Just 3 years out of date: Economist Future of Telecoms and Convergence Special Report

How can the Economist get it so wrong and ignore the largest component of telecoms? The 24 page special report on the Future of Telcoms, and the Leader (editorial) on the topic of this week's Economist (14 Oct 2006) -  clearly have all the relevant facts, which they do quote. But then, after they've drawn the biggest target for their story - they go and shoot into the opposite direction, totally missing the point.

The Economist first clearly states in the beginning of the special report, that Convergence means "the coming together of previously separate communications and entertainment services: fixed and mobile telephony, broadband internet access and television." The Economist knows clearly that mobile telecoms is an integral part of any convergence story in telecoms.

The Economist states clearly that fixed line subscribers are "getting rid of their fixed lines in favour of mobile phones." (Economist Survey page 4).

The Economist also clearly states that traffic is shifting from fixed to mobile networks "(there is a...) migration of traffic to mobiule networks." (Economist main edition page 13 - Leader).

And to complete the logic, the Economist further also clearly states that revenues shift from fixed to mobile: "As VOIP has driven down the cost of fixed-line telephony, consumers have spent more on mobile phone calls instead." (Economist Survey page 23)

So to be clear. They write 25 pages on convergence and the future of telecoms. The Economist is clear that convergence consists of internet, TV, fixed AND mobile telecoms. The Economist tells us that users migrate from fixed to mobile; traffic migrates from fixed to mobile; and revenues migrate from fixed to mobile. Yet they all but ignore the impact of mobile telecoms to this converged future?

A story about the future that ignores its biggest component

So here is my big gripe with this Special Report on the Future of Telecoms. If the trend of customers is from fixed to mobile; the trend of traffic is from fixed to mobile; and the trend of revenues is from fixed to mobile; why does the Economist Future of Telecoms, NOT discuss what mobile is and will be for telecoms? Today, already in October 2006, almost TWICE as many people on the planet have a mobile phone as have a fixed landline phone. The Economist in fact mentions that in America nearly 10% of households have abandoned the fixed landline althogether; that in Europe the average is 15% (in reality already 20%) and the Economist singles out Finland as the leader with 35% of households having abandoned the landline (which also is out of date, as Finland is already at beyond 50%).

The Economist mentions that fixed landline operators earned 600 billion dollars last year (and mentions that internet revenues are much less, at 202 billion). The Economist did not mention that mobile telecoms operators earned 624 billion dollars in 2005. The largest sector in telecoms is now mobile telecoms.

The actual picture is more stark. 2005 was the first year when fixed telecoms total revenues started to decline; while mobile telecoms revenues kept on growing.

So yes, there are almost twice as many users of mobile phones as there are fixed landlines. Fixed lines are declining; mobile subscribers still growing. Fixed traffic is shifting to mobile and most of all revenues are shifting from fixed to mobile. And mobile telecoms is clearly the largest sector of the telecoms industry, and the one growing the fastest. Yet the Economist gives us less than half a page on the competitive advantage of mobile telecoms, in 25 pages of reporting on the future of telecoms. Bad bad bad reporting, Economist. This article is more accurately labeled the future of fixed telecoms.

Oh, and of the convergence? the internet? Google CEO says the next internet is mobile? TV? The BBC (Former) director general Greg Dyke says all TV content will migrate to mobile. So again, the trends in convergence are also going towards mobile.

In 25 pages we learn of VOIP (Voice Over Internet Protocol) services like Skype and Vonage; of device convergence; of quadruple play bundles; of WiFi-dual mode phones like the BT Fusion; of IP TV; and even of regulatory needs of convergence. Yet the Economist almost totally ignores the mobile telecoms opportunities.

Media convergence ignores media-and-mobile convergence

Looking at media convergence, the article only mentions music in passing in one paragraph. It ignores the fact, that the mobile phone already provides 12 times larger revenues to the music industry than the internet - and yes, of course regular readers of this blog know that the majority of the 6 billion dollar revenue amount is ringing tones. Music and mobile telecoms gets one paragraph in the story about media, internet and teleoms convergence.

Videogames? Mobile phone based gaming delivers 50% more revenues than broadband videogaming. Ignored.

Messaging? SMS revenues are 40 times larger than all of e-mail and IM Instant Messaging revenues worldwide, combined. A 75 billion dollar industry growing at 20% per year, the most profitable service in the history of economics, SMS ...is ignored.

