3G: The next dot-com stock-rush?

'Content-rich' services will have the upper hand when it's time to reap the rewards of 3G

April raked in a massive £22.5bn from the auctioning of the UK's next-generation mobile spectrum. With the 3G infrastructure currently under development, a variety of service providers are already eyeing up a stake in the 3G market which promises always-on connectivity coupled with bandwidth capable of making video-conferencing possible over a palm-sized unit. If new entrants manage to beat the telcos in developing 3G services, it could be the next gold-rush for the dot-com industry.

The recent dot-com depression has led to a big slump in share prices--arousing concerns that the dot-com era may be over. Graham Opie, director of analysis firm Vanson Bourne believes that 3G will be reflective of the trends that we are witnessing in the dot-com market, where traditional organisations with an established brand and market orientation have taken a stronger position. "I would be surprised if new companies took a market lead in the 3G area," he comments.

Tom Uhart, investment analyst for e-start, expects there will be plenty of hype surrounding 3G that will once again cause an inflation of the dot-com economy. Far from having a negative effect Uhart believes it could help the industry to jumpstart itself. He is confident that venture capitalists are going to "fall over themselves" in the rush to invest in 3G startups, but is concerned that mobile operators may act as a barrier to startups entering this market in a big way.

"In Europe the mobile operators aren't willing to share revenue -- they are building their own portals which will make it hard for dot-coms to succeed."

Mobile operators such as Vodafone will clearly have the best chance of understanding the 3G interface. "The analogy of thinking of WAP (Wireless Application Protocol) as an access to the Internet will soon be replaced with 3G. When developing a 3G service, it must be based upon the mobile phone world rather than the Internet," points out Bernt Ostergaard, research director for European telecommunications at Giga Information Group.

For all new 3G services, an understanding of 'mobility' will be crucial to their success. "It is early days, but over time many mobile network operators will be able to do some good business in the 3G area as they have the advantage of understanding mobility. A lot of new entrants don't have that expertise," says Dirk Bout, senior analyst at Dataquest. The established telco companies have proven business models in this area, and have a strong competitive advantage over startups in being already profitable.

Global telecom startup One.Tel withdrew from the UK 3G spectrum auction when the licence price rose above £2.5bn, and is now looking to pursue a wireless strategy within the UK by utilising its own technology on someone else's network.

"3G will all come down to being able to access the incumbent's networks," says a spokeswoman at One.Tel. "This will be crucial for startups such as One.Tel as it will determine how free the market is going to be. The incumbents will have to fill their pipes with minutes somehow, so we think that 3G will provide a lot of opportunities for new service providers."

Wireless technology providers that have invested in WAP won't be making a profit until 2003, but could be a lesser-known bet for 3G as they are already looking at developing content rich services. Opie argues that "publishing and data organisations already have this richness of content. It will be a smaller challenge for them to re-purpose this rather than to re-create data services as startups will have to do". There is too much invested in content that already exists: "The telecom providers have the whip in the hand," says Opie.

Ostergaard is optimistic that 3G could be the next gold-rush for dotcoms. "If you separate out the 3G infrastructure, service provisioning will be in the hands of startups. Any service that makes money sense for the corporate customer hasn't yet been invented for the 3G platform."

He points out that a small amount of money is needed upfront for the development of new services. "It will be an interesting market that has a great potential for growth." 3G services up for development will include new types of real time and voice control applications, as well as locality services that are predicted to be a big startup area.

3G could potentially be the next big thing for investors too. Bout is of the opinion that 3G will be a prime opportunity for venture capitalists, and is convinced they will be prepared to finance it.

"There is a good reason for WAP not to work right now, but when we move to better data services, WAP will stand a lot better chance of being accepted by the market. This will help to build confidence in time for 3G."

Opie on the other hand believes that venture capitalists will be less comfortable in investing in 3G than they were in dot-coms because of the huge losses that they have incurred. "The dot-com market may unfortunately have tightened the purse-strings for 3G startups."

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