3G operators’ fairy tale is ruined by harsh realities

The mobile telecoms sector’s problems with 3G will not be solved by adding gimmicks to phones, but by giving the public what they want, says George Pitcher

If the mobile telecoms sector were a Grimm fairy tale – try saying that and it doesn’t sound so implausible – then it would go something like this…

“There once was a very ambitious and clever king, who called all his wisest advisers together and asked them what the people wanted. These wise advisers said that all the people really wanted to be able to do was to see and speak to each other, wherever they were in the kingdom – and to see all that the king saw, in the palms of their hands.

“One very clever wizard said that he could provide the magic to make this happen, but it would cost all the gold in all the castles in the land. The king called for all his princes’ gold to be brought to his castle and, with a wave of his wand, the wizard gave the people the power to see all the wisdom of the king’s advisers – not to mention the ability to download naked pictures of the princesses.

“But the people didn’t want access to all this wisdom and magic tricks and it turned to dust in their hands. All the princes who had given the king their gold became very poor. And everyone was very unhappy – except the king, who had all the gold and could afford to do whatever he liked.”

Our Government may not quite have the power to do whatever it likes, but there can be no doubt that the &£20bn-plus it raised from the princes of the telecoms industry will have proved handy for funding improvements to public services in a rough economy.

Meanwhile, the third-generation (3G) licences it sold to mobile operators have so far turned out either to be magic that doesn’t work, or that the market doesn’t want. It remains to be seen whether clips from the Premiership will prove a winner in mobile airtime, but I wouldn’t have thought BSkyB is as yet throwing in the towel, or that radio stations are going to give up live commentary.

A fortnight ago, UK operator O2 wrote down what now looks like its grossly inflated 3G licences in Britain and Germany by some &£6bn – though the stock market had long ago discounted that cost. Vodafone subsequently resisted a similar move, claiming that its valuations of 3G were fair.

The experience of Hutchison Whampoa, which originally launched Orange, does not support Vodafone’s optimism. Hutchison has already started 3G services in the UK and Italy, with a view to 1 million subscribers in each country by the end of this year. So far, it has secured 25,000 and 90,000 in each market respectively.

So the early indications are that this is not a market that’s on fire. The service has proved gimmicky and unattractive to UK and Italian consumers. The less ambitious intermediate technology of Vodafone Live! has proved more attractive, boasting some 1.5 million subscribers.

Hutchison has reshuffled its management with a keener eye to marketing. One hopes, along with its shareholders, that it may develop the radical vision of giving customers what they want. And it may be that what they want – at least at this stage of telecommunicational development – is something less radical and magical.

The key question to ask is how many people last year bought a pocket television with which to watch the World Cup. Apart from the initial price of the product, they could have watched free of charge. A 3G phone, by contrast, costs &£60 a month, plus the cost of the unit, which means you’re looking at the thick-end of &£1,000 over a year.

We can all sense consumer resistance to that kind of proposition. The bottom line is that telecoms companies are selling a service, which means it has to be user-friendly, to work everywhere and to be competitively priced. These criteria look far from being met.

But they are, incidentally, being met in some of the more old-fashioned areas of the communications infrastructure. David Mills, the man who introduced First Direct banking for HSBC, is developing Royal Mail’s Post Office business as a paradigm of user-friendliness.

The “snail mail” is never going to launch a counter-offensive to the e-mail and text message, but his effort does demonstrate the power of serving customers over concentrating on technological developments.

None of this is to say that 3G won’t come good. It will, but it will be a story of incremental improvements in service. Mobile technology moved from analogue to digital in the early Nineties and to higher-frequency digital bands in the mid-Nineties. 3G will be another important improvement in service, but it is not a product in its own right.

It’s worth noting, therefore, that the telecoms operators paid enormously inflated fees for the right to a service provision, rather than for some magical new technology. As in our fairy tale, the people want to be served, not saddled with fanciful new baubles.

But we shouldn’t suppose that these telecoms princes will be left impoverished by their 3G follies. The prosaic truth about 3G is that it offers a much wider bandwidth that also works for voice transmission.

And the licences are for 20 years, so we can expect much cheaper voice products from our operators as a benefit of 3G, whatever its abilities in moving pictures. Boring, but true. And at least it’s one happy ending.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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