M-Commerce - 3G In Reality

A Business Week Special Advertising Section

The Strengths and Weaknesses of Mobile Solutions

3G in reality.

The mobile revolution will carry on in Europe with the arrival of 3G (third generation mobile systems offering higher speeds and functionality). It will be delayed, and this delay will cause some good companies, particularly those creating new applications, to fail. Successful mobile companies will need to make great strides in convincing consumers to pay for additional services, and to ensure businesses view mobile solutions as an integral part of their IT departments and business development. The hyping of 3G and the mobile Internet was overdone, yet equally the recent pessimism is far too severe. The usage and importance of mobile solutions will continue to grow strongly.

A year ago, everyone was talking up the great opportunities for 3G, and accessing the Internet from one's mobile terminal. The demand for mobile technology had been proved by the take-up of GSM, where usage now exceeds 80% of the population in some European countries, and of SMS (short message system for text messaging).

The concern over the 3G business model came at a bad time for the mobile industry as their stock prices were hit by the tech markets slowdown, and their total subscriber growth started to slow as markets became closer to saturation. This meant that mobile operators were desperately looking for ways to reduce their costs, in turn putting pressure on the mobile infrastructure providers. Stories of technical problems with 3G also began to emerge, the most famous being NTT DoCoMo in Japan which has had to delay its flagship introduction of 3G from May to October 2001. Critics also pointed out that there was little evidence that users would pay for additional services that could be offered by 3G.

Yet, it is true to say that mobile applications have always caught the public imagination in ways that could never be guessed, as illustrated by SMS. And it is certain that some of the key applications for 3G are ones that are not even talked about today.

Many of the criticisms of 3G are also unfair. The 3G licensing process was appallingly handled by European Governments whose concern was predominantly for their own short-term interests (with some honorable exceptions such as Finland). However, the costs were mainly in two markets -- license fees from the UK (£39.2bn) and Germany (€50.5bn) comprised approximately 75% of the total European license costs.

The 3G business model is a challenging one. But the basic dynamics have changed little since financial analysts exhorted mobile operators to invest heavily (it is estimated that the cost of 3G deployment across Europe will be approximately €150-200bn, although this will be reduced by infrastructure sharing) in 3G a year ago. Weaker operators will withdraw, as we have seen with Sonera and Enitel in Norway, but this will make the market easier for the more established and better-funded operators.

The problems with initial deployments of 3G should hardly be a surprise given the complexity of the technology. NTT DoCoMo still remains confident on its April 2004 target of six million 3G users and service profitability.

There has also been much speculation that the demand for 3G will be met by other technologies. In practice, this could never have happened due to the commitment and investment in 3G by the mobile industry. Many of the technologies that are perceived as competitive to 3G, will actually be used as a complementary service.

The picture shows how these services will interact. Personal Area Networks (PANs) will use short-range technologies such as Bluetooth to interact between people and appliances. WLANs (wireless LANs) will be used for high speed data transfer, and already airports and supermarkets across Europe are testing this technology. The GPRS (General Packet Radio Service) is the so-called 2.5G, an interim technology to 3G, that is now offered by the vast majority of European operators. It costs approximately 5% of the amount required to deploy 3G, and hence will be used in areas where it does not make economic sense to initially deploy 3G.