Future of mobile communications under scrutiny

Some of the services used to promote 3G phones aren't wanted say experts. Picture / Reuters

The bosses of the world's largest mobile phone companies have gathered in Barcelona this week for the annual industry shindig, the 3GSM conference. But this time, what one analyst calls the "usual mutual back slapping" won't hide their growing vulnerability.

Subscriber growth rates are stalling and markets are becoming saturated. Everything the industry can think of has been done before, be it clamshell-design handsets, thin phones or "moc croc" leather cases.

"It says something when the biggest thing to happen in the industry last year was Motorola's launch of the Pink Razr [clamshell] phone," says Ben Wood, an analyst from the research group Gartner.

"It is the equivalent of adding a body kit and alloy wheels to increase the sales life of a Ford Mondeo," he says.

That may be too harsh on the well-regarded designers at Motorola, but he has a point. Most new handsets are no different from existing models, so branding is now as important as functionality. Marketing campaigns for new phones are becoming more extravagant - and sometimes bizarre - as manufacturers try to differentiate their products.

BenQ Mobile, which bought Siemens Mobile last year, recently launched its new "sqound" phones (that's traditional oblong phones with curved edges, to you and me).

Now more than ever, companies are pinning their hopes on 3G to provide the next killer application. But this technology has promised so much in the past yet failed to deliver, while other handheld devices, such as iPods, have soared in their popularity. Mobile phone executives swear that this time, 3G will take off. Are they right?

Many people rarely use the extra services offered by 3G - vital for the operators to recoup their huge outlay. Survey findings from research firm M:Metrics, show that in the last quarter of last year, around one in 10 3G users in Britain watched a short video clip on their phones. Under one in five sent a video clip to a friend.

Statistics from the operators promoting 3G can be misleading, warns John Delaney from Ovum, a technology consultancy.

"You have to be circumspect. It's only when they start from a large base that 3G growth rates become meaningful."

So why hasn't 3G taken off yet? Delaney says the network operators did not pay enough attention to what customers would want from it.

"Up to now, the operators have been led by technology, in determining what services they could offer. For example, just because 3G networks can do video calling doesn't mean it's actually something people want to do."

Watching television on mobile phones is being touted as the next big thing for 3G. O2, which has just been bought by Spanish giant Telefonica, is running a trial for a service in Oxford, Britain, where participants are watching, on average, three hours of TV on normal- sized phone screens each week. The average clip length is 25 minutes.

Dave Williams, O2's chief technology officer, says younger people are far more prepared to watch TV on mobile phones than many older people, and mobile phone executives, realise.

But the mobile phone companies face competition from the likes of Apple and Google, which are developing handheld devices that show television. As with music, consumers are downloading programmes to their PCs and transferring them to portable devices such as iPods.

Williams denies that Apple is a threat.

"It is helping to create the market. Maybe the iPod will be around in a few years' time; maybe it won't," he says. "Everything is possible."

Portable devices such as iPods cannot directly download music or TV programmes. And if Apple wants to develop that ability, piggybacking on the 3G network is the only practical option.

Delaney says: "More specialised mobile devices are likely to dominate activities such as listening to music or playing games. The network operators will still have a big role to play in providing those devices with connectivity."

Network operators realise they need internet companies to drive take-up by providing content. Some Nokia users, for example, can access Yahoo! Go, software which incorporates Yahoo!'s messenger service, diary and search engine, all hooked up to the user's home PC.

Christian Lindholm, the vice-president of global mobile products at Yahoo! says: "The phone is evolving into a mobile computer. Yahoo! and other big-branded internet services will enter further into the mobile space this year."

No one is writing off 3G. Far from it. It's just that the business case has changed. And it is likely the business case will change again. Network operators have realised that the payback period will be longer than expected, and that the hoped-for cash cows of video calling and music downloads will not cover the huge outlay for 3G alone. Operators will have to look at business models where not all the revenues come from the mobile phone user, says Delaney.

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