re: Where is the 3G Value Proposition?
>> Hold the Phone
Carlo Longino
TheFeature
September 25, 2002
Carrier after carrier is delaying their 3G launch. That's a good thing.
“Commercial UMTS mobile communications will be started…as soon as there is a sufficient number of UMTS handsets available…”
“The commercial launch of 3G services will be stalled by the operator until handsets are more widely available…”
“The lack of 3G handsets and problems in getting planning permission for 3G sites were the reasons behind the delay…”
“The company’s chairman said it is not technologically possible to launch a 3G service until the last quarter of next year…”
These are but a few of the excuses given by mobile carriers who have announced delays in their 3G network deployments in the last couple of months. The carriers or their locations aren’t so important; the statements are merely indicative of a trend that cuts across the industry regardless of location.
Carriers and consumers alike were supposed to be enjoying the hype-fed fruits of 3G by now. We were all supposed to have live video beamed right to the futuristic devices in our pockets, and carriers were supposed to be growing money trees, making the billions dropped on license fees seem like loose change.
But for a variety of reasons, that’s not happened. Carriers are quick to blame network equipment manufacturers and handset shortages (just like they did with GPRS), but it’s more likely the fingers should be pointing inwards, considering they’ve done little to create any sort of market for advanced services. But while capital markets and analysts get up in arms and label this an industry in turmoil, these delays will end up doing everyone some good.
Who Needs 3G?
Carriers should be in no rush to launch their 3G networks, regardless of the debt hanging over their heads. Why? The market simply isn’t ready – in any aspect. Consumers don’t see any added benefit (of course, the carriers haven’t presented them with any) and investors still question the business model (and haven’t been presented with any answers either).
The latest installment of the Mobinet Index, a global study of mobile users conducted every six months by consultants AT Kearney and the University of Cambridge’s Judge Institute of Management has some pretty damning figures. It says that although penetration of Internet-enabled phones has increased 10 points to 41 percent since January, usage during the same period has dropped 20 percent. Not surprisingly, cost was the most-cited reason.
But more tellingly, for respondents without a Net-enabled phone, 39 percent said they had a lack of interest in what the mobile Internet has to offer (26 percent of IEP users also cited this reason). Furthermore, only 29 percent of those surveyed intend to upgrade to 3G when it is available to them.
Clearly carriers’ value proposition is weak, and by extension, their mobile application offerings as well. Consumers have been presented with very little that they see as an improvement over simple voice and SMS. MMS looks somewhat promising, but won’t gain a foothold until compatible-device penetration increases. But beyond that, what will 3G offer that will make consumers part with their hard-earned cash? Or, for that measure, what GPRS or 2.5G applications will emerge in the meantime? Who knows – the least of all the carriers.
Investors, analysts, and other business types are unconvinced as well. Subscriber growth has slowed considerably, and revenues along with it. High debt and low growth don’t bode well, so carriers draw network equipment manufacturers into it by cutting capital spending. Already exposed through over-generous vendor financing arrangements, they have little choice but to play along – after all, it’s hard to sell to a customer who’s gone out of business.
Investors share the same question as consumers – what in 3G will justify the costs? While consumers’ eye is on their monthly bill, the suits are concerned with the other side of the equation – can carriers come up with and market services that will attract enough paying customers to recoup their huge spectrum and network-building expenses? Take a look at the share prices of carriers and equipment companies, and their answer thus far is “not likely.”
Just The Facts
So how did things get in such a state? Carriers would lead you to believe that it’s mainly down to technical issues – of course that didn’t seem to enter in to the decisions to shut down Quam or Mobilcom in Germany or Tele2’s announcement its Norwegian network won’t be ready on time.
Certainly technical issues come into play, as they do with any new technology that’s being rushed to market. Handoffs between 2G and 3G networks are proving extremely troublesome. But it’s very hard to believe this supposed “handset shortage” is what’s really holding things up. Hutchison, after all, has secured 2 million handsets from NEC and Motorola for its planned UK launch this fall. Think back the emergence of GPRS – many of these same carriers were citing handset shortages as reasons for delays then as well. There’s certainly no shortage of handsets now, but GPRS has still failed to take off. Handset availability is no magic cure.
But only one operator, Orange in Sweden, has cut to the heart of the matter, in giving one of their reasons the country’s telecoms regulator should push back the completion deadline for 3G networks 3 years to the end of 2006: demand for mobile data services has proved to be virtually non-existent.
Take that a step further – the market doesn’t exist because carriers have done so little to help it along. While downloadable graphics and ringtones and SMS content have been overwhelmingly successful, consumers realize they don’t need WAP, let alone 3G for those. Carriers’ own development efforts have yielded paltry results, and they’ve done little until recently to encourage outside developers to generate applications.
They’ve done little to offer up any potential applications beyond the extremely fanciful thinking in their glossy brochures promising us all “The Future”. They’ve done similarly little to encourage 2G data use. In an effort to combat this, Sonera recently announced they would begin offering 3G services on its existing GSM/GPRS using network (we’re still trying to figure just exactly what that means) with Java- and MMS-enabled phones in an effort to acclimate customers to “advanced” services they can expect in the future. Given their reputation in the industry for innovation and creativity, their first efforts are incredibly disappointing (see link):
sonera.fi
While this enhanced track-and-field results service may be colorful and initially cool-looking, is it something people will pay for? Doubtfully.
Creating a Need
So let’s get back to these delays – hopefully the excuses are just that, excuses. It’s hard to imagine any carrier would be surging full speed ahead to launch their network for a market that simply doesn’t yet exist. But they should seize this moment to foster application development, refine their value proposition – especially to business and corporate customers, who will flock to Wi-Fi instead – and simply make users want 3G.
We can look back to the 1920s and the beginnings of broadcast radio in the United States for an example, still valid today. David Sarnoff, worked for RCA, which owned the patents for consumer radio receivers. Although amateur stations were already broadcasting entertainment content and the first licensed stations were being founded, radio hadn’t yet achieved a lot of commercial success. But Sarnoff sensed an opportunity, and created the first radio network to broadcast sporting and other popular events, giving people a reason to take the plunge and buy a radio. He repeated his success 30 years later with the television.
Carriers are already a step ahead – the mobile phone is already an acceptable, even indispensable part of everyday life. But they must do more to convince users it has more to offer than voice and SMS. And they better take advantage of these delays, whether real or imagined, to do so. <<
- Eric - |
