At the peak of the hi-tech boom, third generation services were seen as the way ahead for mobile operators and consumers alike. The new technology appeared to offer users the opportunity to browse the internet and download audio and video files at will. Two years ago, UK telecoms companies forked out £22.5 billion for 3G licenses in the belief that the public would soon be upgrading their handsets to access the new facilities.
This outlay now looks to have been excessive and research shows that the European market is lagging behind the United States (see US To Outpace Europe In 3G Mobile Uptake). Technical problems and the sheer cost of advanced mobile phones have stunted demand for 3G services and across the continent, operators have given up hope of a short term return on their investment.
“They talk of payback somewhere in the next three to eight years. This isn’t reassuring in the slightest and should be seriously worrying operator shareholders,” said Datamonitor analyst Nick Greenway.
Industry developments Last week Vodafone revealed that it was postponing the launch of its UK 3G service and market conditions are no better in mainland Europe. Telefonica and Sonera have axed their German joint venture, Quam and Orange is pressurising the Swedish government to relax license requirements.
Not every operator is scaling down its aspirations. Hutchison is aiming to bring a 3G service to the UK later this year and despite being overhyped, multimedia messaging (MMS) will have an impact in future (see Potential Impact Of MMS Has Been Overstated, Says Report). Nonetheless, phones with radios and MP3 players are expected to be the most popular applications in the run-up to Christmas.
Operator costs Datamonitor suggests that the development of the 3G market has been hampered by the fact that consumers are unwilling to pay more than E500 for an advanced mobile phone. A majority will pay no more than E250 and Greenway doubts whether subsidies are realistic in the current economic climate. “If a European operator with 12 million subscribers wants even half of them to have a 3G handset, the cost of subsidy will exceed E3 billion,” he contends.
Given the added costs of service development, deployment and marketing, it is little wonder that many telecoms companies have cut back on their investment in 3G technology. Datamonitor forecasts that many operators will follow Telefonica/Sonera and withdraw while others will go bust or be bought out.
With a distinct lack of revenue streams, Greenway speculates that 3G operators may have to lease capacity to leading brands if they are to get any return on their investment. He concludes with a warning that “if governments do not revise contractual obligations, we may well see a grey market for 3G licences before 2002 is out.”
