AMONG THE FINANCIAL RUINS and scandals, the enquiries and with a bit of luck the imminent gaol sentences, there stalks a fear that dare not speak its name: mobile is done for. Various eminent authorities have voiced this gloomy message over the last few weeks, including that august institution, The Economist.
Reasons given? Well the blindingly obvious to anyone awake and more or less sober; those in charge of the network operators, (who pay themselves millions) coughed up way too much for their 3G licences. A staggering 22.5bn [pounds sterling] in the UK alone. As one pundit was quoted here in Spoofing Protocol at the time, "Those responsible shouldn't have been allowed to go to the sweet shop on their own, much less be permitted to run amok with the corporate cheque book."
Professor Ken Binmore, who designed the Treasury's auction scheme for the 3G licences, recently wrote in The Guardian, "The truth is that nobody was made to pay anything. If chairmen paid too much for their licences, they have nobody to blame but themselves." He also insists that consumers will not pick up the tab for the licence fees.
Ostensibly, this is nonsense because why would the network operators stump up such a monstrous amount of money unless they expected to get it back for their shareholders and whence do network operators derive their revenue apart from customers?
On the other hand, the Prof has hit the nail on the head; customers are not flocking to the new services such as GPRS which are still being run somewhat gingerly, a kind of extended pilot, rather than a full blown commercial service. The network operators are still haunted by that playground epithet that summed up their biggest failure to date perfectly: WAP is crap. The operators are afraid of another screw up that will antagonise or at the very least put customers off taking up new services.
Customers will also have to be convinced of the value of paying more for a mssg with a photo attached, say, over the immediacy and cheapness of an SMS before they are prepared to put their hands in their pockets.
One shudders to think how much T-Mobile (formerly one2one, you remember, now owned by Deutsche Telekom) paid fading tennis star Andre Agassi and former tennis star Steffi Graf for their wooden performances advertising the joys of text, but I'll be astounded if the company recoups that investment either.
Of course the other element about pricing is that competition between Vodafone, whatever Cellnet's called now (MMO2 or 02 or something), Hutchison, Orange and TMobile should be fierce, so retail service prices won't be about covering costs so much as charging what the market will bear, which is likely to be a very different thing.
Delays are adding to woes right across the mobile industry. Multimedia (what a quaint ring that has to it--rather like super highway) handsets have been slow to appear on the market, although they are starting to appear now and there should be a slew of them in time for Christmas.
Orange is already offering a Sony Ericsson T68i phone with clip-on camera for 199.99 [pounds sterling] to customers willing to pay by monthly contract, as is T-Mobile. The latter was the first in the UK to offer a picture messaging service with its launch in July. Orange says it is to launch a pay as you go option later this year. At the moment, Orange is charging 40p for each picture sent while T-Mobile charges a subscription of 20 [pounds sterling] a month which allows up to 350 pictures to be transmitted. This is via souped up GSM though, not 3G. We're going to have to wait for that.
Hutchison might launch its network in time for the Season To Be Jolly, but that is not yet certain. Interestingly, the Hong Kong giant has intimated that it will concentrate initially on offering cheaper voice services rather than flash stuff such as video streaming. This too could create a price war, further undermining existing revenues. Nothing makes their share price wobble like falling Average Revenue Per User (ARPU).The rest will launch their 3G networks sometime in 2003.
In other words, no-one is yet making a bean out of their licence fee, on the contrary, those fees are a millstone round their necks. As most of us know, servicing debt is a vexing and expensive business.
The big question remains; how to recoup the licence fee investment and the cost of building a 3G network AND make a thumping profit before the licences run out at the end of 2021?
The answer looks like it's just not possible, so let's move the goal posts. The European Commission can't let its pet project--European mobile standards and companies dominating the world--go pear-shaped. Despite the fact that those who bought licences were fuelled by euphoria and greed, they are to be bailed out. The Commission is adding its considerable, moribund weight to allowing infrastructure sharing and other cooperation between network operators to help them keep their costs down.
Sometime in late August or early September, the Commission will back an agreement between T-Mobile and MMO2 (Cellnet) to share the cost, running and use of infrastructure. The Commission is set to approve a similar arrangement between the two in Germany. Interestingly, they are the two companies spawned by the incumbents in two of Europe's largest economies. What has it come to when they are being bailed out?
The other saviour of the 3G network operators will be adult services, aka pornography and gambling from which they expect to make large slabs of their revenue. Several of them, and virtual network operators Virgin too, have so-called heads of adult services who are, by several accounts, cock-a-hoop about their remit and crowing loudly.
So there you have it. If 3G succeeds it will be down to rewriting the rules, pornography and gambling. My advice is go to the sweet shop yourself.
COPYRIGHT 2002 DMG World Media Ltd.
COPYRIGHT 2002 Gale Group
