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The billions of dollars already spent on spectrum licenses for next-generation mobile wireless services are evidence of a solid business plan for 3G, right? Not quite, says Herschel Shosteck.
A forecast by the veteran industry consultant and gadfly indicates that the pursuit of 3G brings dangers similar to those that wreaked carnage among the competitive DSL and dot-com communities-billions of investment capital invested into what hindsight shows were weak business models.
Shosteck says that pumping money into the development of 3G networks capable of delivering full-motion video and multi-media content to wireless handsets not only is an inherently flawed plan but it's also diverting industry resources from alternatives that would deliver more near-term profits.
It's going to be at least 2006 before any wireless service providers start receiving benefits from the daunting challenge of producing sufficient bandwidth to deliver the much-touted multimedia features. That will require substantial financial resources.
"The infrastructure costs needed to provide ubiquitous high bandwidth will prove too great for wireless operators to shoulder, at least into the near future," says Shosteck. He estimates the cost of building out full 3G networks in developing countries alone at more than $7 billion.
Shosteck isn't the only one raising an alarm about 3G, the technology also known as UMTS (universal mobile telecommunications system.) Forrester Research says Europe's mobile Internet marketplace won't be able to pay for costly 3G deployments.
By 2005, mobile penetration will approach the saturation point of 76 percent, Forrester says. Providers can look for a 15 percent average drop in revenue per European subscriber, while marketing costs remain high in the face of stiff competition and consumer churn. The result: fewer Euros to spend on 3G and massive industry consolidation.
"UMTS will be remembered as the trigger that imploded Europe's mobile industry," says Forrester's European telecom analyst Lars Godell. He sees operating profits turning negative in 2007 and not recovering until 2013.
Shosteck says rather than focusing on adding bandwidth, providers should be looking at more profitable approaches, such as providing immediate, open and low-cost access to the Internet. That will let consumers take advantage of a plethora of low-bandwidth information applications, features and services.
"Carriers are looking to be paid for content. That's a false expectation," given that today's Internet users are accustomed to free access to content, Shosteck said in a recent interview. "The money is made on transport. At end of day, the carrier that has access to transport will make money."
To try to offer a narrow portfolio of services such as AT&T Wireless Group is trying to do, and then charge for it won't work, Shosteck says. "If you've been used to access to an infinite number of sites, to all the sudden have to pay for a limited amount of sites is an absurdity."
Shosteck thinks it's also technologically impractical to promise to deliver 3G high-bandwidth multimedia in conjunction with voice communications, the bread-and-butter moneymaker for most wireless companies. The few applications available would cause a spike in usage on a network, taking away bandwidth from voice users and raising the background noise. The effect would be similar to peak hour traffic on today's wireless networks, when greater traffic increases the bit error rate and more calls have problems. Errors in complex data such as multimedia content won't be acceptable.
To provide adequate capacity on the RF link, "you'd need three to four times the number of cell sites you have now. That is enormously expensive proposition," Shosteck says.
Herschel Shosteck Associates' recent study, "Third Generation Wireless: The Continuing Saga," concludes that even if operators were able to pay the high cost of building sufficient bandwidth, the charges for service would be too high to generate a mass of end-users. That means there's no way for wireless operators to profit from 3G as it's now envisioned, Shosteck says.
The true promise of 3G technology is to provide non-voice content that adds more voice traffic to the network. Shosteck points to NTT DoCoMo Inc.'s success with its i-mode narrowband data service that is used by more than half of Japan's wireless market and is planned for North America via DoCoMo's new alliance with AT&T Wireless Group.
"i-mode has increased traffic for non-voice content, but also voice traffic has gone up because people are talking about the non-voice content," Shosteck says.
Instead of spending capital on building out an independently operated network, a more logical approach might be infrastructure shared among multiple operators, who might buy access from third-party operators, he contends.
"As soon as two in a market get together, their cost advantage becomes so great-they'll be able to provide a higher quality network at a lower cost-that the others will have to fall in line," Shosteck says.
Shosteck also believes there could be a "cataclysmic shift to outsourcing" if just one party comes in to operate and maintain the networks-such as a major network vendor like Ericsson, Nokia, Nortel, Motorola, Lucent, Siemens, NEC, Fujitsu or Alcatel. Further collaborations with other infrastructure outsource companies, like those that currently are buying up wireless towers, also are likely. "Once those guys gets active, it's going to fall into place with incredible rapidity," Shosteck says.
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