3G Phone in Your Christmas Stocking?
By Steve Wallage, Wed Aug 18 16:00:00 GMT 2004

European mobile operators would love you to have one -- but are they prepared for the risks in a Christmas marketing blitz for 3G?

You could be forgiven for thinking the question is a no-brainer. 3G is on a roll: it is claimed there were 112 million CDMA2000 handsets worldwide by the start of August. NTT DoCoMo has upgraded its forecasts and is now aiming for 25 million subscribers to its 3G FOMA service by the end of March 2007. European operators have typically already launched 3G: the Vodafone 3G mobile connect card is available in 10 European countries. In fact, the regulators have often demanded it -- for example, in Portugal, the government had insisted on a July 1 launch.

There are also some compelling incentives for the operators. Christmas is the key battleground for new products and to boost market share. The financial community wants to see evidence of the uptake of mobile data services. There are also major competitive issues from two camps: 3 and the others. In the case of 3, it is still predicting 4 million subscribers in the UK and Italy by year-end. By not launching a Christmas 3G push, operators could be seen falling behind other operators who promote the technology.

But the answer should still be to wait a year, and although operators are loathe to admit this, there is evidence that they are similarly cautious. There are seven reasons to conclude that operators should not be trying to make Christmas 2004 a 3G event.

First, the initial roll-outs, other than 3, have been aimed at business customers. Although a number of operators have talked about a consumer push from September, this would give just four months to build awareness and interest in 3G before Christmas. Given the limited takeup of MMS, this period should be used to make cameraphones the must-have present for this year.

Second, the lack of currently compelling applications. The fact that 3 is pushing discounted voice and text packages shows the challenges in this area, and the operators need to ensure that, for their long-term success, 3G is associated with compelling applications that cannot be run on GPRS. Video calling is beset with uncertain demand, performance challenges and the lack of other 3G users. German operator E-Plus has decided to focus on its video download service as the main attraction. There is potential demand here, but with 3 UK charging just £5 a month for unlimited football highlights this is not going to be the way to justify the 3G license fee.

Third, branding and promotion challenges. If the operators were keen to make it a 3G Christmas you would expect them to be pushing 3G to the forefront of their promotion and branding. In fact, they are often trying to downplay it. Vodafone is pushing 3G as Live! 3G, while in France, SFR’s June 3G launch offered the first 5,000 subscribers a €1 Samsung handset. This was so low-key, however, that it was not mentioned on the carrier’s web site.

Fourth, pricing of the handset and network packages. Although operators across Europe have lots of limited promotional campaigns running, the basic price of 3G handsets remains around the €500 mark. Telefonica Moviles have pointed out that 90% of their Spanish handset sales are below €200, and therefore 3G remains far from the mainstream. Although operators do like to charge premium prices for business users -- for example, in the UK, monthly 3G business tariffs are £75-85 -- this then makes it very hard to come in with Christmas consumer offers.

Fifth, coverage is often key to users when choosing a network. The mobile device is a very personal one and they do not want to either carry two devices or suffer degradation of service. Even a more aggressive 3G proponent, such as KPN, will still have only 40% coverage by the end of the year. But, surely the operators respond, you simply move to the GPRS network. This is a concept that consumers will not be happy with as they expect consistent service. There are also continued reports of problems in moving between 3G and GPRS.

Sixth, handset availability, choice and reliability. In Germany, one of the more competitive 3G markets, the three operators offer just five handsets between them. Although reliability problems seem to be getting solved, this is an area that could do considerable damage to the image of 3G. Likewise, if 3G is sold aggressively at Christmas, there could simply not be enough handsets available to meet demand.

Seventh, the view of the investment analysts. Operators argue that they are facing considerable pressure to aggressively launch 3G. In fact, the investment community is much more worried about overall growth in data services, subscriber growth and ARPU. They have actually become very pessimistic on the short-term opportunities of 3G to the extent that much kudos has been given to O2 for its reticence in launching 3G.

The media is already sharpening its claws to attack the consumer 3G launches. Carriers should make Christmas 2004 a cameraphone blitz, and get things ready to make 2005 the year consumers actually want a 3G phone.