Telecoms’ firms pin hopes on GPRS after 3G binge

Series Title
Series Details Vol.7, No.29, 19.7.01, p16
Publication Date 19/07/2001
Content Type

Date: 19/07/01

EUROPE'S telecoms operators are still nursing a giant hangover after last year's €130-billion binge on third generation (3G) mobile phone licences. They are now having to accept that they must pay the same again to build the 3G network infrastructure and that 3G services could be delayed by over two years because of technical hitches.

And this will give a once-in-a-lifetime marketing opportunity to rival technologies which can provide some of the same services at a much lower cost.

Even worse, Europe risks squandering its much-vaunted lead over the US and Japan in mobile telephony, one of the star sectors of the new economy. The early performance of 3G services - which will offer colour, full-motion video and the Internet to mobile phones - will determine whether Europe stays in pole position or fades to an also-ran. For now, the European telecoms sector is engulfed in gloom. Deutsche Telekom's share price has fallen 75% in 15 months, while KPN of the Netherlands is searching desperately for a white knight. The market capitalisation of the UK's Vodafone, the world's biggest mobile phone operator, has crashed from €430 billion to under €160 billion and Finland's Nokia, the world's leading manufacturer of mobile handsets, coupled a shock second-quarter profits warning with 1,000 redundancies.

The industry's decision to take on a €260-billion commitment to 3G coincides with the first slowdown in the growth of global mobile phone sales as the market nears saturation, especially in Europe were penetration has scaled 70%. Consumers are not upgrading to new models as often as they used to, partly because mobile network operators burdened with huge debts are slicing subsidies on handsets. But things are slowly beginning to look better on the financial and technological fronts. The German telecom regulator's recent decision to allow 3G operators to split the costs of certain parts of their network infrastructure, such as towers and antennae, could slash bills for domestic operators by as much as 40%. This has created a ripple effect in neighbouring markets - Deutsche Telekom and British Telecom have joined forces to build and operate 3G mobile networks aiming to save up to 30% of the €9-10 billion each originally budgeted to spend on their networks by 2010.

EU governments are divided over network sharing- the Netherlands has banned it while Sweden encourages even closer cooperation. But a consensus emerged at a recent meeting of Union telecommunications ministers that a limited pooling of resources should be permitted. With handset sales stagnating, the industry plans to fill the revenue gap by introducing sophisticated mobile services. First they have to overcome the bad publicity generated by the failure of Wireless Application Protocol (WAP), the technology behind the first Internet-enabled mobiles. The first WAP services were launched in Europe 18 months ago but users were put off because they had to go through the laborious process of dialing up a site every time they went online. The system was dismissed as unreliable, limited and slow, casting doubt on the future of mobile data services.

By contrast, Japan's i-mode technology - used by NTT DoCoMo to run its mobile web services offering 17 million subscribers mobile banking services, news, sports information, e-commerce and entertainment - was deemed a great success. Some analysts, however, attribute this not to i-mode's superior technology but to the popularity of its gambling and dating services.

The European industry is betting its immediate future on a new technology, General Packet Radio System (GPRS), which is much faster than WAP and offers continuous connection. The GSM Association, a standards-setting body, recently unveiled an 'M-Services Initiative' which sets out standardised ways to provide graphics and multimedia content on GPRS phones. The hope is to tickle consumers' interest in new services which will require them to upgrade their handsets, thus filling the gap before the arrival of 3G.

Nokia, which accounted for 32% of the 410 million mobile handsets sold last year, says it will have GPRS phones on the market in bulk during the third quarter of this year. But success isn't guaranteed: many operators and manufacturers are leery over GPRS and the system may not become widely available until well into 2002. And the flop of WAP has so soured the public's opinion of the mobile Internet, that fewer than 5% of Europe's mobile users will have GPRS phones by the end of 2002, according to Forrester Research.

Europe's mobile phone businesses clearly face a nail-biting year ahead.

Article forms part of a survey on e-commerce.

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