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Last Updated: Monday, 13 February 2006, 10:18 GMT
Future shock awaits mobile firms
By Mark Ward
Technology correspondent, BBC News website

Craig David, Getty
Crooner Craig David is due to sing at the 3GSM Congress
With more than two billion people using mobile phones, there is no doubt that growth of the industry has been stellar during its relatively short history.

But as the world's mobile phone industry meets in Barcelona for its annual global summit, network operators must confront some uncomfortable facts about their future and how they can make sure the growth continues.

The reason for the unease is obvious once you know that the GSM World Congress is now known as the 3GSM Congress. The "3" being shorthand for the third-generation networks mobile operators are committed to moving to from current 2G and 2.5G technologies.

And one of the first problems operators face is weaning customers off old phones that use older technologies.

At the end of 2005 only 2% of mobile users were on 3G networks, according to statistics gathered by Informa Telecoms - this despite the fact that in many nations 3G networks have been up and running for months if not years.

For instance, in the UK the eponymous 3 launched in March 2003.

Some of this reluctance to shift networks is the fault of the operators themselves because a wholesale move to 3G has the potential to wreck the profitable pricing systems they use on earlier generation networks.

"When you think about the services they are offering, such as SMS," said Mark Heath, research director at Sound Partners and author of a report into 3G futures for consultants Analysys, "very little data is sent but the revenue they make per megabyte is phenomenal."

Call costs

In some respects these pricing systems are designed to help manage the relatively limited data carrying capacities of 2G and 2.5G networks.

Workers get the show floor ready, AFP/Getty
This year's congress highlights mobile media
But on 3G networks there is, relatively speaking, so much bandwidth available for data that it makes no sense to use a scarcity-based pricing system.

In fact, said Mr Heath, the early days of the net show that flat rate pricing systems, in which users pay a set fee every month to get at as much data as they want, are the best way to encourage customers to do more.

He said the central tension here was with the old-fashioned telephone world way of working in which users pay a lot for relatively little access as opposed to the internet way which involves low fees for lots of access.

Mr Heath said many operators fear that if they commit too much too soon to 3G they will see customers use huge amounts of data but pay little for it. In a very short period of time lucrative revenue streams would dry up.

There is also the fear that customers would use the mobile networks to get at all the services they use on the net from the likes of Google, Yahoo and Microsoft and eBay.

"Operators are making very attractive returns on data but around the corner lies the danger that their networks will become bit pipes allowing any service but which means that their revenue is decimated," said Mr Heath.

Daily data

The pressure to let users get at and use more data, be it movies, video clips or music, is increased because such services are pretty much the only differentiator that 3G networks have.

Video screen on handset, BBC
Handsets can do much more than just make and take calls
Mobile messaging, music, video and TV are all seen as being key applications to get users to make the switch to 3G.

Pop star Craig David is set to perform at 3GSM perhaps to remind operators about the importance of portable entertainment.

But if all those users move too soon, then the 3G networks could struggle to support all those concurrent demands for the latest news clips, soap gossip or music tracks.

Trials already taking place with TV on mobile phones, in which the BBC is participating, show that it will take a lot of spending by operators to get their networks ready to deliver telly on the go to the masses.

The way to solve that is to buy more hardware to beef up the data carrying capacities of 3G networks further but that could entail huge capital costs just as revenues start shrinking.

One thing is clear. It is going to be good to be a mobile user over the next couple of years as the operators offer all kinds of deals on voice calls and messages to get people to trade up to 3G.

But if the operators get their strategies wrong, there is no doubt that they will be the ones paying.

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