And what of TV? The article mentions YouTube and has a whole section on IPTV, but ignores mobile TV services like SeeMeTV, 3G TV; and never mentions digital broadcasts to mobile such as DVB-H and DMB already commercially launched. Last year mobile TV services earned 900 million dollars. And that does not count the mobile-TV converged user interaction services: premium SMS based voting such as Pop Idol/American Idol and Big Brother etc earned over 1.2 billion dollars last year. 2.1 billion dollars of mobile telecoms -related (and dramatically growing) services and revenues are ignored.

But still, it is a good article, mostly 3 years out of date

I started my hands-on professional career in digital convergence by building the world's first fixed-mobile service bundle for Elisa corporation in Finland in 1996 - yes, that was ten years ago, and yes, it was only for the enterprise sector at the time. I then represented the (then still united) Finnet Group, (which has since split away from Elisa Group) - in international telecoms standardization work on the first fixed-mobile convergence standard, even chairing committee to develop the first international technical standard for a fixed-mobile converged service, VPN (Virtual Private Network), in 1997.

Then when I changed jobs and joined Nokia, not surprisingly, I found myself working for the Telephony Gateways business unit where we built internet-and-mobile convergence elements, and I wrote the world's first white paper for Nokia discussing how to deploy the internet on mobile phones, in 1999.

Each of my first three bestselling telecoms books discussed convergence; and obviously our book with Alan Moore, Communities Dominate Brands, discusses convergence from all the relevant angles, including convergence of the handset, to media, internet and telecoms convergence - just like this Economist article. And I lecture at Oxford University on digital convergence, such as now in November on 3G and TV convergence.

But even our book, released in 2005, goes several years beyond this "special report" by the Economist on the future of telecoms, and on convergence. In our book we of course discuss the significant matters of the artcile such as VOIP/Skype and the iPod and iTunes (which we have as a case study); but we go so much further than this article both from the sides of convergence and of the future of telecoms - we have a case study on SMS-to-TV interactivity and of TV fan interaction in Star Text; of virtual worlds on broadband, mobile and TV; of user-generated content and blogging: and yes, also we discuss mobile blogging; of media and telecoms convergence from the sides of journalism (in a case study of Ohmy News) of the future of convergence from the side of advertising on broadband, mobile and TV; not to mention such dramatic convergence innovations as Twins Mobile and Habbo Hotel (both again, case studies).

It is still worth reading

I still think the 25 pages Economist Special Report is worth reading. If you accept, that the Economist somehow "forgot" to analyze the largest and fastest-growing part - and the obvious dominating part - and the clear "end-state" of convergence: mobile telecoms - then yes, this article is a good study of what fixed landline operators are doing (such as the BT Fusion dual mode WiFi and cellular phone service); what is happening in VOIP both with Skype for residential users and with WiFi phones and solutions for enterprise customers; what is happening in IPTV and TV-Telecoms-internet convergence; and of the craze now to do the bundling. It is a very good, detailed, deep, well researched survey of all telecoms and convergence, except mobile.

"So then, Tomi tell us. You've been there and done that, literally longer than any other human on the planet. Tell us about convergence, where is this article right, where is it wrong."

There are many themes, some which I strongly agree with, some which I think are presented from a biased point of view, giving a misleading conclusion, and some which I think are open to alternate view points. Let me discuss main themes briefly.

First the biggest story with main elements of convergence: telecoms, internet and media

The Economist article mentions five separate areas of convergence (voice and data; fixed and mobile; telecoms and media; telecoms and IT; and device). Each of these are happening, obviously. But also the Economist summarizes all of this convergence into three main parts coming together as "telephony, broadband internet access and television".

Note the striking similarity to our theory here for a year already, of the Y of Convergence - combining Telecoms, Internet and Media. We think our definition is a bit more relevant, as also narrowband internet is relevant. Of the world's 1 billion internet users, only one in five has a broadband connection. And while we often focus on TV as the most prevalent mass media in the digital convergence; we should not ignore all other media - from music, videogaming, radio, printed press, advertising etc. Nonetheless, this article serves a very good job in helping evolve the thinking in convergence, echoing our theme, that the big convergence is between the three "legs" of our Y - telecoms, internet and (TV) media.

Bundling or just more price discounts

Since I've been involved in the telecoms bundling game for over ten years, I've seen bundling ideas come and go. It is often easiest to take two services, give a discount for both, and then offer that to the customer. Of course the customer likes it - the customer gets a discount. This is not good business. You can do bundles, with price discounts, but then there should be honest, competitive and loyalty reasons. Perhaps offer a benefit on one part of the bundle to gain market entry into a part of the market sector where your offering is weak (or non-existent). It is simply bad business if you are the dominant player and give a bundle discount on your cash cow product. Here the quadruple play story of the Economist has many unsettling comments, like Ed Whitacre of AT&T who promises to give customers a better price through bundling. I'm all for better pricing, but my provider has technically the ability to provide better efficiencies already - shouldn't I get the benefit of the lower prices immediately? Why wait for the bundle.

