Commentary: Taking the gee-whiz out of 3G

By Manuel ?ngel M?ndez, Research Associate

The planned 3G service offerings from European mobile operators won't meet the companies' revenue and subscriber expectations. They need to reset their outlook on both corporate and consumer services.

Forrester recently spoke with executives at 26 European UMTS (Universal Mobile Telecommunications System) license holders about the 3G, or third-generation, services they plan to launch. Here's what we found:

• Mobile operators expect corporate customers to bring initial 3G revenue. In the first year of commercial launch, interviewees believe the majority of their 3G revenue will come from corporate users, with only 41 percent coming from consumers. But they believe that mix will reverse over time, with consumers' share of revenue increasing to 55 percent in the third year and 63 percent in the fifth year.

Forrester's take: High-income business users will certainly buy early 3G phones--but they'll be individual purchases, not corporate ones. Why? For 10 years, corporate IT managers have considered public mobile networks too unreliable for real business applications; unstable 3G will fare worse, not better. Operators should rely on their proven GSM/GPRS (Global System for Mobile Communications/General Packet Radio Service) networks to court the corporate data market, upgrading their capabilities with network performance guarantees, provisioning tools, and interfaces to network assets like home location registers.

• Corporate users will get intranet access; consumers will get MMS (Multimedia Message Service). When we asked our interviewees what new 3G services they planned to launch for corporate users, unvarnished high-speed data transfer and secure Intranet access topped the list. In contrast, operators expect to draw consumers to 3G with MMS and entertainment services such as games, horoscopes, and gambling.

Forrester's take: Secure intranet access has value for corporate users, but most laptop-toting road warriors will opt for cheap 802.11-based W-LAN wireless connections in hotels and airport lounges over expensive 3G access available anywhere. On the consumer side, operators should avoid simply shoveling video clips and single-player games onto mobile devices. Successful 2G applications like SMS (Short Message Service) voting services show that consumers are willing to pay more for services that incorporate peer-to-peer communication; Forrester refers to this content/communication hybrid as conversational content.

• Operators see messaging and Intranet access as more important than voice. Our interviewees expect multimedia messaging and corporate Intranet access to be the most important revenue drivers for 3G--exceeding voice, which they expect to continue to travel over 2G spectrum in the near term. In contrast to the

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Forrester's take: It's encouraging to see operators focused on applications instead of access. However, MMS' revenue potential will be cut off at the knees by cheaper alternatives such as e-mail and instant messaging, which Forrester believes will displace 27 billion euros (US$27.04 billion) in potential MMS revenue through 2006. For evidence, just look at today's picture-messaging pricing in the Netherlands: An 8KB picture sent as an MMS message costs 50 euro cents, while the same picture sent as an attachment to a plain old e-mail on KPN's i-mode service costs 10 euro cents. Which would you use?

• Phones as most important 3G device. When asked to rate different device types on their importance in growing use of 3G services, interviewees scored phones higher than any other device--as expected. The surprises lay everywhere else: Cameras and other consumer electronics devices rated second, while dedicated BlackBerry-style e-mail terminals took the bottom of the list.

Forrester's take: Operators are right to downgrade PDA (personal digital assistant) and laptop expectations. PDA penetration is still marginal in Europe--only 5 percent of Europeans own one--and W-LAN will take most of the revenue for data services over laptops. To capitalize on revenue from wireless-enabled consumer electronics devices--think "multiplayer wireless Game Boy"--operators must establish what Forrester calls "device MVNOs," which enable consumer electronics companies to offer device and service bundles with demanding service-level agreements.

© 2002, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.