Mobile firms keen to avoid another 3G bloodbath

2 Jun 2006

Traditional mobile operators are striving to ensure that in adopting future wireless standards they avoid making the same financial mistakes they made with 3G, the head of regulatory affairs at O2 Ireland warned.

Hype surrounding the importance of 3G saw European mobile operators spend €160bn in auctions to acquire licences for what they saw as super-fast mobile data services. As the telecoms downturn of 2001-2002 began to take its toll, many of these operators asked the European Commission to get them their money back but to no avail.

Unlike many European countries, mobile operators in Ireland were granted their licences following a ‘beauty contest’ held by the Commission for Communications Regulation (ComReg) and instead of paying several billion euros per licence they paid on average €127m per licence.

Speaking at an OECD wireless workshop held in Dublin this week by ComReg, the head of regulatory affairs at O2 Ireland Robert Mourik admitted that 3G as a technology wasn’t the silver bullet everyone thought it would be.

With new wireless spectrums coming available for wireless broadband and mobile TV, operators were keen to get in on the action and wish to make the right choices, only this time want to avoid repeating the same mistakes as they did with 3G. He said operators are keen to see a more flexible licensing regime across Europe that will let them trial and test new frequencies and spectrums without spending billions on an unproven technology.

“Voice revenues are plateauing. Instead of seeing the double-digit growth of recent years, operators are experiencing single-digit growth. It is a mobile industry imperative that we develop alternative sources of revenue,” Mourik said.

Referring to the regulatory framework that led to billions being squandered on 3G licences before services were deployed, he said: “Spectrum allocation processes can often be an impediment to finding the optimal solutions.

“The lesson we’ve learned from 3G is that it was seen as ‘the technology’. In reality, 3G is just a technology and the services you can provide over it are very important. However, it is just one of the solutions and not ‘the solution’.

“3G came too early. The technology wasn’t ready,” he said, indicating that the auction process exposed limitations in the European regulatory process.

Existing mobile operators and future operators are trying to find new services and underlying technologies, he continued. “There are so many technologies available but most of these are not going to be big money spinners but could add to the bottom line nonetheless. Margins won’t be enormous. It’s going to be down to what the consumer wants: gadgets and solutions. It won’t be the operator that will make the decision but the consumer.

“The current system of spectrum assignment from our point of view carries too many risks. The biggest risk is that supply and demand risk being misaligned,” Mourik pointed out, indicating the danger of mobile operators again focusing resources on one technology instead of being free to test out a range of technologies.

“2G licenses will expire in 2012. Operators face this pressure of going after technologies like 3G because if they don’t they could be in a bad place. But at the same time they are forced to invest in something they may not need yet. From a financial perspective it carries a large risk as it creates inefficient capital expenditure outlay.

“The mobile industry has to take these risks. It chose well with GSM. However, if operators have difficulty in picking the right technology, so will governments. There are tough choices ahead. It would be damaging to Ireland Inc if we get it wrong.”

Mourik said that a regime of spectrum trading and being able to trial services would resolve a lot of issues in the future. “When we all bought into 3G, the only handset available was in Stockholm. We didn’t know what we were buying into at the time. We need to avoid a situation like that in the future.”

Mourik confirmed that O2 will be conducting a DVB/H (digital video broadcasting over handhelds) trial in Dublin in the Autumn, which could lead to future mobile TV services. “We will be examining the commercial and technological opportunities.”

In conclusion, he warned that the sector will need to be given more flexibility in choosing standards in order to avoid the headlong rush into the dark that was 3G. “No single wireless service will plug the gap. We have to be careful what choices we make. The industry will have to move towards consumer driven choices rather than vendor driven choices.”

By John Kennedy