Can 3 Make 3G Work?
By Bruno Giussani, Wed Feb 19 14:00:00 GMT 2003

3: "Videophones to send and receive video-messages and make video-calls."


Remember April 2000? It was just 1000 days ago and the British government was auctioning off UMTS licenses for an extravagant amount of money. Wireless euphoria was at its peak. Promotional videos promised that 3G services would be available before the end of 2001 and offer everything from music downloads to wireless games to videoconferencing. And forecasters predicted that by 2003 more people would access the Internet through their mobile phone than by using a computer.

Well, we are in 2003 now, and I haven't noticed any 3G action in Europe. I mean: real action, not the variety of "3G-type-services over existing networks", "pre-commercial launch", "friendly trial", and "our-network-is-ready-but-handsets-are-not" and other similar spins used day in and day out by the operators as evidence of how fast they're progressing.

Developments in the 3G arena have been dramatically slow. Relatively little infrastructure has been deployed. 3G handsets are far from mass production. Major operators such as Vodafone and Orange have delayed their plans. Telefónica has returned to Spain after giving up on pan-European plans. Others have simply given back the license they bought. All have written off billions, and their main priority today is to cap investment and reduce their debt load.

Is there a bright spot in this troubled picture? Likely, yes: Hutchison-Whampoa. The Hong-Kong-based investment conglomerate may seem a peculiar pick for the role of the player that may beat the 3G odds, but Hutchison is no enfant de Coeur: back in 1994 it built British operator Orange from scratch, speeding past established rivals with innovative strategies, original branding, and flat-rate fees.

Then, four years ago, Hutchison decided that it was time to divest from all of its "second generation" (GSM) wireless holdings in order to make room for new ventures. Between 1999 and 2001, while the telecom boom was in full swing, it sold its stakes in operators Orange and Voicestream for a cumulated profit that can be valued at 25 billion euros. That money now makes "Hutch", as insiders call it, the best-funded 3G wannabe.

Three, Tre and Drei - Will Multilingual Branding Work?

So far, it has set up 3G operations in 8 countries and staked approximately 16 billion euros on them. When it launches commercially, which should happen in March in both the UK and Italy, it will brand its services "3". The number will be spelled differently in each country of course - "Three" in the UK and Ireland, "Tre" in Italy, "Drei" in Austria - but it is designed to convey the same message to all its customers. 3 is exclusively about third generation mobile communication, and promises unique services.

Will it? To verify this claim, I travelled to Milan, bringing along a lot of scepticism fed by years of wireless hype. I spent an afternoon at Hutchison, spoke with many people, asked questions, made video-calls using their handsets. And got back to my hotel that evening thinking that if someone has a chance to make 3G work in the near future in Europe, it's 3.

Sure enough, Hutch suffers from the same disease as its competitors: overpromising and underdelivering. Its chief executive for Italy, Vincenzo Novari, promised the press that the services would be launched in September - last September, that is. Then the PR office went around saying that 333 VIPs would receive an exclusive Christmas present: a video-phone (In Italy it calls its devices videofonini). In telefonino-obsessed Italy, this would have been the ultimate status symbol, and a guaranteed buzz would have followed. But 3's Santa didn't arrive.

The interest of 3 however doesn't reside in its all-too-conventional PR rhetoric. It lays in how different its plan is. If 3 is to succeed, it will probably be for three reasons (beyond delivering on the plan, but that goes without saying): focus, differentiation, and pricing.

Focus Selling out the GSM ventures has deprived Hutchison of a customer base, known brands, deployed networks, and cash flow. But it has also left it unencumbered by technological legacy and without an existing business to protect. This means that 3 will be free to go after customers without having to worry about cannibalizing current revenues.

Pricing 3 would offer some of the lowest tariffs ever for mobile communication. This at least is the impression one would gather from the basic package offered to "early-bird" subscribers since December in Italy. For 85 euros a month flat-fee they would get 40 hours of video-calls, 40 hours of phone calls, 600 SMS, 200 video messages, 400 e-mails, and access to the content channels (excluded international calls and international roaming). The actual commercial offer which will be announced in March will certainly be radically less generous, but there is still a lot of leeway before hitting the 50 cents to 1 euro that other operators charge for a single MMS message.

Differentiation While their rivals are protecting their GSM cash-cow and trying to capitalize on the success of short messaging and ringtones by promoting multimedia messaging and selling even more melodies, 3 has been forced to chose a radically different direction. Indeed, to succeed as a new entrant in a saturated market it must attract customers who already have a cell phone and convince them to switch operator and to buy and tame a new device. Thus, while everyone else is lowering the stakes and sitting tight, Hutchison has no choice but to raise the bar and offer a really genuine novelty: wireless video-calls.

"Have You Ever Showed up for a Meeting in Your Bare Feet?"

If this makes you smile, hold on. Videophones have been a classic laughingstock of the telecom industry ever since AT&T introduced its Picture Phone at the New York World Fair in 1964. Hundreds of millions have been squandered by many companies in videophone trials and promotional campaigns. One slogan asked: "Have you ever showed up for a meeting in your bare feet?" Which helps to explain the failures: you may be barefoot while making a phone call, or have scruffy hair and be lying in bed, but you don't necessarily want the other person to know it (and see you).

Hutch agrees, but was quick to point out that mobile videotelephony has a different nature. Fixed phones link places and wireless phones connect people. "It depends very much on what side of the door you are", says one Hutch spokesperson. "At home you don't want people peeping into your private space; but when you leave home and walk in the street or to the office or enter a store or go to the beach, you've already decided to make yourself visible, so where's the problem?"

So after hearing all these I decided to give one of the NEC 3G devices a spin. They are light, have a big bright colour screen, and an easy-to-navigate interface. The phone has two built-in cameras, one facing the user and one on the other side looking out to the surroundings. Both can capture still pictures and full-motion video and the user can switch from one to the other even during a phone call. I made three video-calls, and all three went through and provided good and stable video and voice quality. Of course, the device can also send and receive video, photos and multimedia messages, SMS, e-mail - and you can use it to "just" talk as well.

This is consistent with 3's focus on offering a variety of interpersonal communication formats, while the company looks almost immune from the obsession of "content" that has led the whole industry astray in recent years. Its only content offering will be a handful of video channels targeted at mass-market interests such as sport highlights (football) and entertainment.

Of course, many roadblocks remain along the way to the first one million customers that Hutch expects to attract in each of the two countries in the first year of operation. There is no guarantee that Hutchison's plan will fly - everything can still go wrong. Just to mention a few issues: Hutchison's 3G networks initially will cover only 50 percent of the UK population and 40 percent of the Italians. Outside these areas, users will roam the GSM networks of mm02 and Telecom Italia Mobile respectively but still pay the same tariffs, thus substantially hitting 3's margins.

Moreover, each of the 2200 antennas that Hutchison has built around Italy will carry for now only 12 simultaneous video-calls. If you're user number 13, your voice will go through but your face will remain anonymous. At least at the beginning therefore, Hutch will be in an awkward position of having to attract very rapidly a critical mass of customers (because what's the use of owning a videofonino if there's no one to video-call?) - and all the while managing bandwidth and therefore somehow "discourage" customers from over-using the video-call feature. If there has ever been a though balancing act, this is one.

Bruno Giussani is a Zurich-based journalist and the author of "Roam: Making Sense of the Wireless Internet" (Random House, 2001 and 2002).