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.
In the main lobby of Nokia House, a wood-steel-and-glass curiosity in the Finnish city of Espoo, is an impromptu cell-phone museum. In it, alongside all the sexy phones that rocketed the Finnish manufacturer to No. 1 in handsets, we viewed the suitcase-sized Mobira Talkman “portable” cell phone all the yuppies were buying in 1986.
For all its prescience in handset design and user habits, no one knows better than Nokia how difficult it is to predict future trends. Painfully aware of industry missteps earlier in the 1990s, Nokia discusses 3G with a reverence, and makes predictions about “classes” of applications and “styles” of usage.
But it won’t predict specific applications that will emerge as killers. The logic is cunning: Predict the next SMS? Thanks, no. But it will hot-house every person with an idea for an application, maintain an open API (application program interface), provide technical details to everyone, and market support to the successful few. Now there’s a situation in which Nokia doesn’t care what the next big thing is, because in theory at least, it will already have it under its wing.
“Nokia’s approach is absolutely that,” says Mika Koskinen, CEO of Entirem, which develops a secure wireless transaction platform for banks and portals in cooperation with Nokia. “The general impression is: focus very strongly on our core business, and don’t then get too heavily involved with third parties, at least at the early stages.”
For startups, this is great news. “It’s impossible for us to define the killer apps,” says Mikko Pyykka, Nokia’s 3G application marketing manager, “so we just need to cooperate with a large number of developers. But we think that at the end of the day the real killers will be somehow related to messaging.”
Messaging is what Nokia says will be the main application when it comes to revenues for 3G, and it, like Ericsson, farms its developer community for the latest and greatest. But unlike Ericsson, Nokia seems to be cut-and-dried about the application developers in the overall food chain – they’re valued, to be sure, but they’re outsiders.
During the Sydney Olympics, MobileChannel.Network set up a one-way messaging system for Nokia to provide sport content services. MC.N now cooperates with Nokia on a number of levels. “We did some basic business studies with them,” says MC.N’s Janne Makinen.
“It’s kind of a two-way development cycle. They give us technical access and early releases of new products for us to develop new versions of our product, and we give them feedback of how things work. They also give us a live environment in which to test our solutions before we go to operators.” Makinen says he believes that Nokia’s involvement will play a significant role in MC.N’s development as a company, creating a need for MC.N products by delivering Nokia’s goal of a complete end-to-end system, from network to handsets to applications.
Another Nokia developer is Genimap (formerly Karttakeskus), which began cooperation with Nokia in 1996 when it released its first Communicator – Nokia’s hinged-brick PDA, aimed at the high-flying business and “poser” crowd (that’s Nokia’s own internal market-segment term). The first mapping products were popular address finders; the user entered an address and was served a digital map.
“There are different levels of cooperation,” says Mikko Salonen, CEO of Genimap. “In the beginning, it was very important for us to get cooperation on development tools – how to make WAP-based applications, and so on. Nokia gave us technical papers and documentation, but there was also a two-way exchange of technical information – we also gave our ideas to them and shared our views.”
Currently, Genimap is working with Nokia to develop location-based services such as “turn-left, turn-right” maps complete with street-level content. But Salonen stops short of saying that his company’s relationship with Nokia has changed his life. “The relationship has accelerated our business plan, and they are important for us, but I’m not willing to say this is so very extraordinary or different – they’re just a partner,” he says.
Nokia likes it that way. “In some cases, as with customer-specific services tailored and run for one operator, we might have an exclusive,” says Nokia 3G strategist Ilkka Pukkila, “but we would never go with one single application provider, for example rich SMS. Our strategy is to give operators as much choice as we can, but to offer value added – such as with the interplay between applications, like adding theater tickets to your datebook. We control the platform, and integrate the applications to suit the specific needs of the customer.”
Pukkila says very soon you and I will use our “personal trusted device,” a kind of handheld multimedia terminal to buy a Big Mac. Why would we ever buy a burger with the phone? Pukkila points out that is the wrong way of thinking. “You wouldn’t want to do it just out of the blue. But, for example, McDonald’s will have its own 3G wireless LAN in the restaurant, and when you walk in, you’d get, for example, messages about specials, which you could buy with your phone. And while you ate, you could view McDonald’s content. Or you could pre-order and pick up your paid-for meal with no waiting when you arrived,” he says.
To Nokia, it would seem, development of these kinds of applications will for the foreseeable future be left to the third parties, allowing Nokia – and McDonald’s for that matter – to pick the best of breed of every single app it buys. In fostering this climate, Nokia will likely never again have to say that the latest hot thing just never appeared on its radar.
In concentrating on the network vendors’ efforts to develop applications, we leave un-discussed, for now, the solidity of the model of UMTS as telecom savior. This could be far from certain. Industry analysts, notably those within Forrester Research, have been increasingly pointing to flaws in the revenue models the telecom operators are banking on. “There’s no killer application. There is no such thing. Let’s go for a killer environment. We don’t want to be bound by specific applications.”
This quote, from an executive at a European mobile operator, was featured in Lars Godell’s January Forrester report on the future of UMTS, which the report called “a survival question.”
“Of course it makes more sense for the equipment manufacturers to do the lion’s share of the application hot-housing,” Godell told Tornado-Insider, “But every operator must also have an open mind, to nurture niche and local applications developers as well as creating strong local partnerships.”
Forrester remains skeptical that, even with the hottest applications, incumbent European mobile operators as we know them today will survive the shakeout. Forrester predicts that by 2011, impending pressure from the network vendors to upgrade again to 4G technology will fuel a desperation to reach profits from UMTS amid an environment of saturated subscriber markets, continued spending on marketing and network upgrades and declining average revenue per user (ARPU).
Could it be that eventually the network vendors end up swapping gear for equity to bail out operators? Will forced consolidation result in the death of all independent operators and allow the survival of only the largest pan-European players?
Other analysts say that the Forrester report is overly gloomy and that it does not take into account the improved capital efficiency of investment in 3G as compared to 2G. But most agree that evolution, and indeed consolidation is not an unlikely prediction. “The shape of the mobile communications industry has not stopped evolving,” said Peter Knox, a telecom analyst at Commerzbank Securities, “and consolidation is probably a likely result.”