrote in Asiacom , a business newsletter: 'There is a huge leap of faith needed by the financial community that the operators will sort this out.' He points out that in Asia, operators cashflows simply cannot finance Wap, GPRS and 3G.
The problem is not confined to Asia, however. Few, if any, operators really, know what is going to happen. Telecom Italia Mobile, for instance, recently shut down its strategic planning department because it couldn't see even six months into the future.
Removing the uncertainty surrounding the different wireless technologies will be crucial for the mobile networks. For example, nearly a third of the value of NTT DoCoMo, Japan's giant mobile phone company, is based on the potential of its data services.
But jumping on the technology bandwagon carries its own risks. BT Cellnet, has made much of the fact that it is the first UK operator to roll out GPRS services in the UK. But, to cut a long and complex story short, the handsets it is using work to a different GPRS standard from the version agreed by the industry, which limits their ability to use upgraded software packages in the future.
The operators themselves do admit that things could be better handled. One2One has spent huge amounts of time and money gearing up for GPRS, which it believes will be far more important than the introduction of Wap because it will allow the delivery of huge amounts of data and video services at speeds far faster than those on offer through today's conventional modems.
While Wap allows for the simplification of web pages so that they are easy to view on mobile phone screens, GPRS adds a completely new dynamic. The systems would work well together, but the industry has ended up launching two different sets of handsets at different times.
Craig Tillotson, One 2 One's strategic development director, says: 'The timing was unfortunate. The Wap browser model was ready before GPRS. In a perfect world everything would be ready at the same time.'
Given this uncertainty, questions must now be asked about who will pay for the new generations of handsets. Currently mobile phones are heavily subsidised by the operators because they 'locks' users into their networks for a year or two. But given the huge costs facing the networks, consumers will probably end up being asked to pay hundreds (instead of tens) of pounds for their phones. Nokia doesn't rule this scenario out. Pukkila said: 'It [the subsidisation of handsets] will not necessarily continue. It remains to be seen. It's very much up to the operators to decide.'
Some back-of-the-envelope calculations by Laurent-Pierre Baculard, a principal with management consultancy AT Kearney, suggest that if a 3G licence costs £5bn, an operator will probably need another £3bn to develop the network and a further £1bn to subsidise the costs of the new handsets.
And this is for 3G, which won't be available for another three years at least. Imagine how many more billions of pounds have to be factored in for the roll-out of Wap and GPRS until then.
Such financial fears plays into the hands of big operators such as Orange and Vodafone. 'They will have a different scale of purchase with the manufacturers. They will enjoy economies of scale by buying en masse from the manufacturers,' Baculard says.
These fears also mean that the operators will look to secure exclusive deals with content and service providers. This will see certain sites heavily promoted and easily accessible through particular mobile phone networks because the operators are receiving a kickback on any e-commerce transactions.
It all boils down to one question, according to Kee-hian Tan, vice-president of e-commerce with AT Kearney. 'One of the big uncertainties is how much people will use these new services. How much content will people pay for? If we can expect a shift to higher usage, with people spending more on access, it's possible to say handsets will be subsidised.' Big if.
Acronym buster
Wireless Application Protocol (WAP)
WAP phones are now available in the mass market (Nokia's 7110 phone and Ericsson's R320 handset). WAP is an industry-wide set of standards which allow mobile phones to download web pages.
General Packet Radio Service
Sometimes called '2.5 G'. This will allow users full internet access on the move. The system bundles data into 'packets' which can be sent far more quickly over mobile networks. The first versions of GPRS will be available later this year.
3G
Also called Universal Mobile Telecommunications System. This will allow video downloads and massive data transfer between mobile handsets. The first generation of GPRS phones also compatible with 3G networks will be launched in 2002. Full 3G services will not be available until the end of 2003.
guardian.co.uk |
