Market forecasts in free-fall after 300 billion euro WAP gamble

Date: 22/03/01

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Market forecasts for third-generation mobile phone (3G) services are in free-fall just months after Europe's leading telecoms companies paid around €150 billion for operating licences and committed themselves to spend the same again to build the networks and roll out new products.

Industry-watchers fear the firms have underestimated the difficulties of developing user-friendly Internet mobile technology - Wireless Application Protocol, or WAP - and overestimated consumer demand for new-fangled services. Telecoms shares have plummeted and their credit ratings cut after investor concern that firms will not generate sufficient 3G revenues to pay off their huge loans.

The industry is engulfed in bearish sentiment. Motorola of the US, the world's second largest mobile handset manufacturer, is heading for a first-quarter loss; a senior executive at computer maker Intel says 3G could bankrupt the telecoms industry; and Japan Telecom has just announced it will delay the launch of its 3G service by six months to July 2002.

So far WAP has been something of a marketing flop. Users have been turned off by costly, slow-moving services that usually require a 30-second wait between each click - which means it takes minutes to call a weather report or a share price. Only 4% of the 243-million mobile phones sold in Europe last year were equipped to access WAP sites and only half of their users took advantage of the feature, according to Morgan Stanley Dean Witter, the investment bank.

Things are not much better in Scandinavia, the home of the mobile phone: 63% of Swedes with WAP handsets have never used the service and only 6% are regular users, according to Boston Consulting Group. The slow take-up of WAP phones coincides with a sudden slowdown in demand growth for handsets. Motorola forecasts that world-wide handset sales could fall below 500 million this year, compared with an earlier estimate of 525-575 million. This will have a knock-on effect on suppliers of mobile components such as computer chips which now face a slump in orders.

But some equipment manufacturers and telecoms companies say the gloom is exaggerated. Finland's Nokia, the world's leading handset manufacturer, claims there will be a significant breakthrough in the 3G market in 2002 despite the short-term uncertainties. It is sticking to its forecasts that more than 500 million handsets will be sold this year - up 25% on 2000. And it insists the 3G market will be commercially viable next year with growth in four key areas - multimedia messaging, mobile e-commerce, location-based services and entertainment.

Deutsche Telekom, Europe's biggest telecoms company, also is a bull, forecasting that WAP will remain the most popular mobile data format this year. Its T-Mobile unit expects two-thirds of all phones sold in Germany this year to be WAP-equipped.

But it will be Japan that makes the first move into the new world of wireless telephony as NTTDoCoMo, the world's second-largest mobile phone company by subscribers, begins the countdown to the global debut of 3G services on 30 May.

Market forecasts for third-generation mobile phone services are in free-fall just months after Europe's leading telecoms companies paid around 150 billion for operating licences and committed themselves to spend the same again to build the networks and roll out new products.