History Provides Hope for the 3G Fiasco


By Stephen Baker It was a European dream based on glittering technology that didn't yet exist. But investors had faith. The project, perhaps the grandest in world history, would revolutionize global communications and trade, and shareholders would surely make out like bandits.

Four years later, the backers had lost their shirts, their investments nearly worthless. Headlines in Europe declared the endeavor a boondoggle, a debacle. And it shook the foundations of the Old World's capital markets.

Sounds like the mobile Internet? Actually, it was the Panama Canal. The French-led project of the 1880s was one of Europe's greatest investment and technology fiascos of the 19th century. The only people who fared worst than jilted investors were the laborers: Some 20,000 succumbed to yellow fever and malaria. In the end, the ditch they were digging across Panama turned out to be their own mass grave.

UNREALISTIC ENDEAVOR? Granted, the Panama story is far grizzlier than the fiasco of the mobile Internet. Yet the two have important parallels. In Panama, as in the wireless Web, one-time highfliers botched the technology, underestimated the risks, and mismanaged practically everything.

But did this colossal failure mean that an interoceanic canal was an unrealistic endeavor? Certainly not. The Americans came along 20 years later, learned from French mistakes, and constructed the wildly successful and enduring Panama Canal.

Here's my point. Sure, Europe's mobile Internet has produced practically nothing of interest in three years. It has nearly bankrupted Europe's entire technology industry, disillusioned users, and sent investors scrambling for cover. But that failure alone, staggering as it is, doesn't mean the vision of a mobile Internet was wrong. Here's betting that someone will come along, learn from the mistakes of today's pioneers, perhaps scoop up some of their assets at firesale prices, and then do it right.

STIFFER CHALLENGE. Panama provides a useful case study. In the 1860s, a Frenchman named Ferdinand de Lesseps oversaw the construction of the Suez Canal. People said it couldn't be done, but de Lesseps had plenty of pluck, along with confidence that the world's greatest engineers, when given a thorny problem, would solve it. They did. The Suez Canal was a triumph, and investors raked in profits.

Then, an entire industry looked for an encore, the Next Great Thing. Panama beckoned. A canal there would cut 10,000 miles off the sea routes between Europe and Asia, or between New York and San Francisco.

Granted, it presented a stiffer technical challenge than the desert canal at Suez. Panama featured mountains, a river that roared down the isthmus six months a year (threatening to flush ships out of the canal), and a host of tropical diseases. Yet de Lesseps, like the wireless Web-sters 120 years later, pitched the dream and pooh-poohed the technical details. "As problems arise, men of genius will step forward to solve them," de Lesseps promised. "Science will find a way."

YOU'VE GOT DIRT. Science didn't, at least while the elderly de Lesseps was running the show. Diseases decimated the workers. And as David McCullough documents in his wonderful book, A Path Between the Seas, the French failed to address even the most basic issue when digging a canal: where to put all that dirt.

In a similar vein, some of the world's greatest telecoms, from Finland's Nokia to Germany's Deutsche Telekom, launched in the late '90s a massive effort to build a brand new Internet -- a wireless one. This ultrafast Net would be known as Third Generation, or 3G, and would allow users to carry the high-speed Internet in their pockets. This dream excited investors, who poured billions into this wireless Web.

True, the handsets didn't yet exist for this next Internet, nor were any interesting and intuitive applications available. Yet just as de Lesseps had endless faith that "men of genius" would solve the technical challenges in Panama, the telecom builders trusted that venture capital, sprinkled liberally, would flower into dozens of software startups. These would become the Amazons and Yahoo!s and eBays of the mobile world. Powered by these new superstars, the wireless Net would take shape.

ENRON-STYLE PROBES. Trouble was, the handsets and the networks took longer than anticipated to build, and software developers had better things to do than write code for an industry that didn't yet exist.

The mood in the mobile-phone world is now dark, much as it was in France when it became clear that de Lesseps' ditch would remain unfinished. It was during this time of bitter disappointment in the 1880s that Panama became synonymous with debacle, sinkhole. Prodded by angry investors, French politicians pushed Enron-style investigations of de Lesseps' company. In the end they found him guilty of insider manipulations and sent the old man to jail.

Was de Lesseps guilty of following a foolish idea? Au contraire. And now that the mobile Web has stumbled and fallen, squandering untold billions along the way, is this still-nascent industry a goner? Or is it, like the Panama Canal, a world-changing success just waiting for the right managers to come along?

WHO'LL CASH IN? I'm betting on Panama redux. Already, many of us want the freedom to listen to symphonies or make phone calls wherever we go. So we buy portable CD players and mobile phones. As soon as someone figures out how to make the mobile Net equally useful or pleasureable -- and simple to operate -- humanity will flock to it.

This doesn't mean that the current powerhouses -- Nokia, Vodafone, Verizon, or NTT DoCoMo -- will necessarily be around to cash in on it. De Lesseps' Compagnie Universelle du Canal Interoceanique was in liquidation long before the Americans unloaded their steam-driven power shovels in Panama. The Gringos simply gobbled up useful French assets for a modest $40 million and then turned failure into a dazzling victory.

Someone yet will spin gold from the mobile Net. Baker covers the European technology scene from BusinessWeek's Paris bureau


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