Everyone greets each other warmly and pretends to get along, but ancient rivalries lurk just below the surface. The conviviality is accentuated by the dozens of rented yachts bobbing in the old port next to the Cannes convention center, where the industry's giants hold hourly customer and press meetings by day and boisterous cocktail parties at night. Being in France, of course, the canapés are terrific.
BRUISING YEAR. In years past, the party atmosphere seemed to fit the industry's go-go growth. At this year's conference, rechristened "3GSM" to denote the pending arrival of third-generation mobile-phone systems in Europe, the fun felt a bit contrived. After all, the mobile business had its worst year on record in 2001, with unit sales of handsets down, equipment orders stagnant, and horrendous debt hanging over most of the major operators. If 3GSM World had any merriment, it was sheer relief that the worst may be over.
The chastened industry now seems more mature and wiser, however. Instead of pie-in-the-sky high-tech discussion topics, the 2002 conference focused on sessions such as meeting customer needs and achieving positive return on investment. That's a refreshing change from the hype of a few years back, when the industry was abuzz with the false promise of the wireless access protocol, or WAP, a technology for shrinking Web pages to fit on mobile-phone screens.
WAP was a flop with consumers, but before that became clear, Net-crazed European wireless operators had pledged more than $100 billion to acquire 3G licenses. Now, the post dot-com malaise has disappeared, and companies are dusting themselves off for the next round.
This year's conference turned on three interrelated themes:
Here come the PC folks.
For the last few years, technology giants such as Microsoft and Intel have been sniffing around the corners of the mobile business. Small wonder: PC growth is stuck in the slow lane, while the wireless business -- notwithstanding 2001 -- is still one with double-digit growth. Furthermore, computing and communications devices are merging. It's harder and harder to distinguish between a phone and a handheld computer, especially with the arrival of products such as the Nokia Communicators, the Handspring Treo, and the Pogo handheld.
Analysts say a growing percentage of the world's surfers in the future will use mobile devices, not traditional PCs, to get on the Web. For all these reasons, Microsoft, Intel, and others are plunging into the mobile business. They can't afford not to, really.
Microsoft used 3GSM to announce the latest version of its slimmer Windows for handheld devices. After a decade of trying to flog mini-Windows operating systems for everything from photocopiers to video players to tablet computers, Microsoft finally seems to be getting it right. Remarkably, the latest products don't even mention the name Windows -- the handset version is called Smartphone 2002, and the handheld version is Pocket PC 2002.
TOUGH SLOG. Both look a little like Windows, but Microsoft has dramatically toned down its rhetoric about how the software's shared heritage makes it easy to move desktop applications to portable gizmos. Turns out, that's not what cell-phone makers or customers really want. Instead, Microsoft now emphasizes the suitability of its operating systems in their own right: They offer crisp performance, snazzy color graphics, and include built-in browsers and support for electronic media such as MP3 music and digital photos.
The Smartphone and Pocket PC systems also support the latest wireless standards, including Bluetooth (a way to swap data over short distances, such as between two phones or a handheld and a printer), wireless local-area networks (medium-range radio versions of the dominant Ethernet network standard), and GPRS (general packet radio service, also known as 2.5G, an interim upgrade to existing cellular systems before the big leap to 3G).
Microsoft still has a tough slog ahead of it. So far, only one product using Smartphone software, formerly known by the code name Stinger, has been announced. From British startup Sendo, the sleek phone with a color screen is a year late due to software glitches. None of the world's largest mobile-phone makers -- Nokia, Motorola, Sony Ericsson, Siemens, and Samsung -- has publicly committed to using Smartphone, in part because they fear losing control over their products and giving up profits to Microsoft.
They also criticize the software as unwieldy, a charge Microsoft dismisses by noting how small the Sendo phone is. Ben Waldman, Microsoft's vice-president for mobile devices, shoots back that Nokia is more interested in protecting its high margins than in giving consumers the best possible software and user interface. How ironic.
Breaking up the monoliths.
Hand in hand with Microsoft's emergence as a cell-phone software provider is a powerful trend with the unwieldy name of "deverticalization." Translation: The industry's traditional model -- where a company such as Nokia would design and make its own chips, software, and phones -- is running out of gas. Doing all the work yourself just isn't economically viable unless you have the scale of Nokia. That's why smaller players such as Philips, Alcatel, and Ericsson are outsourcing their phone production, or, in Ericsson's case, even moving to share research and development with its new partner, Sony.