And conversely, the more difficult part for telecoms marketing - is to try to think of getting more money out of innovative new services. The Economist article mentions Network PVR (as Network DVR) - a favourite topic of Alan's and mine, and an obvious big winner in the future consumption of TV. Today, a network PVR solution would ideally be built combining the cable TV set top box, broadband internet, and the (3G) mobile phone. Allowing remote control of the PVR from anywhere, and allowing viewing of any programme broadcast over the past 30 days, on any of the cable TV channels, paused, rewinded, replayed - and most importantly accessible from any device, whether my set top box digital TV, or broadband connected PC anywhere, or even a 3G phone if I happen to be in a hurry.

This is a bundled telecoms-internet-TV service. It delivers a HUGE added value to its consumers. I don't need to get ANY discount for this service. In fact, I'd be willing to pay (a little bit of) a premium to access this bundle!

But this kind of marketing work - understanding customers, creating services, packaging and bundling, pricing, marketing communications, etc - is hard work. The easy thing to do is to just drop the price. And much too often any telecoms bundle is an excuse to offer a lower price. Lazyness by marketing managers.

Branding convergence

The article mentions France Telecom/Orange's activities to rebrand their Wanadoo and Equant services under the Orange brand and NTL wanting to rebrand under the more trusted Virgin Mobile brand in Britain. Yes, these obviously bring normal branding issues - such as fulfilling the brand promise. Just rebadging an existing Fiat would not make it a Ferrari...

Device convergence

On the handset convergence story you should note the ending to that part. Nokia's new CEO, "OPK" or Olli-Pekka Kallasvuo, says they are not aiming for the mobile equivalent of the swiss army knife. Nokia wants divergent purpose-focused handsets. And we can see it in the N-series. One is optimized for music, another for videocam operation, another for digital TV consumption. Fascinating view as Nokia's mantra on device convergence/divergence future. I agree of course that there will be both convergence and divergence; its what we said in our book..

VOIP is still small

We've reported here at this blogsite that Skype claims over 100 million users of its service. But we've also warned that Skype might have some hype effects to its numbers. The Economist now reports that Infonetics has measured the world users of all VOIP services, and that at the end of 2005 there were only 24 million residential users. These are not necessarily contradictory findings, as Skype has grown quite dramatically during 2006. And some of Skype users are no doubt business users.

So what of the business VOIP users. The Economist quotes Cisco as having shipped 9 million corporate desktop VOIP phones, and suggests that Nortel has shipped a similar number. So assuming there are smaller players also in the enterprise VOIP market, there are probably some 20-30 million enterprise VOIP users.

Millions make nice big numbers. Just keep in mind that even 54 million VOIP users at the end of 2005, were only 2.5% of the 2.1 BILLION mobile phone users, and 1.5% of all telecoms users - fixed and mobile combined - on the planet. A cool technology yes, and very disruptive, but still very small numbers indeed.

The Return of the Economist Moronic Prediction

They don't learn, do they? When the Economist said on its big cover story that all of telecoms would die because of the vanishing revenues of voice minutes a year ago, I was furious and wrote this scalding rebuttal: Economist Falls for Skype-Hype: wrongly predicts end to mobile telecoms

Not satisfied with the bloody nose, the Economist returns to the same story, same clueless experts and totally wrongful conclusions, that even though fixed telecoms is suffering from vanishing revenuess (true) that would somehow also happen in mobile (totally untrue). In fact the Economist contradicts itself by stating on page 23 that revenues have migrated from fixed to mobile, specifically because of this price erosion in fixed.

One of the factually wrong statements is by Cyrus Mewawalla of Westhall Capital who says that "mobile prices are typically three to ten times higher than fixed-line prices". Not true. The most recent survey by the OECD earlier this year, found that in 23 out of 30 OECD countries, voice minutes from mobile phones are cheaper than voice minutes from fixed landlines. Now yes, there will be exceptional countries, and Cyrus perhaps lives in one of those seven - but in the vast majority of the western world the mobile minutes are in line with - and often actually cheaper - than fixed landline calls.

So this part - suggesting in a table that somehow Vodafone is the most endangered operator, and BT the least endangered - due to VOIP, is TOTALLY BACKWARDS. A fixed landline call can migrate to VOIP very easily, with numerous networks and technologies. But mobile telecoms operators work in a limited natural resource - the radio spectrum, and VOIP cannot force itself onto that service without the operators' express explicit enablement. This is what we've seen with the first steps by Skype such as in Germany. It is offered as a PREMIUM service. Not free.

