3G in crisis

Slow progress and high debt in the 3G sector mean firms should focus on today's stop-gap technology

Slow progress and high debt in the 3G sector mean firms should focus on today's stop-gap technology

The third generation (3G) mobile telecoms revolution is in a mess. Last week, Intel vice-president Hans Geyer stunned a telecom congress in Cannes by warning that the entire sector could be bankrupt before a single 3G call is made. Meanwhile, profit warnings and share price falls abound, and the market cap of UK telcos as a whole has halved in 12 months.

Put your schadenfreude on hold, though. A late and chaotic roll-out for 3G will be bad for all business users.

Once true 3G networks come on stream, users could be carrying the wireless equivalent of a leased-line in their pockets. That will not only revolutionise corporate IT connectivity, it will open up new markets for consumer and business services on the wireless Internet.

Three factors are hampering the roll-out of 3G networks.

The first is the technology itself. The most widely adopted standard - Wideband Code Division Multiple Access (WCDMA) - is the one furthest removed from second generation mobile technology. Qualcomm, a major holder of WCDMA patents, said last week that the technology would not deliver commercially until late 2004.

The second factor is the shaky business logic of 3G telecoms provision. 3G is a high-bandwidth, "always-on" technology. To ensure the same high uptake rate as that of 2G, companies would have to offer discounted handsets and subscription rates within reach not only of large corporate users but also of SMEs and the public.

Sentiment from across the industry is converging around the view that it will be hard to make money in this way. Many are calling on 3G operators to adopt a services or content model rather than one based purely on call charges and the mass market.

The third factor hampering 3G is the current economic slowdown. The revenue projections of equipment makers such as Motorola have been revised sharply downwards. Meanwhile, the high cost of 3G radio spectrum licences - £100bn in Europe alone - has placed a heavy debt burden on the telcos. Financial institutions believe they have lent to the limit in this sector already and will not, in this climate, readily stump up more.

According to some economists, not only will the 3G revolution have to take place on the other side of a recession, but a 3G telecoms debt crisis could be a major factor in starting that recession.

If a combination of technology glitches and economic downturn postpones the 3G revolution for half a decade, users will turn to the enhanced 2G technologies that are being dusted-off - because, as any travelling laptop user or PDA owner knows, reliable mobile data transfer is needed now.

Users can do little in the face of global economic forces and giant telcos. But they can at least demand the roll out of realistic, workable and cost-effective 2.5G solutions. Technologies such as GPRS, Edge and HSCSD, which looked stillborn 12 months ago, now deserve a place on the agenda of any company's mobile data strategy.

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