LONDON -- Why let the facts get in the way of a good story?
Telecommunications companies have been promising customers and investors alike a brave new world of exciting multimedia functions (teleconferencing, for example) at the touch of a mobile-phone button when they roll out
Universal Mobile Telephone Systems
, or UMTS, over the next few years.
Now, however, the industry is beginning to admit that the bandwidth for UMTS won't be great enough to offer such services after all. This could have serious consequences, because if the mobile operators can't provide these features, they won't be able to offset the drop in revenue from voice and recoup the huge amounts of money they are pouring into the whole third-generation mobile project.
When UMTS was first mooted several years ago, the industry talked about speeds of 2 megabits per second, fast enough to offer video teleconferencing on mobile phones. But according to Falk Muller-Veerse of investment and research bank
, it became apparent such speeds would only be reached within the confines of a building and, indeed, with some further development to the technology. As a result, the industry lowered expectations to a more modest maximum capacity in metropolitan areas of 384 kilobits per second by 2005.
Now that figure is in doubt.
According to Keith Woolcock of the investment bank
, the world's largest mobile-phone maker
told him during a trip to Finland earlier this month that the expected data rate on a third-generation network would only be 156 kilobits per second, less than half of what the industry is saying will be available. Nokia did not return phone calls.
And even this speed may be too optimistic. "Some industry insiders have told us that in the early years 3G networks might only carry data at 30 kilobits to 60 kilobits a second," says Woolcock. That's little more than what the interim mobile technology -- General Packet Radio Service, or GPRS -- is expected to offer.
If Woolcock is right, then it would be a huge blow to an industry counting on the principle that you can never give people too much bandwidth.
The mobile-phone industry stands to lose significant revenue from the drop in average revenue per user because of a continuing decline in prices for traditional voice services. For example, a survey by the U.K.'s telecommunications regulator,
, found that the prices of mobile-telephone services fell by 17% during 1999.
To offset this, the mobile-phone operators are counting on vast new revenue streams from mobile commerce -- such as advertising, billing, banking and transaction charges -- which will be possible from the large amount of bandwidth that comes with UMTS.
And they need this money sooner rather than later. Last month, the credit-rating agency
Moody's Investors Service
issued a report warning that the high costs of obtaining UMTS licenses in Europe could lead to significant rating pressure on the credit quality of some of the European telcos.
Although it appears the 150 billion euros ($141 billion) that Moody's estimates the mobile-phone companies would need to obtain these licenses will be less because of the wave of alliances these operators are striking up, the rating agency reckons they will still have to invest 150 billion euros on network construction over the next three or four years. That's a considerable amount of money for a company like
, which analysts say needs to increase its earnings by $1.5 billion per year for the foreseeable future to satisfy its shareholders.
So how easy is it to increase the bandwidth of UMTS?
Not very, says Woolcock. "3G will require profound improvements in both base-station and mobile-handset technology to deliver high data rates," he argues.
Unfortunately, it's not just a case of simply peppering the country with more base stations. Aside from the increasingly vocal public disquiet about the potential, but as yet unproven, ill effects from these base stations, Woolcock says that there will quickly come a point when interference between base stations becomes an issue.
"Mobile-data applications are much more sensitive to interference than voice traffic," says Woolcock.
Although neither Vodafone nor
calls for comment (Vodafone said it was too busy preparing for Thursday's annual general meeting and Orange was sticking to the 384 kilobits speed), some argue that the mobile-phone operators won't actually need such a huge amount of bandwidth in any case.
Mark Zohar, a senior analyst with research firm
, says that there is actually no market for real-time videoconferencing applications or multimedia services on mobile phones, the services that require lots of bandwidth. Instead, he argues, "customers want thin, mobile, and simple applications that are personalized, action-oriented, and location-relevant" -- services that can be achieved without 3G technology.
Mobile-phone users want personalized content and location-based services, such as finding the nearest
coffee shop, Zohar says. And as demand for location-based services takes off, carriers will find new revenue sources in charging customers and content providers usage fees for accessing these services.
The argument over bandwidth is sure to continue for some time to come, not least because, as Nomura's Woolcock notes, nobody is really sure what 3G technology is capable of. What is certain, though, is that those who don't buy the 3G revolution will use this as further proof that 3G is more fiction than fact.