So this is the same error the Economist made last year. Yes, VOIP (actually together with fixed-to-mobile substitution) will kill of traditional fixed landline telecoms. But VOIP will not kill the mobile operator business, not in the next ten years for sure. And again, the Economist contradicts itself here - it quotes Analysys saying that by 2015 - note the time, nine years from now - only 25% of all mobile calls would be VOIP. If mobile voice today has about 40%-50% profit margins, and even if I give 25% of those calls for free, that leaves me with a good 15%-25% profit on the remaining traditional mobile calls. Not to count the greatly added cost efficiencies of 3G and 3.5G networks; and the added revenues and profits of SMS text messaging, and the emerging new revenues from higher-value mobile services.

On the failure of Fusion

The Economist mentions the BT Fusion phone (was known in the teleoms industry as the BT Blue Phone). This is the residential phone with both WiFi and mobile phone functionality. A year from launch and they have managed 35,000 subscribers. Pathetic. I recall there was a time they spoke of a goal of millions. Yeah.

IPTV

There's a good section on IPTV. I won't comment on it here, as this is more of a telecoms rant. But I was hoping to see something about various mobile TV related stories, as for example the head of the BBC, the head of the biggest Korean TV broadcaster, etc have said their future is mobile. And several mobile operators have bought TV broadcasters like in Italy and Japan. So there is a lot happening in this space.

On Home Zones

The mobile operator obvious answer to WiFi and fixed-mobile convergence offers by fixed incumbents - so-called "Home Zone" as invented in Denmark and now a staple by mobile operators in all Northern European countries - is only given one paragraph. And to confuse matters worse, apparently AT&T has adapted the term "Homezone" for its set top box based cable TV offering. But still, at least the "real home zone" ie the mobile telecoms response to low cost and free calls from the home (or office) is mentioned. Home zone will be a big play in the convergence battles - as if mobile operators needed yet another weapon in their superior arsenal.

Finally on 3G "hallucinations"

After the glaring omission of mobile telecoms in this Special Report on the Future of Telecoms, the other enormous error is the analysis related to 3G. Before I get into my 3G rant, let me first quote from the article (Survey page 6) so we know exactly what it is the Economist said:

"European operators paid around 100 billion Euro for licences to build new high speed "third generation" (3G) mobile networks. They hoped that as revenue from voice calls levelled off, the new networks would open up a lucrative new data-services market. But take-up of data services fell far short of expectations, and 3G's real value proved to be much less exciting: the abilty to cut operating costs and provide lots of cheap voice capacity. This caused huge write-downs in the value of the licences. (Together with fibre-optic networks crash of 1999...) ...Both of these episodes are now regarded as embarrassing collective hallucinations over which the industry preferes to draw a veil."

The Economist. Cunning Plan. How very misleading.

So first, I totally agree on half of this story: the fibre optic boom of the late 1990s was indeed a hallucination, as were many other radical telecoms initiatives such as satellite based telecoms network investments etc. But 3G a hallucination? Come one, Economist. How quickly we forget.

Exactly five years ago this week, in its October 13, 2001 edition the Economist featured a 26 page Special Survey of the Mobile Internet. For me that was a milestone, as it was the first time my favourite periodical quoted me. But for the Economist now in 2006 to try to re-invent history to fit its current story, is quite disingenious, as in that article the Economist set up the game.

The Economist famously on October 13, 2001, stated that the 3G investment was the "largest bet in business history". Certainly if from 2001 the Economist has known this is the biggest gamble in the economic history of mankind, then too, so must Economist journalists be actively interested in the emerging numbers of this topic. The world's first 3G network went live - as that article pointed out, on October 1, 2001, by NTT DoCoMo in Japan.

So now, in 2006, it is not that the Economist suddenly stumbled upon a hidden story about 3G finances, and somehow could be forgiven for not understanding the actual history and the real level of expectations. It was the Economist, after all, that pointed out to us five years ago what the 3G future was expected to bring.

So then, is it true, what the Economist revisionist historians now write in October 2006: "But take-up of data services fell far short of expectations, and 3G's real value proved to be much less exciting: the abilty to cut operating costs and provide lots of cheap voice capacity." Lets turn back the pages to October 2001. Then, on page 13 of the survey, the Economist clearly plotted out the expected future for total mobile service revenues. This is the "expectation" from their graph by the Economist for 2005:

The total mobile telecoms revenues in 2005 should be about 620 billion dollars. The Economist split the revenues into three groups, the largest being voice, then corporate data, and smallest to be consumer data. Each of the three components was to grow all through the period.

