Internet 3G phones are here! But then…

By : |September 30, 2001 0

Lucas van Grinsven

LONDON: Suppose you are on a mountain top in Japan and the final episode of
your favorite soap opera is about to begin. If you brought along your new,
third-generation (3G) mobile phone, you’ll just tune in and watch.

This, at least, is the image of the future that mobile phone companies have
been selling to consumers for the past three years.

The future arrives this week, when Japan’s leading mobile telecoms operator,
NTT DoCoMo Inc, launches the first, fast Internet 3G phones. But does it mean
the Japanese will now use cellphones to play games like Doom, watch Friends and
swap music files?

Probably not.

Despite all the hoopla, mobile Internet has hardly been a roaring success.
The biggest disappointment has been Europe’s experiences with slower, less
sophisticated WAP cellphones, which disillusioned vast numbers of users.

Even in Japan, DoCoMo’s mobile Internet service i-mode – the world’s most
advanced mobile data service offering email, games and web browsing – generates
only 10 per cent of DoCoMo sales three years after launch, despite selling like
hot cakes.

Companies insist that mobile data will be lucrative one day, since even
simple and laborious text messages over slower, second-generation mobile phones
now generate around 10 per cent of revenues for European and some Asian

But they are increasingly braced for a long wait.

"3G…will not be the panacea that some had expected. It will take a
whole decade for mobile data revenues to overtake traditional voice
revenues," says Jonathan Bell, an analyst at US-based consultants Pyramid,
owned by the Economist group.

Industry also cautious
The industry itself agrees it will take a while for fast Internet to catch on.

Serge Tchuruk, chief executive of French telecom equipment maker Alcatel ,
warned investors at a conference in Barcelona that "3G is going to be a
long race, not a sprint".

In Japan, NTT DoCoMo is similarly cautious, expecting one in every 10
subscribers to have a 3G phone in three years time. Nor does the company expect
a big shift in revenues.

Of its more than 60 million subscribers, DoCoMo currently has 27.6 million
i-mode users. I-mode subscribers give NTT DoCoMo monthly revenues of 1,470 yen
($12.28) from Net services and 7,300 yen from voice services, according to the
latest data.

Although NTT DoCoMo aims to raise the percentage of i-mode users, it thinks
voice will be the main source of revenue for many years to come.

This is partly because more data leads to more voice. I-mode usage has led to
10 per cent more voice calls, because people often call each other after sending
emails or other messages.

In fact, many industry analysts now think voice telephony will initially be
the main beneficiary from 3G networks, because it will lift pressure from the
congested 2G networks. In cities in Britain operators currently struggle with
the limited capacity of their GSM radio spectrum.

"3G is first and foremost about moving voice telephony from fixed to
mobile," West LB Panmure analysts said in a recent research report.
"What is going to get average revenue per user up? Well it won’t be new
data services. It will be good quality, organic voice growth," another
analyst said.

What the customer wants
Nevertheless, wireless operators will have to increase data revenues to offset
the price pressure on voice call charges.

The early achievements of i-mode in Japan and mundane text messages in Europe
have made it clear that a mobile data service has to address the needs of
consumers if it is to be successful.

In Japan, for example, consumers love to download comic book characters.
"Mobile handsets are brilliant for putting these things on," said
Robin How, managing director at APC Asset Management in Hong Kong. "But is
it any good for Britain? I’m not sure."

Jamie Wood, telecom equipment analyst at JP Morgan, believes that in Europe
communications services such as email and enhanced messaging will drive mobile
Internet. forecasts that instant messaging and email will be the two
most popular data services, used by one in three subscribers.

Despite the emphasis on virtual fishing or downloading cats in pink dresses,
the Japanese use their i-mode first and foremost for email, and then to download
and play games. Somehow this down-to-earth message has been lost on equipment
manufacturers who are still rallying consumers and operators behind an
omnipotent 3G network.

Two mountaineers sobbing over a soap opera "streamed" to a
cellphone is the vision of the future US-based Hewlett-Packard brings to prime
time TV audiences around the world.

US-based Motorola has just issued a print advertising campaign in which it
suggests consumers can "unlock the door and fill the tub, from
anywhere", using their future cellphone.

(C) Reuters Limited 2001.

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