In September 2003, Japan’s top mobile operator, NTT DoCoMo, said it had chalked up over one million subscribers to its third-generation (3G) mobile telecoms service – technology that offers high-speed data and video transfer on mobile phones.
UK companies have also been heavily involved in 3G rollout overseas. Vodafone, for example, through its subsidiary Vodafone KK, is hoping to have one million Japanese subscribers by the end of 2003 and the telcos are eagerly awaiting the award of Chinese 3G licences anticipated in 2004.
But while 3G take-up in the Far East has been strong, the £80bn that telecos paid governments for 3G licences in Europe three years ago has yet to prove a sound financial investment. While Japan’s NTT DoCoMo attributed its success to improvements in handset quality, weight and battery life, technology and network availability in the UK are still hampering rollout.
So far in Europe, 3G technology has been driven by the consumer market, especially in the sending and receiving of football video clips by mobile phones. But take-up has been muted and consumers are more likely to continue to use standard GSM phones or additional functionality offered by 2.5G (GPRS) mobile phones.
Vodafone’s ‘Live!’ is a GPRS service offering greater multimedia functionality than standard GSM mobile telecommunications and has around two million subscribers in Europe and Australasia.
The first full commercial 3G service is Hutchison Whampoa’s ‘3’ – launched on 3 March 2003 (03/03/03) – promising one million UK subscribers by the end of the year. But with current subscriber figures of about 155,000 in the UK and 300,000 in Italy, 3 has found it tough going. Mobilkom, the mobile arm of Telekom Austria, followed quickly in April 2003 as the first established telco to launch a 3G service.
In the meantime, bigger players including Vodafone, Orange, O2 and T-Mobile can sit on the sidelines and wait until handset functionality, battery life and quality of service improves. Vodafone recently announced it will delay its mass-market 3G offering and will instead make a big push in the autumn of 2004 when it has secured part-rights to broadcast Premiership football highlights for the 2004-05 season – 3 had previously exclusively held UK football rights.
3’s decision to cut call costs to as little as £15 per month in the autumn of 2003 may help pry users from some of the other operators, but the future of 3G is still in the balance. Currently, business applications of 3G are being driven by corporate communications specialist Cantos, but download times will have to improve before companies and consumers start adopting the technology wholesale.
Here, we interview some major protagonists in the 3G arena about the state of the industry and the future development of 3G for business and consumers.
Stefano Colombo, Chief financial officer, Telekom Austria
“In the past, the telecommunications sector was very rich, and just about anything was possible. But change has been dramatic as pressures on margins have increased. We are no longer the playroom of our suppliers.
“There isn’t a clearly defined new business model in the sector. People are trying to play on prices and geographies. There have been a few successes. Telekom Austria isn’t much different from the other telcos, but we have been at the forefront of new technologies.
“It is important that we were the first established telco to launch a 3G service in Europe because we could command a premium price over our competitors and be at the fore of technological advance. But you have to bear in mind willingness to accept change, and Austria is quite conservative.
“Success of 3G in Europe depends on how easily you can change. The UK has a barrier to adopting new technology because your services sector is already quite established. It’s easier to introduce technologies to Eastern European companies because their willingness to accept them is much higher. They don’t have to overcome the boundaries of existing infrastructure. Look at what a success text messaging has been. We just can’t afford a failure like WAP. That is the problem.”
Despite 3’s first foray into 3G in the UK and offerings expected from Orange, O2 and T-Mobile, most analysts expect Vodafone to drive 3G uptake in the UK.
“Vodafone has the most to gain by showing that the 3G business model works as it is the largest mobile operator in the world. Much of the negative sentiment, news flow and poor share price performance since the 2000 bubble have related to 3G,” according to Morgan Stanley.
Merrill Lynch says that the biggest risk to Vodafone is if Hutchison 3G (3) takes market share. Yet it believes that Vodafone, with a diverse global portfolio of businesses, is adequately defended against this.
Morgan Stanley also doubts 3’s long-term viability. “Hutchison clearly wants to be first to market with 3G and has the latest exclusive handsets. However … we believe it is too early from a technology point of view and it lacks scale in terms of subscribers.”
In research published in August this year, Smith Barney Citigroup claimed, “A lot of the teething problems 3 has experienced both in handsets and customer service are being worked out aggressively … The big call is whether to model the industry with all six players, or whether the 3 network will be forced to exit should its economic model falter, as banks will be unwilling to refinance near $4bn+ debt due in March 2005.”
In a September report, after 3 announced its results, Smith Barney wrote, “3 is making a determined stand to take share while its financing is secure and competitors lack video and fast data products.” But Smith Barney reiterates that lenders, not the company, will decide whether it will survive in the market.
ABN AMRO’s Rodney Sherrington was sceptical that 3’s recent decision to cut call costs to £15 a month would have much impact. “This plan is a major step in attacking the mobile incumbents’ market share,” he said in September. “But the impact will be muted while 3 continues to have major problems with its handsets and quality of service.”
Leif-Olof Wallin, 3G analyst, META Group
“Not much is happening at the moment, except that 3 has launched in a couple of countries and take-up is slow. 3 doesn’t have traditional GSM licences so it needs to start generating cash flow from its 3G offering. My projection is that 3 will only be successful in four or five major European markets.
“The traditional mobile operators are waiting for more handsets, for more improved coverage and networks before rolling out services. Vodafone, for example, is not really in a hurry. It can start offering similar services to those available on 3G to its existing subscribers, and there is very little value-add in going into 3G at this moment. From the telcos’ point of view, GPRS is far more important than 3G. It has superior coverage.
“The major barrier to wider 3G rollout is network coverage. This is both a technological and financial issue. Building out a complete new network is expensive and requires the construction of significantly more base stations than GSM.
“Handsets are also a big problem due to short battery life. Some handsets, including those operated by 3, do not offer fall-back GSM capability, so if you’re not in a 3G network-covered area you can’t make calls.”
Press spokesperson, OFTEL
“In a market such as 3G, the less we say as a regulator the better. We haven’t imposed any regulations on the sector because it is developing. It is best left to itself and to competition.”
Lucy Parker, Cantos
Cantos (www.cantos.com) uses the internet to help executives in FTSE-350 companies and beyond reach the investment community online through streamed interviews and presentations. It is the first third-party provider of business content to 3G mobile handsets in the UK through the 3 network.
Lucy Parker, Cantos chief executive, says that mobile internet – in particular 3G – will be a great way for corporates to communicate with stakeholders.
“The internet is great for text, graphics and data, but a huge part of how a company tells its story is through its leadership,” she says. “Everybody wants to see the whites of the eyes of guys of the top team. Because our expertise is getting the executives in close-up on critical issues, that fits nicely on the screen of a mobile.”
Paul Smith, Cantos technical director, explains the tie-up with 3G: “We have made all our content available on the 3 network. At the moment, users are not paying for it, but we launched before the summer and actually have a lot of viewers.
“The long-term potential of the technology is enormous,” says Parker.
“The wider argument around 3G is, ‘Can it deliver anything?’ The answer is, ‘Yes, and it does work.'”
Vodafone and 3 were unable to supply a senior executive for comment.
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