Slowly, but surely, the leading European players are rolling back their grand 3G plans. Obviously, most of the leading mobile network operators are facing the stark reality that the massive overbidding for the 3G licences held in 2002 is coming back to haunt them. That to a large extent is true. Given the overall bullish sentiment in the telecom industry and the hype surrounding the potential for 3G, the players in the UK, Germany and the Netherlands bid extraordinary amounts of close to $100 billion for 5 licences in Britain and Netherlands and 6 licences in Germany. As a consequence, these players piled up enormous debts and have been literally swamped in them since then. And to top it all, the stock markets appear to have cheered each of these write-offs/postponment of 3G spending with an appreciation in stock prices and "buy" recommendations on these stocks from major investment outfits.

Obviously, the core of the problem plaguing the prominent mobile network operators continues to be these huge upfront licence costs paid for 3G. However, the massive amounts paid for 3G licences per se may not have been so catastrophic for the industry, if the mobile phone bidders had done their homework better in a lot of other areas. The industry has precipitated the crisis facing 3G by failing woefully in certain key areas such as:

The launch of GPRS (General Packet Radio Services) (or the so-called 2.5 G mobile technology) has met with a fairly tepid response across Europe. In several ways, GPRS was supposed to be the stepping stone to 3G and the lukewarm pick-up of this service has served to dampen the much touted growth projections of 3G in 1999 and 2000. Therefore, it is hardly surprising that mobile network operators across Europe have been either clamouring for a delay in network deployments or postponement of 3G infrastructure spending in some cases. The few exceptions to this trend are Hutchison 3G, part of the Hong-Kong based Hutchison Whampoa and Vodafone, UK, who propose to stabilise 3G services by middle of next year. (However, these players have admitted or are likely to face to certain technical and commercial glitches along the way).

It is painfully obvious that the slow uptake of mobile messaging services vis-a-vis short messaging services or scepticism over the success of data applications in the near term has contributed to the loss of credibility among 3G mobile operators, specially in Europe. Even if some of the players roll out 3G networks and start services (leaving aside countries such as Germany, the Netherlands and Britain with high licence fee baggage) in other countries, tariff fixation may be a tricky exercise. As no "killer applications" have been identified in the infotainment arena, it is likely that in the first year or two of launch, the tariffs may involve a substantial subsidy to ensure that they compete with and wean away subscribers from the predominantly voice-centric 2G or 2.5G market. To some extent, the competitive pressures may further elongate the payback period for quite a few of these players.

According to the players in the industry, several new wireless technologies have/are slated to emerge over the next year or so which may make 3G redundant. Though the commercial feasibility of these technologies is still in doubt, even their ability to fragment the wireless market may aggravate the ills plaguing the 3G sector.

Since the uptake of 3G is likely to be slow (which has been confirmed in a recent Financial Times 3G survey), dual mode handsets which can operate under both 2G/3G networks may become imperative. Over the past year or so, the handsets developed for 3G networks have turned out to be unimpressive. The delay in the launch of 3G services by certain players is attributable to the non-availability of handsets to coincide with the launch of the networks. Though this problem may be resolved by mid-2003, it is likely that significant cost subsidies for handsets production may have to be borne by the mobile operators, specially in Europe.

The opportunities for content provision which had been created in the VC funding era of the mid-to late nineties have almost dried up. With margins for pure content providers likely to remain under pressure, most of the 3G service providers will be hard-pressed to provide a full bouquet of services to customers on an anytime, anywhere basis. Any failure to fulfil customer requirement may further extend the payback cycle for 3G services.

The moot point is: Will also these problem areas prove to be insurmountable and lead to the failure of 3G altogether? That is a highly unlikely event, though the payback from 3G services is likely to take five-to-eight years for most projects. With enormous debt restructuring still to be completed, it is likely that "consolidation" will gather greater momentum (specially among bigger players) in the next year or so. And to make consolidation even more attractive, it is likely that players (specially in Germany or Britain) may demand some concessions from the government for the excessive spectrum auction fees paid in 2000 to make their services viable in the long run. Going forward, as the 3G market matures, it appears that the success or failure will have to be evaluated on an operator-by-operator basis rather than for the 3G market as a whole.

maverick@thehindu.co.in

Send this article to Friends by E-Mail