VOICE: 3G Mobile: Condemned to Succeed
3/March/2003
netimperative.com
Consultant Christophe Cauvy argues that, far from being a letdown, 3G services are bound to take off.
The following article appeared in The Wall Street Journal Europe issue of 24 February 2003.
In the course of only two years, 3G's profile has experienced a roller-coaster ride, beginning as the panacea for the telecom sector (recall all those billions shelled out for licenses in 2000), and then scoffed at as a revolution that will never happen. Interestingly, during the Cannes GSM event last week, 3G seemed to have magically regained a bit of trust: not only does it look more inevitable, but critics have also been less vociferous.
This is no surprise: 3G is bound to be a big hit with consumers, and sooner than most people currently expect. The arguments that have been advanced against 3G simply don't hold up under scrutiny.
First, there is the technological threat. This argument asserts that 3G just doesn't work. If this is the case, someone needs to inform Japan, where 3G is already deployed and used. Do East Asian telecoms groups have the privilege of being able to make a living out of dreams, or does the gloomy atmosphere that prevails in Europe blinker our brightest experts? That is not to say 3G is without fault. There are interoperability and stability problems, leading to dropped connections and occasional difficulties communicating with phones from different manufacturers. Surely, further testing and refinements should have been carried out prior to the auctioning of 3G licenses. But there's no use complaining about that now; operators are stuck with their licenses, and the only way to recoup their investment is to launch 3G -- as soon as possible.
Asking for a postponement of 3G's introduction, as some have suggested, would probably back-fire. If 3G is postponed, it will give breathing space to 2.5G to expand and meet success. Consequently, when 3G is eventually launched, it will appear less attractive to the millions of 2.5G users, jeopardizing 3G's expansion even more. In addition, while 3G is postponed, the critical question is whether extra revenues generated by 2.5G can seriously help operators to recoup their investment in 3G licenses. But if that were true, there would have been no reason to invest in 3G licenses in the first place. Again, 3G must be launched sooner rather than later.
Of course, to say that it is inevitable is not to say it will succeed, or make money for the operators. The real turning point is: will consumers be interested in a new generation of mobile phones?
There are those who assert that 3G cannot be properly launched today because as yet not enough exciting applications are available. In fact, they do exist. The notion that features such as Web browsing, location-based services (such as pinpointing your location to inform you what restaurants are within three blocks of you, for example) or m-commerce (that is, shopping via your mobile phone) would be a central driver for 3G must be downplayed.
People do not buy mobile phones in order to interact with a piece of content, a service, or a brand, but in order to communicate with other people. That may sound obvious, but it is a fact often overlooked. With this in mind, video telephony, along with multimedia and instant messaging, are the applications that are more likely to draw attention. Young urban Europeans (aged between 12 and 35 years old) have a genuine interest in 3G possibilities, in particular video calls: there is general amazement that such a science-fictionesque feature will be available in the next few months. When the first video calls are performed in Europe, they will be headline TV news. In a bar, a train station, or at a dinner party, they will generate an unstoppable trail of word of mouth. Not necessarily everyone will flock to shops in order to acquire a 3G handset, but the buzz surrounding the product will be tangible, durable and positive.
The question now is: will tariffs be affordable enough to make 3G popular? In a desperate effort to recoup investments rapidly, mobile operators may be tempted to charge high fees. This would only have the effect of luring business users and early adopters: such a small proportion of the population -- even if they are heavy users -- cannot possibly generate enough revenue. Above all other considerations, professional customers are interested in productivity and efficiency, not recreational multimedia. 3G is a mass-market product, and must be launched as so. Suffice to say that the pricing policy adopted will be crucial.
Paradoxically, what could become critical in the articulation of 3G tariffs is the cost of existing GSM features: SMS and voice tariffs on 3G must remain the same, or even come down. In fact, on top of current GSM bills, mobile users under 35 years old, think that an added monthly cost of ¬20 for 3G services will be acceptable. They think they will use their mobiles as of today, except that they will be able to benefit from additional 3G applications sporadically. If their current operator does not provide 3G, they will therefore be forced to switch networks. During the first months of the launch, there will be a ferocious marketing battle, based on customer acquisition. Loyalty will definitely not prevail.
In conclusion, 3G features are indeed spectacular novelties that have the potential to make an impact. Provided it is correctly launched, it will meet success.
Has this dream scenario any chance to happen? Besides imponderable factors such as a major economic downturn or a prolonged war in Iraq, a lot depends on how the first mobile operators will present 3G to the public. An early success will reassure the financial markets, the telecom sector, and consumers, consequently triggering a positive knock-on effect throughout Europe. A major failure will create a long-term no-win situation with negative implications for the European telecoms industry.
Luckily for Europe, there is an operator whose very presence might have a positive effect, simply because it does not have GSM networks -- namely Hutchison3G. It is impossible at this stage to know if they will still exist in three years, but what is important is their high motivation: their survival depends entirely on their capacity to attract customers from other operators. They will shake the market and should force reluctant operators to modify their strategy. Already in Italy, Hutchison3G's optimistic announcements have generated a healthy emulation by its competitors TIM and Wind, who are moving aggressively to match Hutchison's offering. Hopefully other European countries will follow the same pattern.
If 3G's success is dramatic, operators who would have put too many eggs in the GPRS basket will then be in a tricky situation. Late entrants will have a tough task to keep up with the pace imposed by 3G-enthusiastic operators: the former will not be able to instantly switch-on their UMTS network in order to participate in the "battle." The first year of the launch could leave some 3G operators in a quasi-monopoly situation, allowing them to strongly increase their share of the market. Let us not forget that, based on past trends, more than half of the 290 million mobile users in Western Europe are likely to upgrade their handsets in the next 24 months. If the price is right, the majority could be highly tempted by 3G. A rapid success for 3G could generate a massive redistribution of the cards in the European mobile market: the risk-takers may end up outdoing the skeptics.
Mr. Cauvy is a managing consultant for Thinking Box, a London-based consultancy. |