So that was the "expectation" according to the Economist itself, in its special report on the biggest gamble in business history. Now of reality? The actual revenues for the mobile telecoms were 624 billion dollars in 2005 !  This is as near perfection as prediction as you can get, if you go five years into the future. All elements, voice revenues, consumer data and corporate data DID grow for the period. As expected. But within the three parts, one grew more than expected (voice), another less than expected (corporate data), and one was very close to what was expected (consumer data).

And very specifically, the Economist now says there is a disappointment as data did not fill the void "as revenue from voice calls levelled off" - NO !  The Economist was VERY CLEAR in is own forecast in 2001, that voice call revenues were to continue to grow clearly through 2005 (and through 2006). They did just that! Don't go re-inventing the past! Shame on you Economist!

What is wrong with the Economist? There is NO loss of the expectation from 2001 for 3G. Quite the opposite in fact. The industry delivered revenues almost exactly as hoped - in fact slightly MORE. The mix of the revenues today is more voice and less corporate data, but that would in no way impact the 3G business case, if the total revenues are dead on target, in particular as corporate data is less profitable than consumer voice. This actually fulfilled scenario is BETTER for the business of 3G, than what the Economist forecasted for us five years ago! Why is the Economist saying the 3G expectations are not being met?

So then, lets forgive the Economist for forgetting their own forecast setting the expectation for the 3G investment. Maybe their reporters don't read their own paper? Lets look beyond the October 2001 special issue. Is this generalization overall fair or not? Has the 3G industry failed to meet expectations?

100 billion mistakes

First the 100 billion Euros. Any reader would be within reason to think that "European operators" that so crazily overspent on their 3G licenses would include those "wanton overspenders" in Poland, in Belgium, in Austria, oh, and Sweden, yes and don't forget Spain, oh and Finland, yes Ireland, and Greece, oh yes and Switzerland, not to forget Portugal, and Estonia, Czech Republic, Denmark, Hungary, Iceland, Lithuania, Slovakia, Croatia, Latvia...

None of these countries had ANY overspending 3G license operators. They all have 3G licenses and 3G operators, but in all these European countries, there was no overspending of 3G.

In fact, the only "overspending" operators, who spent more than half of the 100 billion dollars between the two - were in only two countries, the UK and Germany. In half of the world's 3G licence awards, there was no auction at all, and the 3G licenses were mostly awarded for free (like in Finland, Japan, etc) or at a very modest fee.

So is this Economist article painting a fair image? If in most countries in the world there was no problem with 3G licenses? Clearly not.

So if you talk to a mobile operator in Belgium, or Austria, or Norway, or Portugal, etc, they will tell you immediately that the 3G licence is not - and has never been - a burden on their cost structures. The Economist is sensationalizing the story, and they know it. There is no "Europe-wide" crisis of 3G license fees. Most European countries are totally untouched by this story.

In Italy, the Netherland and France there were high fees - high from a historical point of view, but still easily bearable by the operators, and even in these "high license countries", nothing like those in Britain and Germany. But out of all 3G license holders in the UK, Germany, Holland, Italy and France - if the 3G licenses were so onerously "too expensive", then certainly the operators would have returned them or sold them. Only one of these countries (Germany) has had only one operator return its 3G license.

So why would the Economist claim financial disaster of 3G licenses, if the holders of those licenses hang onto them - and rather than attempting to get rid of them the operators have spent billions upon billions more in their costs of building the 3G networks!

But is it possible to pay back such enormous 3G license fees, whoever are those few that did pay the total of 100 billion Euros? Note first, that they were voluntary auctions - so there were "intelligent" business executives who felt the auctioned licenses were worth it, even at such astronomically high levels.

Secondly, the licenses are typically for 15 or 20 years. We are five years from the first commercial launch of a 3G network in Japan.

But most of all, the money. By the end of 2006 there will be over 120 million paying users of 3G (worldwide). They will generate over 65 billion dollars of service revenues this year. By 2010 the 3G subscribers are expected - by the most conservative estimates - to deliver over 400 billion dollars of annual revenues. The 100 billion dollar license fees are easily paid back totally, by all of the operators, within the first decade of their 3G licenses.

This is a red herring story. Most mobile operators in the world - and yes, most in Europe - have no problem at all with their 3G license fees. Let me repeat that. Most operators in Europe have no problem at all with their 3G license fees. Only two countries had very high 3G licenses - UK and Germany - and even there, 10 out of 11 operators elected to hold onto their 3G licenses, to build 3G networks, and according to all signs, they all expect their investment to turn profitable.

The Economist knows this. Why are they again returning to this faulty story. I suspect the journalist who wrote the 3G part, was somehow influenced by some analyst who doesn't get mobile telecoms. Like much of the story, ignoring the biggest part.

