It’s now or never for 3G revolution

It’s time, surely, for the mobile telephone operators to put their mouth where their money is: £22.5bn worth of it, to be precise. That represents the investment in acquiring five UK licences for so-called third-generation (3G) services back in 2000.

Then, it was hailed as the next big ‘paradigm shift’ in mobile phone marketing – as the technology that would enable users to download high-quality film clips, music and exchange boring old audio dialogue for seamless video linkage.

Four years later, the silence from four out of five operators – the big ones – is still deafening. True, we have had the 3 experience from Hutchison Whampoa (pioneer of Orange at the 1G stage), but that in itself has been a highly cautionary tale. Early adopters, it is fair to say, were less than galvanised: in particular they had serious objections to high tariffs, low network reliability and clunky handsets.

3 has patched some of these problems. Last month it passed last Christmas’ target of 1 million UK customers; with 250,000 subscribers acquired in July alone, it now claims to be Britain’s fastest-growing mobile operator. But let’s get this in perspective: it is growth from an extremely small base, representing only a two per cent share of the UK market. More significantly, these belated results have been achieved by jettisoning the original high-margin/high-value marketing strategy and getting down and dirty with the other (2G) operators in what is effectively a price war. More recent advertising campaigns wisely eschew the complex technological benefits of 3G in favour of (until recently) Anna Friel taking a plunge in some primeval soup. Wisely because, outside the business environment, there is no really convincing evidence that consumers are any more enamoured of high-speed rich media on their phones than they were a few years ago.

Therein lies the dilemma of the Big Four – Orange, Vodafone, O2 and T-Mobile. Opt out of the consumer market during the Christmas peak, and it will be even harder to recoup their investment: left alone, 3’s potentially superior offering can only strengthen now it has overcome some appalling teething problems. Plunge in, on the other hand, and they risk an expensive rout in what is still a very fragile and uncertain market.

It’s not simply that consumers now happily using a ‘2.5G’ platform mostly don’t see the point of 3G. There is also a technological and therefore strategic quandary facing the mobile phone industry. In the US and parts of Europe, WiFi is becoming a serious force to be reckoned with. Its strength is as a ‘remote’ and relatively inexpensive alternative to fixed broadband capability; its weakness, that it relies on a ‘hotspot’ infrastructure installed in the likes of Starbucks and Borders bookshops. At least one operator, T-Mobile, and several manufacturers (Hewlett Packard and Motorola among them) are developing phone platforms that carry a WiFi chip enabling users to move seamlessly from hotspot to cellular network and back again. The suggestion in the industry is that this development will not cannibalise 3G’s growth prospects. But that remains to be seen. At all events, it’s a difficult call for the mobile phone industry to make.

Stuart Smith, Editor

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