Vodafone denies 3G snub

Following reports that it has given up on recouping its 3G investment, Vodafone says customers are still keen on services like mobile TV, but admits video-calling is a flop

Vodafone has denied it is giving 3G the cold shoulder, after weekend reports claimed that the operator was slashing handset subsidies and abandoning its hopes of making the technology a commercial success.

The reports followed a suggestion by Enders Analysis that sales of 3G phones had plummeted from 20 percent of all handsets bought to 12 percent in just one quarter.

"That is definitely an overestimate," a spokesperson for Vodafone told ZDNet UK.

"The share has dipped as we've rebalanced investment across our customer base. We're now perhaps seeing lower ARPU [average revenue per user] from lower ARPU customers, so the kind of commercial investment we were making into customers is no longer justified," the spokesperson said on Monday.

In practice, this means that Vodafone is no longer willing to put as much of its own cash into offsetting the price of each 3G handset it sells. Heavy subsidies don't make financial sense if people are simply not paying for enough extra services to justify it.

These services include downloading music, surfing the Internet and the original application that was supposed to drive 3G uptake — video calling.

"Video calling is not a service that is used by a lot of people," Vodafone's spokesperson admitted, "But more than 50 percent of people who buy a 3G phone in our UK stores are taking a mobile TV package, and most are adopting the [premium] £10 package."

This conflicts with findings in the Enders report, which found that 76 percent of all phone users surveyed said they were not at all interested in mobile TV.

"It may be true that in the very small number that [use 3G services], those people will be very interested in mobile TV," Alice Enders, head of the analyst firm, told ZDNet UK.

But, Enders suggested, Vodafone had suffered financially from its "obsessive over-engagement in 3G" — which saw 3G handsets given equal store-space to non-3G devices — and insisted there was still no evidence that people were primarily interested in anything other than voice and text services.

But 3, the only major player in the UK mobile market to focus entirely on 3G phones and services, disputes this claim. A spokesperson for the network told ZDNet UK that the popularity of its downloadable music and mobile TV services proves the demand is there.

"Uptake is phenomenal and growing day by day," the spokesperson told ZDNet UK. "We're even rivalling traditional music suppliers. We're second only to iTunes in terms of downloads... and the World Cup really put mobile TV on the map."

"What [the Enders] report reflects is a lack of maturity in the other operators in terms of their progress with 3G," said 3's spokesperson, who also claimed that "some incumbent operators" had found it could "suit their commercial model to keep some of their users on old technology" — a possible reference to the high data costs associated with GPRS.

Whatever Vodafone's 3G strategy, it remains to be seen whether its decision to stop pushing the technology so hard will be welcomed by investors who, only last week, nearly claimed the scalp of Vodafone chief executive Arun Sarin.

It's also unclear whether any of the operators who invested vast amounts of money on 3G licences and infrastructure will make their money back.