re: "Buck" expresses himself on State Of The Wireless Nation ...
>> The State Of The Nation
Mike Hibberd
Mobile Communications International
Issue 88
02 February 2002
What will this year be like for a community which, following a year of unprecedented difficulty, is emerging into 2002 dazed and confused?
Since the latter half of the 1990s, every new year in this industry has had tagged onto it some kind of promise. We have been expected to wait breathlessly for, in a manner reminiscent of the Chinese calendar, 'The year of data/prepay/WAP/GPRS'. Not so this time around - last year put an end to all that. Whatever was anticipated, it is probably best posthumously crowned 'the year of startling misery'. 2002 has a lot to live down to.
2001 was a brutal year that educated the mobile telecommunications industry in the harsh realities of life. It saw the fastest ever deceleration in wireless equipment spending by the operating community; a phenomenon reflected in the nightmares of the vendors. While 2002 may see the beginning of an upturn, it is by no means clear that the industry hit the bottom with the end of last year. And as for technology roll-out; there can be nobody prepared to make any 'year of 3G' claims on behalf of 2002.
Last year could hardly have been in more marked contrast with those immediately preceding it. Industry job losses motivated by drastic cost-cutting measures were inching towards the half million mark, share prices fell by 60, 70, 80 per cent, technology fell far short of what was promised by its creators, and operators and vendors alike struggled with the reality of their new environments.
To a certain extent the industry now finds itself grieving - and in shock. Unfortunately a period of mournful inactivity is a luxury it can ill-afford and 2002 will be a year in which the industry must steady itself in preparation for the eventual launch of next-generation technologies. Just how bad the situation is remains the topic of perpetual debate.
"I don't think the market will pick up in 2002," is the blunt assessment from Simon Buckingham, CEO of Mobile Streams. "The lowest depth has yet to be reached," he adds. Robin Booth, of Schema, on the other hand, is a touch more upbeat. "I don't think it's as bad as some suggest. We're actually quite positive about it all." This kind of polar opposition typifies readings of the industry at the moment - consensus is absent.
Declan Lonergan, analyst at the Yankee Group, sides more with Booth. "In terms of operators' business, I'm starting to see some signs of a slight recovery. The fundamentals of some of the bigger European players seem to have stabilised quite nicely." It's early days yet, though, and any fluctuation in trends like ARPU should be treated warily. Especially considering the amount it will have to grow in order for operators to start turning a profit with 3G - as far away as that remains.
Although a couple of UMTS networks around Europe have been switched on in accordance with licence terms, they are live really only in a nominal sense. It is extremely unlikely that European 3G will make any serious headway this year. It's more conceivable that any 3G activity will centre on operators looking for ways to ease their eventual deployment through negotiation with regulators. The French government's turnaround towards the end of last year (it has been suggested that the French government stands to make more money from the new arrangement than the old one) set a precedent for operator pressure on licensing authorities.
Deadline extensions and relaxation of licence stipulations are far more likely to materialise in European markets than any form of refund, but operators will push for everything they can get. While it is generally accepted that technology delays are inevitable, there remains a strong resentment towards the way some of the licensing procedures in Europe were executed. "If you took the licence fees out of the equation, this industry really would be in a much healthier state," says Declan Lonergan.
The burden of their 3G debts will continue to plague operators throughout the year and it is widely felt that the decrease in infrastructure spend to which they have contributed will remain - which is grim news indeed for the troubled vendors. As Andrew Cole, head of Adventis' Wireless Planning Division, puts it: "I'm expecting to see continued price pressure on vendors, operators will be watching every penny. So good luck, Nortel, Lucent and others..." Hardly a vote of confidence.
3G aside, 2002 is even unlikely to be the year of GPRS. Most estimates put serious uptake at the back end of this year, kept distant mostly by the absence of handsets. The handset supply issue has been the industry bugbear forever but its importance, fundamental as it is, will not diminish.
Cole warms to the topic: "This is the Achilles' heel, the black hole. For the carriers it's an intolerable situation. If I was them I'd be hitting the vendors with billion dollar bills for lost revenues because that really is the implication." Nice idea, but perhaps a little optimistic.
On top of the handset issue is the fact that the reality of GPRS transmission speeds is none too impressive. Struggling even to outdo its ancestral best of 9.6kbps, the early performances have been less than auspicious. Still, the real story behind GPRS is always-on; speed was never the benefit.
This is the message being put out and, while it is clearly a crude attempt at a historical re-write, it does hold truth. Always-on packet networks for the GSM community had to start somewhere, although the benefit of this aspect of GPRS to the user remains to be proven.
In some senses, Europe has been the part of the world hardest hit, at least in terms of damaged pride. Having bathed in the lustre of its world-leading mobile industry for so long, the jolt seems all the more jarring.
"The learning around mobile data services - the European advantage - is running out," warns Cole. So is the vanguard truly elsewhere now?
The Korean market is moving ahead with 3G, despite its own technical issues (see this month's Country Focus) and, having overcome delays of its own - not to mention taking some (with hindsight) regrettable strategic decisions - NTTDoCoMo is keeping Japan at the fore of the 3G battle. "All power to [DoCoMo], they're the standard bearer for 3G success and we need that as an industry," says Cole, whose company, Adventis, has recently started working with the Japanese operator. Cole does not share DoCoMo's previous enthusiasm for minority investments, suggesting that the operator should be going down the acquisition or MVNO routes. So that may be something to keep an eye out for this year. Still, DoCoMo remains publicly committed to its current ventures, even if, as Cole says, "they are ruing the day that they made those investments at the peak."
