The future is wireless, or at least that is what Nokia, Ericsson and a host of startups and network operators are earnestly hoping. But the quick success of 3G – The Third Generation of mobile telephony – is more than profitable icing for these companies; it has now become a matter of survival….
This article, which ran in the February, 2001 issue of Tornado Insider magazine, looks at the overall climate in European development of 3G, and then explores how each of Europe’s largest telecom networking manufacturers, Ericsson and Nokia, is coping with the challenge.
Driving through the freezing streets of Kista, Sweden, I’m trying to look nonchalant while conducting a third-generation (3G) mobile-video teleconference. We’re bouncing over the cobblestones and chatting with a spokeswoman back at the Ericsson 3G center. Simultaneously, I’m downloading CD-quality streaming audio from the Web.
This would be a typical PR exercise if not for the fact that our “handset” – a modified three-ton Volkswagen passenger bus – is somewhat bulky.
“There are no actual handsets yet,” apologizes Viktoria Eklund, a marketing manager for Ericsson who is acting as our tour guide on Ericsson’s 3G Magic Bus, “so we have to use regular networked PCs. But the connection is totally 3G wireless.”
Eklund’s point is compelling. I’m interacting across a wireless connection of 472 kilobits per second packet-switched and 328 kilobits per second circuit-switched. That’s faster than Deutsche Telekom can pump anything into a Munich home phone line no matter how much is offered in payment.
The importance of all this goes well beyond high technology for its own sake. The commercial success of large-scale 3G mobile systems is literally the key to survival for many of Europe’s mobile operators in the coming five years. It’s estimated that the more than $100 billion they spent on licenses alone must be followed by $120 billion to $200 billion in infrastructure spending.
“…By the time operators roll out the monumentally over-hyped 3G, their financial world will be different: Their credit ratings will have been battered, cruise ships-full of cash will have been spent, and the economic outlook will have changed….”
This makes 3G the juiciest opportunity to develop and exploit a diverse basket of new technologies since the heady days of the United States’ battle to conquer the moon ahead of the Soviets. It is also perhaps as risky. Much of the initial burden for hot-housing the companies that will deliver the applications and services destined to roll out with 3G, has been placed squarely on the shoulders of the two industry leaders, Ericsson and Nokia, as well as on their venture capitalists, strategic partners, and entrepreneurs they back. It may prove make or break for all of them as well.
There is much more riding on 3G than simply giving users more bandwidth and fancy applications. “When the operators are buying all this 3G infrastructure,” says Marie Bern, investment manager at Speed Ventures in Stockholm, “they are asking the vendors to prove the business case. If there are no compelling services and no convincing revenue models, there’s no case.”
It is always a risk for application developers to create for future technology platforms. One never really knows how long it will take before there is a critical mass of customers. Usually it takes far longer than the network vendors claim, which makes the business case for huge investment very vulnerable. To survive and be successful, developers need the support of venture capital firms and their networks, as well as the network vendors.
“When this collaboration works it’s really a win-win situation for all parties,” Bern says. The hot-housing is so crucial that it can be the difference between invest and don’t invest decisions. “When you look at an investment, you look at the team, the business idea, the partners, and the customers. In this case, the network vendors are the business partners,” Bern adds.
Anders Bons, Swedish bank SEB’s senior advisor for mobile business strategies and project leader for SEB mobile services, agrees. “The [networking hardware] vendors have finally started to realize that what they need is proof-of-concept by supporting real and valuable applications like mobile banking,” he says. “It’s not enough to have just artificial applications – like letting you buy a coke from a vending machine – to prove the value.”
By the time operators roll out the monumentally over-hyped 3G, their financial world will be different: Their credit ratings will have been battered, cruise ships worth of cash will have been spent, and the economic outlook will have changed. In addition, the mainstream press will have incited the public to demand everything from postage-stamp-sized, user-friendly multimedia terminals with high-resolution streaming video-teleconferencing and video postcards, to robust new applications that will change lives, all for the cost of a 3G terminal and some airtime, of course.
Operators, in turn, will demand of the manufacturers not just networks, but rather complete end-to-end systems with turnkey, bundled applications. As was proven by the runaway success of what until recently seemed trivial applications like SMS and downloadable ring-tones, neither the vendors nor the operators have the foggiest idea which applications will be popular and which will simply be a waste of bits.
Will mobile-video postcards, as Nokia expects, eat into the lucrative “analog” postcard industry? Will location-based services compel games and useful business information, or merely irritate by beeping mobile phones every time someone passes within 300 meters of a McDonald’s?
Vendors believe that the only way to meet the needs of the 3G user base, which isn’t demanding anything specific yet, is to try to get as many applications as possible up and running as fast as possible. For their part, the operators are busy building locally-driven services and forging regional business alliances. But the cost and difficulty for operators to develop custom-built portfolios of applications and services specific to their network make the “walled garden” approach neither sensible nor desirable.
3G requires diverse technologies to converge, and quickly. In the US space program, parallel and massive technology initiatives were undertaken in everything from food processing to rockets, satellites, miniaturization, and computer and communication systems. The contractors couldn’t foresee the ways in which their technologies would interact. But they changed the world by developing technologies that would become miniaturized computers, the GPS satellite navigation system, and even Tang, the orange-drink powder.
The companies involved with the drive toward 3G systems are in a similar position. In order to succeed, 3G needs seismic advances in network, display, power, and size-factor technology plus other aspects such as personalization elements. NASA had 12 years to get it all done, 3G has perhaps two years.