Microsoft is playing into this trend by offering phone makers a ready-to-go operating system that spares them from developing and testing their own. Using a standard product also saves phone makers the megabucks that they would've had to spend luring external developers to write applications for their phones.
But it comes with a price: Some of that money instead goes to Microsoft. Such is the "horizontal" business model that Microsoft and Intel pioneered in the PC business: Layers of expertise, like a wedding cake, from the chips at the bottom to the applications frosting at the top, with every participant taking their cut of the revenues.
Aiding and abetting this trend is a growing number of companies that make a good living from supplying technology, parts, or even the complete guts of a phone to other companies. One of the most prominent is France's Wavecom, which announced at the show that its 2001 revenues were up 392% from the year before. A growing number of wireless players around the world are deciding to use Wavecom's plug-and-play phone modules, rather than designing their own, to save money and focus on differentiating their handsets in other ways.
Too bad for Wavecom: Competitors are coming out of the woodwork. Venerable Texas Instruments, already the dominant provider of mobile-phone chips, is hawking kits that simplify building new handsets. And none has more cash and clout than giant Intel, which has set its sights on providing chips that power the next generation of more computer-intensive mobile phones.
While the king of PC processors has little presence today, it's rapidly gaining expertise in cobbling together all the pieces needed to build a state-of-the-art phone. Then, it plans to take that design and shop it around to anybody who wants to get into the business. To heck with the giants. As far as Intel is concerned, they're the Burroughs, Control Data, and Wang of today -- toast, if they stick to their do-it-yourself engineering model while low-cost Chinese producers grab Intel's ready-to-go phone designs and spit them out like cookies.
Just to add a bit of spice, Intel and Microsoft announced at the conference that they're collaborating on a "reference design" for a high-end phone of the future that will incorporate Microsoft's Smartphone software and Intel's speedy, power-stingy XScale processors. A reference design is like a cookbook for building a phone, which can be copied by customers, shaving months off a new product's normal engineering time. While products using the design won't appear before 2003, it's bound to cause waves.
GUNNING FOR NOKIA. It's not as if the big guys haven't noticed. In the last year, all of them have announced programs to license their own technology to others. In the mad scramble to maintain control over a rapidly changing industry, some companies are going to get trampled. Everybody is gunning for Nokia. The battle will likely pit the Finnish giant against a gaggle of smaller outfits using licensed phone designs, who will sell their private-label products through powerful mobile operators -- Vodafone, Orange, and so on. Will consumers respond more to the Nokia brand or the Orange brand? Stay tuned.
What connects all these trends? A significant shift in the power balance within an industry that until now has been fiercely competitive but relatively cozy. Ironically, while the new business models being advocated by the likes of Wavecom and Microsoft chop apart the comfortable old structures, they also rely more on cooperation among many players. Newcomers, such as chipmaker Broadcom, browser-maker Openwave, and even Wavecom rely for their success on a complex web of interrelationships more like the organization of the PC business than the telecom industry of yore.
After the ravages of 2001 -- and with telecom debt and price pressures still weakening the whole food chain -- few companies can afford to go it alone anymore. The industry has already seen a considerable amount of consolidation, and analysts expect much more over the coming years.
GIVE ME A REASON. In the end, though, the survivors will have to recognize an even more important power shift. If the rise of the Net and the failure of WAP proved anything, it was the power of the customer. People simply won't settle for having technology shoved down their throats. If it doesn't fill a need, they won't pay for it. Period. The winning companies will be those that figure this out first.
One hopes they spent a lot of time in Hall 4 of 3GSM. There, in makeshift carrels under a flapping tent, were perhaps the most interesting exhibitors at the whole show -- several dozen tiny developers of clever and innovative new mobile applications. Ranging from silly games to nifty timesavers like a text-based movie-ticket booking service, these are the seeds of a new wireless lifestyle and the products needed to get users on board.
Nobody is going to buy GPRS or 3G for its own sake. Most people have no idea what they are. But if wireless applications improve enough to become not just usable but essential, the dream of the wireless Web will finally be realized -- and the mobile industry can party again like it's 1999. Reinhardt, who covers the European technology scene from BusinessWeek's Paris bureau, attended the 3GSM conference