After all, the Economist did say 3G was the biggest gamble in the history of business. If we're looking into the future of telecoms - and that 3G service offering very explicitly offers internet and media on mobile telecoms - then shouldn't the Economist address this issue honestly, rather than just sweep it under the carpet, by claiming it into the same category of "hallucinations" as the fibre optic bubble that burst in 1999.

Lets look beyond the Economist into the real world of 3G

But really. Has the 3G industry underperformed vs what was the expectation? The world's most quoted industry consensus report on the business of 3G, was the UMTS Forum Report number 9, released in September 2000. That report forecasted that in 2005 there would be 75 million 3G subscribers.

Well guess what, Strategy Analytics measured 3G subscribers (not owners of 3G phones which would give a larger number, but actual subscribers who pay for 3G services) at the end of 2005 - and found 75 million. I would suggest the 3G industry is EXACTLY on schedule, not missing out on any expectations whatsoever.

How about those "missing" data services. That same UMTS Forum Report number 9 - the most quoted source on the 3G business opportunity - stated that for European operators in 2005 the ARPU (Average Revenue Per User) should be about 85% "access" ie voice and data access revenues - and 15% non-access, such as SMS, WAP, ringing tone etc revenues. In Europe at the end of 2005 this ratio was about 80:20. Data is doing BETTER than forecasted six years ago. There is no "falling far short of expectation".

Still - this Economist Special Report on the Future of Telecoms has a lot of good in it, as long as you remember it effectively ignores the biggest part of telecoms, mobile.

(PS Sorry about the extremely long posting. But I could not "shut up" in the middle of it, once I started, I had to do the full story)

3G Status Report October 2006

So while I have you. Lets take a few facts. It is 5 years, after all. In Japan - the first country where 3G was launched in October 2001 - all three operators offer 3G services. Of the national mobile phone subscribers more than half have migrated onto 3G. The revenues earned by 3G subscribers are more than 50% above those of the 2G world, and are more than 50% above the level of all mobile services before 3G was launched. Of all mobile telecoms services on 3G, the proportion of data keeps growing and is already 35%, with only 65% of the revenues remaining on voice. Of the data, value-add data is already more than half (with text messaging thus under half of the data revenues). 3G is an undisputed success in Japan.

In South Korea - the second country where 3G was launched in 2001 and all three operators offer 3G - and most bewilderingly, two of the three operators maintain TWO separate and incompatible 3G networks meaning that there are five distinct 3G networks that have been launched commercially, by the three operators. In South Korea too, over half of all subscribers have migrated to 3G. The 3G revenues are 30% above the 2G levels. Data on 3G keeps growing and is already 30% of all traffic, voice is 70%. Like in Japan, in Korea too, non-SMS data has grown to be more than SMS text messaging data. 3G is an undisputed success in South Korea.

In Italy - all four operators offer 3G services. In only 3 years, Italy has achieved 12% migration of the subscribers to 3G. I don't have all operator data on revenues and data, but Three/Hutchison the 3G-only operator in Italy has announced its numbers and reports revenues per user 50% above those of Italian 2G subscribers, and Hutchison reports 30% data and 70% voice, and Hutchison says about half of its mobile data is messaging. Assuming this most advanced and competitive European mobile market, with TIM, Vodafone and Wind all also active in 3G, we can assume the Three/Hutchison price levels and service adoptions to be consistent with the Italian market, and if so, then undeniably 3G is a success in Italy.

Austria, UK, Portugal, Sweden, Denmark, Australia are all on line for similar 3G migration rates - adjusted for their later launch dates - and also similar total revenues, and data portions of their traffic.

3G after 5 years is doing better than 2G after 5 years

For contrast - 3G subscribers today, in 2006, five years from launch - are AHEAD of 2G subscribers five years from launch. And GSM is considered the most successful technology of all time - used by 2 billion people on the planet. So why is the Economist saying 3G is a failure, if contrasted with its nearest comparison - GSM - 3G is actually outperforming in its first five years. 3G is providing clearly higher revenues, and higher data usage than 2G. And most of all, if 3G today is delivering almost to the penny that prediction as the Economist made in its first big survey of the 3G landscape in 2001, then it is not fair to claim 3G anything other than a success. 3G Today is doing better than GSM/2G did in comparable period of time.

