Moment of truth arrives for service built on hype
Four years ago, telecom equipment makers pulled off one of the greatest corporate heists of all time. Aided and abetted by cash-hungry European governments and credulous banks, they helped bilk public shareholders of growth-challenged telecommunications firms of billions of dollars.
The auction for licences to run third-generation (3G) mobile services required a calculated leap of faith. The bet was wrong, as 3G technology proved immature and the underlying economics of digital mobile services have been characterised by abundance rather than scarcity. Data compression advances kept radio spectrum bountiful, while alternative mobile data access technologies have proliferated in a way that few analogue-era telecom executives imagined.
Yet despite hugely diminished expectations, high-speed mobile data services are becoming a reality. Vodafone last week joined Hutchison Whampoa in rolling out 3G services worldwide. A single compelling application has not emerged, but improved handsets and burgeoning use of simple data services have brightened the outlook.
Intermediate data technologies have been far more successful than anticipated in changing consumer attitudes to mobile data use. The corporate cult of addicted Blackberry e-mail users has bolstered operators' data revenues, but also formed habits among a key user group.
The past two years saw a messy blame-game between network operators and equipment vendors over poor network quality and disappointing handset offerings. While handset shortages are expected to persist, the coming year will see the mass roll out of 3G services, meaning the time for excuses is over.
It is unclear what consumers want from a 3G phone and, more importantly, how much they are willing to pay. None of the much-hyped applications - video phone calls, movie and TV clips or location-based services - has caught on. This may be the result of clunky interfaces, but consumer apathy also stems from the limited choice of differentiated 3G 'content' compared to that offered on TVs or desktops. Certainly, the worldwide success of short messaging shows there is huge demand for simple yet highly functional data communications, while the growth of mobile corporate e-mail highlights the broader industry trend towards 'fixed-mobile convergence'.
The notion that we will soon be carrying one personal communications device that simply switches between fixed and mobile networks is especially favoured by mobile companies who expect to scoop an ever greater share of fixed-line carriers' core voice traffic. An irony of Hutchison's early 3G launch in Italy and Britain was that users were mostly attracted by crystal clear and attractively priced voice call packages.
Indeed, predictions that up to 80 per cent of global voice traffic will be carried on mobile networks suggests traditional voice chat could yet be a big part of 3G operators' revenue. The problem for mobile carriers is that being a utility provider of 3G voice calls alone will not cover the huge debt of service costs from expensive licences and fancy new networks. They must push data services to ensure that customer habits are formed, and high capacity networks can be utilised. The alternative, especially in a market like Hong Kong, is for ruinous price competition.
Telecoms operators messed up four years ago because they bought equipment vendors' hype that 3G was a big bang that would change everything about the industry. It is no such thing, being rather the next logical development of ever more sophisticated digital multiplexing technology allowing expanded data transfer.
As new handsets and services finally roll out, the proposition for consumers is increasingly attractive. Whether operators will ever earn back the sums invested is another matter, but then people have forgotten that for a brief moment 3G was the most hyped technology of a generation.