WITHIN A MONTH Hutchison Whampoa will begin what is arguably the most heavily hyped and drawn out soft product launch in history. At stake is a US$15 billion gamble on a dysfunctional new technology rich in promise, yet flawed by awful economics and consumer apathy. Financial markets have all but written off third-generation (3G) mobile services as a hopeless misadventure. Operators who invested billions in radio spectrum licences two years ago are delaying launch dates - some by years - citing the lack of viable handsets, consumer demand and above all the holy grail of a killer application to drive high bandwidth mobile services. As a savage industry clear-out accelerates, Hutchison has emerged as the only 3G player with anything approaching a global strategy. It aims to launch services in five countries within six months. It will do so as a new player with no customer base and no market presence. Entering virgin territory in the European market, it will face no direct competitors and enormous freedom to stamp its '3' brand as an industry benchmark. But if 'first mover advantage' defined strategy in the preceding Internet boom, the logic has been abruptly reversed. Going first suddenly looks an awfully risky business. Over-egged mobile data services using the intermediate WAP standard left consumers underwhelmed and cynical. So-called 'convergence' of multi-media standards remains work in progress. In an era of diminished expectations, the most pressing question is will 3G work? A bungled launch would be a disaster for Hutchison and would deliver a hammer blow to the supporting industry of network suppliers and handset makers that desperately need the standard to acquire momentum if they are to emerge from their own debt-induced crisis. Testing of the service among 1,000 'friends' is scheduled to start within three weeks, according to the firm's chief executive, Canning Fok Kin-ning. These will be Hutchison employees and close associates of the group. If successful, the soft launch will be extended to 20,000 'friends-of-friends' says Mr Fok, who contends all will pay commercial rates from day one. According to ABN Amro, each month of delay costs Hutchison US$245 million in interest costs (attributable to licence purchases) in its British and Italian operations alone. For this reason media and market attention is acutely focused on any slippage in the schedule. Going early with a partially working system risks a brand-battering flop. But without the comfort of a cash generating voice-based mobile business, the firm must move forward. As a new entrant, Hutchison is giving little away about its pricing strategy and branding. The firm has forced suppliers into lock-tight non-disclosure agreements over all matters relating to its test process and Mr Fok sports a barely concealed paranoia. 'Everybody wants us to fail. The incumbents don't want us to launch and there is a lot of bad press . . . when you are testing you have a lot of problems. You name it, I got it.' Andrew Chetham, an analyst at research outfit Gartner, argues that incumbent mobile rivals are playing the 'early follower game' with the aim of tracking closely in Hutchison's footsteps and learning from its mistakes. 'We think Hutchison has the management depth and the track record. They have done it before [launching Orange in the UK] and if anyone can make it work they can, but business history consistently shows that 'early followers' have the advantage,' he said. CSFB argues that no major new telecoms technology has been introduced without significant delays and problems - in particular with handsets. Hutchison has signed limited exclusive agreements with NEC and Motorola to distribute a range of data-rich phones and hand-held digital devices. Chief among concerns is low battery life and brick like dimensions more closely approximating early generation mobile phones and digital assistants. For Mr Fok, stroking his still embargoed devices, such points of comparison are irrelevant: 'This is about mobile digital broadband. It's not the same thing. This is the world's smallest camera, the smallest TV, the smallest mini computer and it can talk.' Consumers will ultimately decide that proposition but continuing technical hurdles in the core network so close to the launch date account for Mr Fok's readily admitted 'nightmare'. What riles him is the suggestion the SAR conglomerate is engaged in a double-or-quits bet. For Mr Fok, capitalism is about capital and Hutchison is lightly geared and the 3G project is fully funded. All that remains is a tricky launch execution. 'This is not a question of whether it works or not. It is a matter of whether it will work very well and if it does not, we will analyse it and make it better,' he said. 'We have the finance lined up. If we did not that would be a major problem. I remember when we launched Orange I told the boys don't worry, the financing is arranged, 'Its game over', and this time I say 'game over'. Do you understand, we are there.' Much depends on having sufficient handsets for its British and Italian launches and Mr Fok says 1,000 units are guaranteed for delivery by October 2; 10,000 by the end of next month and 60,000 to 100,000 by the end of the year. In Britain the service will be launched in London and the south, targeting 'yuppies, techies and footloose and fancy free types' according to Mr Fok. Mandated interconnect agreements will allow roaming on rival operators' 2G networks but Hutchison remains cagey on 'voice only' services, with Mr Fok sticking to his 'we are mobile digital' mantra when pushed. Much is being made of distribution channels in Hutchison's recently acquired pharmacy chain, Super Drug, but analysts remain sceptical of the cross-selling potential even if stand-alone mini-stores are built within the middle-market retailer's outlets. Whether Hutchison's self generated content emerges as the hoped for killer-ap could make or break the launch. Data up-link speeds of 384 kilobits per second are being promised from day one, allowing high quality exclusive soccer clips and tailored offerings from news providers. Pitched against it will be the half-way house data services - so called 2.5G - that rival operators are beginning to roll out. Those will not match Hutchison's speed and versatility but come with e-mail and low-grade graphics functions. Handsets will also be far cheaper than Hutchison's non-subsidised offerings. Ultimately billions of dollars of investment and a capacity-laden network come down to the untested preferences of consumers who continue to send ambiguous message about their interest. Going first in Europe gives Hutchison huge scope to secure a commanding lead. It remains, however, a fully-funded gamble. Graphic: hut26gbz
