The Ovum View: 3G means business... or does it?

'Enterprise first' 3G a short-cut to bankruptcy...

Who should network operators initially aim 3G at? That's a big question across the industry, and one that Jeremy Green, research director, Ovum Wireless Group has been studying... Ask anyone in the wireless industry what the point of 3G is and the chances are the answer will involve the words 'multimedia', 'entertainment' and 'information'. Although there is an increasingly loud grumble of concern about the absence of well-defined applications that really require 3G bandwidth, there is a generally shared vision as to what it's all about. Put simply, it's about consumers and about the wireless industry getting its fair share of the expanding market for digital content and multimedia communications. Most mobile network operators, most leading device and infrastructure vendors, and cheerleaders for 3G share this view. Not absolutely everyone is fully on side, though. NTT DoCoMo, in its initial launch of its FOMA 3G network, claimed it was targeting business users - although this seems to have been an aspiration rather than a plan, since the launch offering did not include any business applications. Within the world of UMTS and W-CDMA, the most vocal proponent of a business-oriented strategy for 3G has been Lucent, the US manufacturer who might sympathetically be described as a second tier wireless infrastructure vendor. Lucent has been unafraid to swim against the tide of received wisdom about 3G, and deserves some considerable credit for doing so. Lucent argues operators should adopt an enterprise-first strategy, and that the successful operators will be those who get their hands on the first wave of early-adopting, price-insensitive, high using enterprise customers. Moreover, an enterprise-first strategy will work because all of the critical complements are already in place - while for a consumers-first strategy, they are not. For example, they say, look at devices. There might be some good first tries at phones capable of displaying and navigating multimedia content but it would be a brave person who said the main issues have been resolved. But for enterprise users, the key devices are laptops and (to a lesser extent) PDAs - mature products with the battery life, processing power and user interfaces necessary for the applications they run. All they lack is connectivity - something that can be provided by 3G right now, using either a phone and cable (or radio equivalent like Bluetooth) or even a plug-in card. Similarly, consider applications and content. For consumers, there are some interesting ideas about applications and kinds of content that require broadband but there are lots of issues - not least about digital rights management - to be fixed. But enterprise applications such as intranet access, email and access to specific tools such as CRM or ERP are well-developed, and ownership of content is a non-issue here. The enterprise wants nothing fancier than connectivity and it wants to pay for it in a straightforward way - per Mbit, for example. So Lucent argues it all comes down to a business case. Enterprise users have the money and the past history of other communications services and products suggests that they are most likely to be the early adopters. Of course enterprise users are cost-conscious but they can be persuaded in terms that they will understand, by reference to cost savings and productivity gains. The same doesn't apply to consumer users, who are being offered a new way to do something new, and for whom 3G is just another form of spending. Lucent's efforts to turn round the supertanker are not motivated by pure altruism. The company appeared to miss out on the first round of 3G infrastructure contracts and the attempt to persuade operators to shift their focus to enterprise customers is linked to Lucent's efforts to convince them that it can help them in that arena - and thus that it ought to be back on the shortlist for the second round of contracts. It offers to assist with business plans, to bring systems integrators on board, even to train business development staff. It has established a relationship with a device vendor to ensure 3G wireless data cards will be ready for service launch. So are we convinced? Not really. We appreciate and largely agree with Lucent's analysis of all the obstacles facing operators attempting to sell 3G to consumers. Yet different obstacles, of equal size and complexity, lie in the path to an enterprise-first approach. To start with, most operators have a chequered history when it comes to selling to corporates. There are a few honourable exceptions but most of them have spent the last few years putting on as many consumer customers as they can and have built their distribution capabilities and channels on that basis. And the confidence that enterprise customers will adopt once you show them a business case is also questionable. Most don't like buying technology which is not 'bedded down'. There are long purchasing cycles and compliance processes to be negotiated. And those compliance processes won't be much fun, either. Enterprise customers have their own ideas as to what constitutes availability and reliability, and they don't fit too well with what operators are planning to offer at launch. Most operators will be struggling to deploy enough coverage to meet their regulatory requirements while still not busting their capital expenditure constraints. That is likely to make for some wide but 'shallow' coverage. The networks will be best able to cope with lots of customers who use undemanding applications, rather than a few really heavy users. In other words, the launch networks won't be good for the enterprise user, as characterised by Lucent. Most important of all, there are just not enough enterprise customers. As an illustration, Ovum's forecast for data revenues to operators from enterprise customers for 2004 is around $4bn. For consumer customers, the comparable figure is $44bn. Enterprise customers account for less than 10 per cent of operators' revenues from data services. They might adopt faster than consumers, and they might use data applications more, but their combined usage is not enough to touch the sides. Focusing on enterprise customers at the expense of consumer applications is a recipe for going broke. For further information see Ovum's advisory service: Mobile@Ovum and the Ovum report, Wireless Devices: Market Opportunities and Threats. 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