European regulators this year will auction, grant or selectively tender 70 to 80 licenses. It’s a double-edged sword for the incumbent operators, which in many places have to compete for a license. If they don’t win a license, their value as a company goes down significantly, impacting financing in the future. Incumbents without the newest licenses risk being seen as losers in an industry enamored by the potential UMTS services will bring: anywhere, anytime, any place high-speed connectivity to the Internet and more voice capacity.
Those that win a license must scale a sheer cliff. Vendors insist operators at the stroke of midnight Jan. 1, 2002, will be able to flip on the UMTS switch and begin drawing in the revenues to pay off their massive debts. That is highly unlikely. According to a recent report from Forrester Research, Europe won’t see its widespread mobile dream until 2007. More and more analysts are spoiling the 3G party.
The truth is, operators may not be able to justify their investment in UMTS technology for years, which Forrester cites as one main reason for delays. Operators don’t have any volume projections, are uncertain about pricing models and don’t know how much consumers are willing to pay for such services.
Bidders in the United Kingdom so far have collectively pledged more than $10 billion for five third-generation mobile-phone licenses. It’s a scary proposition considering the billions more these companies will have to pump into infrastructure and marketing to target a market no one really knows anything about.
To understand the data market, European operators want to offer WAP phones and cheaper General Packet Radio Service technology now. That process, however, is painfully delayed today. Customers in Europe have access to very few WAP phones, and analysts don’t believe this market will begin to take off until October. Likewise, GPRS handsets are facing many technical challenges. Most analysts predict GPRS technology won’t be mainstream until mid-2002.
Moreover, European governments, in their quest to lead the wireless technology revolution, are setting the UMTS market up for failure. Regulators are demanding aggressive coverage requirements for new UMTS systems within a certain timeframe. To license as many competitors as possible, others in the United Kingdom and Germany aren’t allocating enough spectrum to even allow for 2-megabit-speed applications that UMTS technology promises.
With GPRS technology hopefully the hot seller in the next two years, operators and vendors sharing the risk will have to work harder than ever to come up with services they can charge more for and that are uniquely different in the UMTS world. The UMTS market doesn’t look so glamorous to me.
