Mobile phone operators will need to recoup the billions they spent
on acquiring 3G licences if the system is ever going to take off
properly, says Karl Cushing
At the peak of last year's dotcom and mobile phone love-in,
Vodafone, Orange, BT, TIW and One2One paid the Government £22.5bn
for 3G licences - an amount that is increasingly being viewed as
too much. It would appear that the operators are already starting
to fret about their ability to recoup the huge sums they paid for
the licences in last year's auction and are seeking changes to
their licence agreements.
Rumours abound of the troubled operators demanding clandestine
meetings with the Department of Trade & Industry, industry
regulator Oftel and e-minister Patricia Hewitt in a bid to improve
their lot. The latest rumour is of a government-financed cashback
package where money will be loaned to help the operators fund their
networks.
But while this potential funding is being worked out in Whitehall,
some industry watchers have expressed concern that users and the
business community may have to shoulder the burden of repayment.
However, a spokeswoman for Oftel says it is unlikely that operators
will attempt to pass on the costs, adding that she expects the
operators to write off the expense as "sunk costs". It remains to
be seen whether the operators themselves will prove so altruistic.
But if they do attempt to pass on the costs through services such
as m-commerce, it could prove expensive in the long run and
effectively amount to shooting themselves in the foot.
Tim Sheedy, research manager for European wireless and mobile
communication at IDC, also believes that that this is unlikely -
albeit for different reasons. "If it costs too much people won't
use it," he adds.
As Sheedy points out, although m-commerce is new, consumers are
aware of the cost of e-commerce and know what their mobile phone
charges are. "Any price hikes will be noticed," he says.
Instead, Sheedy feels that operators will aggressively court
alternative revenue streams such as advertising to recoup their
costs. And although he does not see hidden costs as a factor, a big
obstacle will be the users' perception of security, which was also
a big stumbling block in the uptake of e-commerce.
Mike Herman, chairman of the Global Mobile Commerce Forum, insists
that operators always intended to pass on their costs to consumers.
For him, this forms the whole premise behind the concept of
providing value added services.
"I believe they justified the costs of 3G through the belief that
they will be being able to provide a suite of services they can get
money back from," says Herman.
"They'll recoup whatever they can from customers but that was
always the design."
According to Herman, to get it right, the operators will have to do
three things successfully, that is: "offer the right proposition,
at the right price at the right time".
Rather than creating a potential for consumers to get a raw deal,
Herman sees the high price of 3G licences as a threat to
innovation.
"Other countries can try more things and make more mistakes but
ultimately be more successful," he says, emphasising the importance
of trial and error in deploying the new technology and services.
"The risk of getting it wrong in the UK is greater. There is less
room for error and this might create barriers for innovation."
Not surprisingly, he would like to see the Government ploughing
some of that £22.5bn back into the marketplace through subsidies
and investment, although this is "unlikely".
Herman believes that the first real m-commerce money-spinners will
be high value transactions involving non-reputable items - like
gambling, gaming and share trading. On these services, people will
pay for the convenience and will not mind doing so.
But it will not necessarily be the customer who picks up the costs
for services like m-commerce, says Herman - banks and retailers
will also shoulder some of the burden. Why should the customer or
the operator have to pay for something that benefits the retailer?
Retailers should be confident that investing in m-commerce will
drive customers to them, says Andrew Fisher, European managing
director of communications infrastructure firm InfoSpace.
He believes that it is essential that operators add retailer-funded
services such as m-commerce, to consumer-funded services like
e-mail, to be profitable. "This," says Fisher, "will begin the
process of transferring any costs from the end-user to the
retailer."
Getting users to pay a flat subscription fee for services like
m-commerce is the most important factor in pricing, says Tim Wise,
chairman of the mobile special interest group at the Communications
Management Association.
This is the lesson learnt from the success of i-Mode in Japan,
which runs on a subscription-based system, rather than Wap in the
UK, which has, up to now, been regarded as a failure. "Why reinvent
the wheel?" Wise asks. "The Japanese system works."
He insists that the UK situation should not be viewed in isolation.
"The operators didn't just buy licences in the UK," Wise points
out. "You need to look at the overall picture. Most of the five
operators have pan-European coverage." Costs can then be spread
further afield.
Although Wise is confident that m-commerce will flourish in the
long run, he does not expect the networks in the UK to be
operational until 2005.
Like Herman, Wise says that the operators cannot afford to make
mistakes in the UK so the pioneering work will happen elsewhere in
Europe in countries such as The Netherlands or Belgium.
"We'll regret how much we paid - we'll be followers rather that
leaders," he says.
Who paid what?
TIW bid £4.38bn for licence A, the widest spectrum licence,
reserved for a new entrant. The real prize goes to TIW backer
Hutchinson-Whampoa, which will own 90% of the joint venture set up
to utilise the licence
Vodafone paid £5.96bn for licence B,
the widest spectrum available to an existing operator
BT
spent £4.03bn for licence C, a more limited capacity for customers
than licence B but nearly £2bn cheaper
One2One bid £4bn and
won licence D which has the same capacity as licence C
Orange won licence E which also has the same capacity as
licence C, but it paid £4.1bn.