When governments get greedy
Because the third-generation (3G) wireless standard requires new radio frequencies, governments decided to auction them off. Early efforts were astonishingly successful, with 3G auctions last summer netting $50 billion in Germany and $35 billion in the United Kingdom.
But the telcoms apparently awoke to the fact that on top of the auctions, 3G requires expensive upgrades for new equipment, infrastructure, and applications. The projected outlays were so great that payback receded ever further into the future.
As a result, the auction process is coming apart at the seams. Two large telcoms recently backed out of bidding in France, saying the $4.5 billion asking price was too high. In Spain, legal actions have challenged the bidding, as well as proposed annual fees for use of the spectrum. Despite earlier announcements touting 3G infrastructure in Spain, handset manufacturers for 3G haven't appeared, making it unlikely that a previously announced 3G rollout will occur this August.
In the United States, auctions have netted $17 billion so far, but Verizon Wireless and others recently succeeded in getting the FCC to delay further bidding from March to September 2001, the fourth such postponement.
Because of the uncertainties, there's a growing chance that 3G will appear with gaps in coverage and incompatible standards, especially in Europe. This is the opposite of the original goal of having 3G provide seamless high-bandwidth services, including multimedia, interactive games, wireless browsing, mobile commerce, and improved messaging.
Blame around
Of course, governments don't deserve all the blame. Some analysts have even suggested that the auction pullbacks are merely a ploy to get prices lowered for the spectrum. Yet with stakes so huge, competitors have shown little patience for the big picture. On the contrary, telcoms are forging ahead with unique versions of 3G, rather than working toward a unified standard.
The situation in Europe may defeat all but the very largest telcoms. A December 2000 report by Forrester Research estimates that profitability on mobile phones will fall to zero by 2007, eliminating all but five players by 2008.
Of course, here in the United States, there's always enough blame to share with the government: Not only did the FCC again postpone the wireless auctions, it's permitting strange ground rules. Spectrum to be auctioned for 3G devices is currently occupied by TV channels 60 to 69. Eventually, these will be abandoned as broadcasters shift to digital television, but that day itself is receding, given the glacial adoption rate for high-definition television.
For now, the FCC won't force broadcasters to give up spectrum (perish the thought). Instead, winners of the 3G auction must "encourage" broadcasters to move to other frequencies. Nice. The upshot will likely be that 3G "winners" have to pay extra to get the broadcasters to move.
In the meantime
Given 3G uncertainties, wireless companies can hardly be blamed for trying to advance existing standards. As I noted last month, the 2.5G initiative is gaining support. Based on the existing WAP cellular standard, 2.5G can be implemented far more cheaply than 3G.
In addition, U.S. customers will get a shot at the i-mode standard first introduced in Japan by NTT DoCoMo. So there are plenty of improvements short of 3G. The downside is that these efforts add to wireless complexity and use resources that could otherwise help the move to 3G.
Though 3G is delayed, it will happen. Existing infrastructure can never handle the advanced capabilities consumers will eventually demand. Despite the obvious drawbacks of small screens and tiny keyboards, interest in wireless phones and PDAs is rising. With computers and Internet access pretty much a given, the most rapid growth in capabilities will occur among these small mobile devices.
With such products poised for rapid evolution in coming years, it's interesting how little consensus exists about how they will differ from today's cell phones and PDAs.