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Wednesday, 23 May, 2001, 11:55 GMT 12:55 UK
3G 'lemmings' face tough future
Tracking share prices on a Siemens concept 3G terminal
Operators don't seem to know what services their customers want
By BBC News Online's Bob Trevelyan

European mobile phone companies have created huge problems for themselves over the introduction of third-generation (3G) technology and there is little to indicate they know how to solve them, senior telecoms analysts have said.

The ones who paid huge licence fees are lemmings. They jumped off a cliff

Nigel Deighton, Gartner
"The ones who paid huge licence fees are lemmings. They jumped off a cliff," said Nigel Deighton, vice-president and research director at Gartner.

In a recent briefing to journalists, Mr Deighton said operators had built up vast debts, had to cut 80,000 jobs and had seen $600bn wiped off their market values in the past year.

But, to restore fortunes, they are banking on a technology whose launch is likely to be much delayed and from which they have little idea how to generate revenue.

He said the industry's earlier failure to anticipate the popularity of text messaging was a "clear condemnation" of operators and showed they did not understand what customers wanted.

Voice revenue to fall

Gartner predicts increasing consolidation in the telecoms industry over the next few years as business conditions become tougher.

Revenue from voice services - the current driver of profits - is expected to peak next year and then start to fall, as markets become saturated and increased competition continues to drive prices lower.

The "crown jewels" for operators will then be data services - such as mobile internet, e-commerce and e-mail.

But, said Mr Deighton: "The problem is mobile data is going to be late."

He says commercial GPRS services - intended to provide faster data downloading than is possible on current Wap phones - are unlikely to become available much before the end of this year while commercial 3G services will not arrive until 2003 at the earliest.

Modest savings

According to Gartner, the main cause of the delays will be slow supply of terminals, rather than the software problems which Japan's NTT DoCoMo and British Telecom have recently blamed for their failure to meet self-imposed 3G deadlines.

Building 3G networks is also going to be expensive.

There is no killer application for 3G so you have to have a killer attitude

Nigel Deighton
Some operators have indicated they will share construction costs and network use.

But Gartner says savings from sharing networks will be modest.

There might be small savings to be made from sharing networks in rural areas but operators should want their own individual infrastructure and distinctive service in more densely populated areas where usage and profits are likely to be greater.

'No killer application'

Operators also face the headache of working out what new services customers will want and be prepared to pay for.

"Imagination is more important than knowledge," said Mr Deighton, echoing a statement attributed to Einstein. "Nowhere could that be better applied than in the mobile telecoms industry.

No single player has what it takes to be a 3G winner

Nigel Deighton
"[But] there is no killer application for 3G, so you have to have a killer attitude."

Gartner says companies that will do best are those that tailor services most closely to what their customers want.

The extraordinary success of DoCoMo's i-mode mobile internet service, with its relatively trivial applications, is testimony to that.

"[Customers] will pay for customised content but not for content per se," said Bhawani Shankar, also of Gartner.

Hiring psychologists

The trouble for UK operators is that, having such a high proportion of pre-pay as opposed to contract customers, they have little information about customer lifestyles and spending habits.

In an attempt to remedy this, some telecoms firms are now hiring psychologists to help guide strategy.

But Mr Deighton doesn't think any single player "has what it takes to provide the kind of lifestyle support... that I expect to be the winners in the future".

Mr Shankar envisages a situation where some of the leading players in telecoms are not telecoms companies at all but experts in business strategy such as Accenture or PricewaterhouseCoopers or groups such as Virgin or Tesco, which are likely to have a better understanding of who their customers are.

Ethical issues in focus

Gartner is also recommending telecoms firms hire staff dedicated to looking at ethical and privacy issues, which are likely to come increasingly in focus as new technologies allow networks - and conceivably employers - to track phone users to within two metres of their position.

Questions over security of 3G communications and transactions also need to be resolved before services are launched, Gartner says.

In short, says Mr Deighton: "The challenges to the industry are truly enormous."

Millions of small shareholders hoping their rocky ride is over might find the journey has barely begun.

Nigel Deighton, Gartner
"We expect 3G will be delayed considerably"
Nigel Deighton, Gartner
"No single player has all of what it takes"
Nigel Deighton, Gartner
"Future BT looks rather like old BT"
Nigel Deighton, Gartner
"What does the fixed network become?"
Nigel Deighton, Gartner
"The crown jewels are mobile data"
Nigel Deighton, Gartner
"Nokia was the first to realise that fashion was what counted"
Nigel Deighton, Gartner
"Financial pressure on Ericsson...will play very strongly to Nokia"

Key stories

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See also:

11 May 01 | Business
18 May 01 | Business
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