Honestly, I don't begrudge the random investor or IT expert etc - those who are not very well aware of mobile telecoms economics, statistics, scale and recent growth - asking about 3G, with the assumption 3G is in near-bankruptcy state. But for the Economist, which helped analyze this opportunity and clearly spelled it out five years ago - this is not good reporting to suggest 3G is somehow a "hallucination" that the industry would try to forget. 98% of 3G license holders have launched commercially. Those who were late in receiving a 3G license - such as MiTV in Malaysia for example - are now rushing to launch 3G ahead of schedule. And two dozen existing 3G operators are already launching 3.5G ! This is not an industry in economic crisis. This is a HOT industry growing very fast. Stop with the the 3G whining already!

So I come to the judgement that in its several mentions of 3G, the Economist is deliberately, knowingly misleading its readers. And luckily for us, this is the nature of the blogosphere - we are the truth police. We go back to previous statements by that media, and point out when their current statements do not match up with previous stated positions.

Comments

[Curro]

Hi Tomi,

What a fantastic post! Your comments are very sharp and they have made me laugh.
There are too many people who happily say '3G is a failure' just because everybody says things like that, without spending a minute in analysing the reasons of such statement.

I strongly agree that 3G is a lot of things except an hallucination. Maybe it just has not fulfilled the hyped expectations, but that doesn't mean it has failed.

I have a lot of colleagues that firmly think that 'Mobile only operators (like Vodafone) will fail due to the lack of fixed line'. However, I don't believe in convergence like having a mobile and fixed line, but I believe in substitution. Yes, mobile offers a lot of compelling opportunities which make the future of mobile operators simply better.

Thank you for the post.
Best regards,

[David Cushman]

Tomi,
Good stuff. I'll point anyone I know who read the Economist article to make sure they read this to.

Absolutely agree about the actual size of Skype et al right now (see this post http://fasterfuture.blogspot.com/2006/10/bt-prepares-users-for-future.html) but I think the Fusion phone (also referred to in that post)may have a relatively large impact because BT is contacting all its broadband subscribers and offering it as part of one of their packages.
Even Tesco is now selling VOIP phones.
Both firm's strength of brand may offer significant take-up advantages over Skype.
I started using Skype after the second word-of-mouth recommendation.

[OIM]

Regarding the fixed line replacement trend, I can still see significant barriers to get rid of my fixed line:

* in-building coverage is not very good in my geography so I can´t rely on a network that is not always available or the quality is not always good enough

* in case of a serious power outage you don´t have to rely on your mobile phone's batteries

* broadband quality is much better than wireless broadband

* TV bundles

* home alarm connects to security centre through fixed line

[David Cushman]

A friend of mine pointed out that phone lines are the one utiliity for homes and businesses which haven't yet 'settled'. Perhaps it is because it is the newest? Water pipes are fixed, electricity lines are fixed, gas pipes are fixed.
Will your telecom link ever be fixed?

[Michael Brown]

I would suggest that the comment that the Economist had completely missed the mark with this article is a little harsh. The actual title was SURVEY: TELECOMS CONVERGENCE not the future of telecoms which was merely printed on the front cover to jazz things up a little. Therefore the focus is not on telecoms as such but on convergence. The graph in the first article states what the main areas are that the industry thinks are going to be interesting in the convergence arena which are: Voice and Data, Fixed and Mobile followed by Telecoms and Media etc. Fixed to mobile convergence is therefore the second article after Voice and Data. Can´t really argue with that.
The claim that this is three years out of date is probably correct if this is about the future of telecoms but it isn´t. Instead this is a "survey" of telecoms, reviewing what has happened to date and does not stretch too far with its predictions of the future. Doing so would lose the informational clarity that they are trying to get across to the readership, not all of whom work in telecoms, about a complicated industry.

[Tomi T Ahonen]

Hi Curro, OIM, David and Michael

Thanks for writing (and I do apologise for the extremely long posting, but once I started, I could not stop half-way)

Curro - A good point about the increased hype. I tracked it in 2000, 2001, 2002. First, before anyone had launched, there was a "race to 3G" - everybody wanted to be first.

Finland, in a rush to capitalize on the leadership position of the then-world-leading mobile penetration; and world's first launch of 2G, digital mobile ie GSM, SMS, WAP and value-add mobile services ie ringing tonees; and of the fact that Nokia had just grown to be the world's largest handset maker - the Finnish government allocated 3G licenses by beauty contest, and in a great hurry, to allow Finland to be first into 3G. But they forgot to issue a must-launch date into their 3G licenses, and while Finland was the first to issue 3G licenses, the operators were not even the first European 3G launches.

Spain wanted to be first. They actually wrote it in their license requirement, and originally specified a summer 2001 launch date. The Spanish operators brought in all the major manufacturers to convince the regulator that there were not mass-produced infrastructure and definitely not handsets to allow a launch of 3G on the standard, at this early date.

