Who is 3G for, anyway?

3G is not an instant hit with the consumer. Should the networks shift their attentions to business? Would that make any difference?
Written by Peter Judge, Contributor
We have now had four months of commercial 3G service in the UK, since Hutchison launched 3 in March. And gosh, hasn’t it made a difference to all our lives?

Pioneers always end up with arrows in their backs, and by the end of the year, Hutchison will look like a pincushion. While it has pushed ahead with 3, its consumer 3G service, rival Orange has delayed its launch till 2004 (though there is supposed to be a trial running in the UK now), and O2 will probably wait till 2005. There is serious doubt whether some of the original buyers of UK 3G licences will ever actually deliver a service.

We all know the big problem with 3G. It’s got fast data and it’s always on, but no one knows what users will pay to do on the 3G network. Until that question is answered, it’s a matter of going for market share in the hope that you’ll stumble on a real consumer need; or else waiting on the sidelines and criticising those already on the field.

3 is nothing more or less than a massive heuristic experiment, on behalf of all the other operators, to try and figure out who will buy 3G and why. The network has set itself an increasingly ambitious-looking target of a million users by the end of the year.

Only 3 knows for sure how many subscribers it actually has at this point, but estimates put it at about 100,000. So how to get more? The network is playing with the uncharted market of offering content to users. It is also juggling different handsets, some of which will surely be given away free in the latter part of this year -- a big change from the £400 handsets it started out with.

However, the only way to get more subscribers on a consumer service is to cut prices. Last month’s new prices were as low as £25 per month.

This seems to be making some difference. The Daily Telegraph reports that the new rate produced weekly sales of 4,000 at Carphone Warehouse. At this rate, the Warehouse might have singlehandedly taken 3 to its million users (albeit in five years). Unfortunately, Carphone Warehouse admitted the mini-boom has already begun to “flatten out a bit”.

Two-thirds of Britons are not interested in 3G according to one study. Those of us who might use 3G are concerned about the cost, according to another study. Hutchison itself reckons that it can only reach 35 percent of the country with its current plans.

Given all this, it’s tempting to just throw up your hands and say "Why not do something completely different?" And the most popular alternative suggestion is to go for the business market.

"The initial demand driver will be on business, not consumer use," says John Leonard, director of Lucent’s UMTS portfolio. "The complexity has to go down to a certain point before the consumer will be interested. We have seen proof that business is a more viable early market entry point than the consumer. The consumer will adopt this in the 2005/2006 timeframe."

Mr Leonard may be expressing some sour grapes of course, since it is NEC and Nokia, not Lucent, that are behind the Hutchison network in the UK. However, Lucent is part of the 3G networks of Verizon and Sprint in the US, and Leonard reckons that these two are adjusting their marketing to take business into account.

Leonard makes one good point: business users are more loyal than consumers, so if there is a "first mover advantage", it is bigger in the business market. Consumers can shift to a cheaper network when other players arrive, but IT managers will be tied into long-term contracts and will not want to face integration issues again.

However, the problem with the enterprise market is that there are far fewer business people around (or at least business people whose ability to access the corporate LAN continuously is worth paying big money for). They have to be prepared to pay several times what consumers will pay, to make it worthwhile. And are they?

Probably not, I’d say. Leonard is talking about business users paying $100 (£61.54) per month per user, which is not -- on the number of business users available -- going to be enough to pay for the 3G roll-out. Especially as he is talking about a more complex sale where a third party (and yes, it’s Lucent) is involved, carrying out integration and selling the concepts to the IT manager within the end-user company. When a business takes a 3G service, it has to get it to hook up to the company mailbox and converge messages, as well as linking to specific internal applications. "We believe the total data revenue in the enterprise will be much larger for the first three years of the technology," says Leonard. That amounts to an awful lot of business people ready to pay $100 per month. Either that, or he thinks that consumer take-up is going to be even more dire than the naysayers predict.

Michael Ohajuru of Materna Communications, a German mobile integration company, agrees with me. Why should 3G take off in business when the Blackberry didn’t really go places? "I wish I could say that business and 3G go together, but even in America, is still a consumer play," he says. "Ninety-five percent of businesses employ fewer than 20 people. Mostly, the industry is wooing them away from pagers."

The lower echelons of business are not going to go through the integration hassle of hooking up their corporate apps to a 3G service, while the consumer is an easier, more direct sale.

Perhaps the last word should go to Ericsson, who provided technology to all but two of the nine operational 3G networks in Europe -- including 3 in the UK. "The main drivers of traffic will come from the enterprise space," says Frederic Boone, Ericsson’s EMEA director of marketing. "The consumer will have new services such as MMS, but the real benefit will be to the business user."

Like Lucent, he sees a triangle, where the service provider and the integrator both address the business customer. I don’t see much sign of this with Hutchison yet, but Boone says Ericsson is in discussions to set up this kind of partnership across Europe.

So, while 3 makes its consumer play, even the technology player behind it thinks there is more potential in the business market -- but that business market needs more development.

In other words, 3G is still a godawful mess.

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