Mobile: Going thataway

At least, that's the theory behind the next wave of advanced mobile services known as the third generation (3G). The aim is ambitious: to make the boundaries between information, communications, entertainment and, most important, location completely disappear.

While auctions for 3G licenses in the U.S. are not scheduled to start until March 2001, the rest of the world is already well ahead. Auctions are completed or under way in most other major countries, including Germany, Japan, Korea and the U.K. The first live 3G services will debut in Asia before the end of this year.

"3G is not good enough, and I believe it will not see the light of day," Nicholas Negroponte, director of the Media Lab at the Massachusetts Institute of Technology, told delegates at a recent European Information Technology Forum in Monte Carlo.

He is not alone. Arto Karila, a professor at the Helsinki University of Technology in Finland, predicts 3G may not bring any significant advances because enhanced second-generation (2G) services will cope with most demands. He also believes the costs of the 3G licenses, which are running up to $5 billion, may bankrupt some operators.

Even so, mobile developers and telecommunications operators are investing billions of dollars to create technologies and win licenses for 3G mobile services. There could be a lot at stake. A recent study by Lehman Brothers Holdings, Merrill Lynch & Co. and Motorola estimates that there will be a total worldwide market of $200 billion for 3G systems by 2004.

The trouble is, most people still can't use all of the functions on their existing mobile phones, and Internet services using the Wireless Application Protocol (WAP) are off to a slow and shaky start. Moreover, no one knows the real costs of taking the technology even further.

"It will happen. The only question is the time scale," says Emma Whitten, business director at the European research firm CIT Research. "3G has to work because these companies have spent so much money on it," she says. "There is no room for failure."

The idea of 3G is certainly appealing. Put simply, the first generation of mobile devices was the analog systems of the 1970s and 1980s; the second generation was the digital services of the 1990s; and the third generation focuses primarily on bandwidth - high-speed data and multimedia access.

3G promises up to 2 megabits per second of Internet Protocol-based multiple voice lines, plus streaming audio, video and animation, and rapid mobile commerce transactions - all on a device that is "always connected."

One of the challenges to making this happen, however, is a tangled web of new mobile standards.

The path to a common 3G platform of the future, International Mobile Telecommunications-2000, is going to be complex. To get there, most current standards will have to go through a transitional phase known as "evolved 2G" or "2G+" before reaching full 3G.

General packet radio services, the 2G+ stage for the world's global system for mobile communication users, are already starting to hit the market in Europe, offering persistent Internet connections at more than 64 kilobits per second. Motorola believes most of the phones it sells in Europe next year will be Internet-ready GPRS devices.

For some observers, that transitional phase is far enough. "When GPRS comes online, people will have 64 Kbps and they are going to love it," MIT's Negroponte says. "People are going to say 'Wow, GPRS is really great!' Which will lead them to ask the question about 3G: 'What is so much better than GPRS?'"

"There is an argument that says, 'Don't look at this as a 3G race at all,'" says Richard Dineen, senior analyst for the mobile advisory service at Ovum, a consulting firm in London.

"The market for high-speed data may well be addressed in the short term by enhanced 2G services, and investment will then be channeled to providing enhanced data services, quick rollout, developing the core value add for the offering and avoiding some of the enormous costs of 3G."

Nevertheless, all the major manufacturers, and many new developers, are already testing 3G prototype handset devices: big and small, multipurpose and specialized, and optimized for the office, home or even the night club user.

The merging of diverse technologies in 3G systems also opens up a competitive opportunity that goes beyond the mobile telecommunications industry.

The Big Three companies in the industry - Ericsson, Motorola and Nokia - are increasingly threatened by smaller players that are joining forces to increase market share.

Germany's Siemens and Japan's Toshiba, for example, which between them have about 7 percent of the world's mobile handset market, recently announced joint development projects for 3G handsets.

Other competitors from the computer and media industries are gearing up for the 3G future. Both IBM and Sun Microsystems have announced ambitious wireless strategies to connect their systems to mobile devices.

Meanwhile, media giants such as Bertelsmann, News Corp. and Time Warner are positioning themselves to deliver 3G content.

Developers certainly aren't expecting any short-term payoffs, though. Ericsson President Kurt Hellstrom, who runs the world's biggest supplier of mobile network systems and the third largest supplier of handsets, doesn't expect his 3G investments to contribute to the bottom line for a while.

"It will take three years, until 2003, before 3G plays an equal part with 2G and contributes 50 percent of the [mobile] division's revenue," Hellstrom said recently.

Although the first 3G services are expected to become available in 2001, full 3G will not be implemented in most markets until 2005 or 2006, both CIT and Ovum predict.

That may be optimistic.

A study by Jupiter Media Metrix suggests that by 2003, only 2 percent of e-commerce transactions in Europe are likely to occur via a mobile device of any generation.

Operators may face an even longer wait. An analysis from consulting firm Arthur Andersen and investment bank J.P. Morgan & Co. found that companies that were successful in the auction of Britain's 3G mobile spectrum could face a 15-year wait before they recoup the cost of establishing the network.

It's not just technological standards that pose a problem. There is simply no precedent for predicting market demand for these new high-speed data and multimedia services, and recent experience is worrying.

The launch of WAP, for example, was widely disappointing, and it is taking far longer than expected to gather commercial momentum.

"WAP suffered because it was overhyped," CIT's Whitten says, noting that the 3G community should learn a lesson from the past. "The trouble is, I have not yet seen a service launched that has been taken up with the zeal the suppliers suggest."

It looks like the industry could be in for a similar roller-coaster ride with 3G, and the next year will be critical. As 2G+ services emerge in most countries, it will become increasingly obvious which services are likely to catch on - and which are merely a developer's dream.

What is certain is that it's going to be a very expensive wait-and-see period for everyone involved.