Away from Asia, though, the US market is felt by some to be well positioned to learn from the mistakes of the European markets. Circumstantially, a less developed voice market is regarded as a tremendous benefit in light of delays ahead for the roll-out of data services. With up to 30 penetration points still remaining according to some observers, the US is perhaps better positioned than Europe to tough out delays and learning curves.
Furthermore, strategically, says Buckingham, things are looking just as solid. "There's no question that the North American market has done a great job restructuring, far better than Europe," he says. "They've gone through the merger process, consolidation, made their technology choices and implemented them in a pragmatic way. 2002 will be really strong for the US." Praise indeed, and Cole concurs, citing the US' avoidance of the prepaid 'bullet' and the 'orgy of expenditure' on spectrum.
Not all US operators have got the manageable technology migration paths that Buckingham applauds, though. While the CDMA contingent draws admiration from some quarters for having an elegant enough strategy, the carriers with legacy TDMA networks have a complex mixture of technologies to deal with. GSM, then GPRS, then EDGE overlays, will have product managers tearing their hair out, says Cole, although he credits the senior engineers at these operators with almost other-worldly powers which he says will be tested to the full in managing these migratory paths. In other corners, however, the belief that the US lags behind Europe in every meaningful way by a couple of years in terms of mobile persists.
There's a world of pain in the industry at the moment from a technological standpoint. And this will serve to redouble the wireless community's focus on technical issues. In terms of what needs to be done this year, such a pure focus could be problematic. Operators have been aware for many months now that, as companies, they have to change. But progress is slow, according to some observers, and carriers are dragging their feet as they plod towards their new incarnations. 2002 will have to see them wising up to the inevitable if forward movement is to be made.
"The single biggest reason that we've had this recession in the mobile industry is that it is really dominated by engineers. There are a lot of propeller-heads out there and not enough companies that have a strong commercial, revenue-generating ethos," says Buckingham who, on this topic is clearly not mincing his words. "The quality of company that we are dealing with, and the quality of management is shocking."
He goes on to highlight initiatives such as the M-Services undertaking which are fundamentally flawed, he says, because they deal with technical issues like handset enablers. This is based on the wrong premise as to why the mobile internet will or will not be successful, stresses Buckingham; technology will not solve all the industry's problems.
While not everyone is prepared to express their views with such candour, Buckingham is by no means alone. It's a painful process, alright, but operators must face it. There is growing advocacy from many quarters of the splitting of the operator business into 'netco' and 'servco' units where specialists in each can maximise returns. This model has already been agreed upon in Sweden with Hi3G and Europolitan forming one network operating company which will provide UMTS capacity to each operator's service provision unit. But this is the exception at the moment, and not the rule.
In other areas of the business operators still seem unable to grasp the concept that their medium has to be made appealing to content owners. The latter already have their business and the sooner the operating community comes to terms with the fact that it does not hold all the cards, the better. As new technology comes online it is reasonable enough to suggest that legacy, voice-based commercial models will be made redundant. To hold onto something just because it's what you know is not a workable strategy, runs the warning being sent out to operators.
"What's happening is quite simple," says Buckingham. "In terms of an industry restructuring, you can either give control away voluntarily or the market will take it away by force. The crisis will come. These companies are not in charge of their own destinies."
And it's certainly the case that operators have been reticent in the extreme when it comes to concepts like revenue sharing. Consultants tell stories of content providers finding it impossible to strike deals with operators. Either the problem is simply that nobody really knows which individuals within the operator own that decision-making process, or the operator thinks a 70/30 split of revenues in its own favour will somehow appeal to the content owner. Frustratingly, says Booth at Schema, the content and application developers he has worked with remain keen to strike deals with the operating community.
In defence of the operators, he says, they have been involved in massive organisational changes involving ownership, operation, funding and branding which conspire to keep the kind of stability needed to build external relationships and deals at a distance. Furthermore, operators are working to unrealistic timeframes born out of the financial pressures they have come under. "If you take too many short-term decisions now - and I understand why they're doing it - it will end up constricting the market," he warns.
There are early indications that sense may be prevailing in terms of content relationships, however. Vodafone, often taken as the behavioural barometer of the operating community, has recently revised its revenue sharing arrangements with Vizzavi, the portal that it jointly owns with Vivendi Universal. Key to the new deal is the fact that operators in the eight European markets in which Vizzavi has a presence, will be giving up a share of that most jealously guarded of jewels: airtime revenue.
Not even DoCoMo, lauded for its canny generosity in content relationships for i-mode, lets anyone near its airtime income. Hitherto, Vizzavi has lived off 50 per cent of all service revenues. This figure has been bolstered to 80 per cent and is to be supplemented by a five per cent slice of the airtime from all markets.
Although this revision is clearly the action of concerned parents - the portal has singly failed to deliver on the promise that its owners felt it had given, and action has only been taken in light of serious under-performance - it does signify a willingness to approach these relationships from a different angle. Furthermore, according to Credit Suisse First Boston's European wireless research team, Vodafone has indicated that it is "potentially willing to consider sharing access revenues with third parties." Encouraging words - though by no means evidence of fundamental commitment - and whether or not it will herald an industry-wide wave of enlightenment remains to be seen. Fingers crossed.
The state of the nation is not so good. Optimism, soundly backed by reality, is low and the prospects of any genuine trophy-style achievements are slim. This will have to be a year where the hygiene factors - business, technical and strategic - are set in place in anticipation of the banner years to come. Not an easy approach for an industry that has been known to enjoy a touch of the glory. But if it's to enjoy any more, the spadework will have to be done. And as if to prove that some people never learn, just as this feature was being completed, an email arrived from one of the leading European infrastructure vendors. "Dear Sir," it began, "2002 will be the year of mobile data services..." Will it, indeed? <<
- Eric - |