Japan wanted to be first. NTT DoCoMo was very dedicated and aimed for a May 2001 launch. They found it impossible, re-labeled it a 3G trial and pushed the commercial launch back to October.

BT/O2 wanted to be first. They selected the island of Man and found they could cover the island with a handful of base stations. They didn't have the video capable handsets, so they ordered a set of 200 sets of 3G voice terminals and connected small video displays - two devices connected by cable - so they could launch Europe's - and perhaps the world's first - 3G service.

And so forth. For all of late 2000 and much of 2001, all wanted to be first, but then started to push back their launches. As the UK and German license fees came in (over 60 billion Euros for the two countries) - all investors were suddenly focusing on what this crazily expensive 3G was. Could it be that science fiction video-phones were now going to be reality. Surely it could not be. Then the dot-com bubble burst, and everybody found financing in high tech IT and telecoms disappearing. All ambitious plans to roll out fast, were scaled back.

Everybody was gun-shy, didn't want to launch in the glaring spotlight. The handset makers all pushed back their launch dates. The first Nokia 3G phone, for example (model number 6500 I think) - was killed internally so many times, it received the nick-name "Kenny" as in the South Park character, Oh my god, they killed Kenny (again). When originally specified, that phone was cutting edge in size, weight, battery life, screen, camera etc. By the time it finally was released, it was universally hated for being too big and clumsy. Yet as it had had so much development, it was a flawless phone - in fact out of my personal testing of SMS texting speeds, it has the fastest rating of any phone operated by one hand. But it was 18 months behind schedule by the time it was released.

But I digress - yes, eventually Manx launched with its trial network on the Island of Man. NTT DoCoMo did launch first on Oct 1, 2001, and the first European launch was the unceremonious launch by Telenor in Norway - where they openly stated they had only four 3G handsets (not models, actual handsets) in all of Norway - and these four were tester models used by Telenor senior staff - but the network was operational and covered over half of the population at launch.

The hype stage accelerated the expectations. The license auctions brought about the consultant views of what all could be in 3G.

As to fixed, and that any mobile-only player, like Vodafone in most of its markets, and for example Hutchison/Three - would be "handicapped" ? The fixed landline business was fully deregulated in most markets in 1998. Dozens if not hundreds of competitors emerged in every market, selling cheap long distance and international calls. That slashed profits. Now VOIP is eating most of the remaining profit. Then the customers themselves are in every single market shifting away from fixed landlines to mobile phones. The leading country is Finland - over 50% of households, and even America is at 9% of households already. So you have more competitors, less profits, a technical disruption happening and customers abandoning fixed. WHY would anyone want to fight in that space. By contrast - mobile telecoms is growing (note - in EVERY market, no matter how some clueless "experts" claim saturation for the eight year in a row - the total subscribers and total revenues in mobile continue to grow). The number of users grows. The total minutes and data bytes usage is growing. The total revenues are growing, and profits holding steady. But the NUMBER of competitors, by license and spectrum limitations are from 3 to 5 in most markets. The only real rivals are so-called MVNO's who are service retailers, and supplying wholesale traffic to these marketing organizations is ALSO a profitable business. Oh, and mobile telecoms is bigger than fixed, and note - mobile telecoms is three times bigger in revenues than broadband internet.

Then consider the convergence story. Music is migrating to mobile. Bronfman the CEO of Warner says its not the iPod, the future of music consumption is mobile. The internet goes mobile - says Google's new CEO Eric Schmidt. TV goes mobile - says (former) BBC General Director Greg Dyke. The personal computer goes mobile, says Bill Gates. Payments go mobile says (I forget the name) CEO of Korea's biggest bank. So its not only voice going from fixed TELECOMS to mobile; also TV, music, internet - and our credit card purchases - etc are migrating to mobile.

Now, with that. Do you focus your corporate resources on fighting in a shrinking and crowded pond of fixed telecoms, or do you learn to swim in the big opening ocean of mobile services? Vodafone is definitely taking its eyes off the ball in this stupid move to fixed (I've blogged about that too).

So yes, I agree with you, Vodafone would find more than enough of a market - with less competition, more customers, and more profits - and a FUTURE - if it built the mobile eco-system. Rather than suddenly demoralize its staff and go fight in the prehistoric markets of fixed, with the other dying dinosaurs. Ha-ha, but yes, thats my biased view ha-ha...

David - on fusion, BT and VOIP. I do believe in VOIP and WiFi on mobile phones. But the near term (next five years) opportunity is definitely on the side of the corporate/business customer. They do have an honest business need to "keep the employee fixed" - in very many cases.

Consider a calling centre. more and more of customer service is done by calling centres. For that, you just need to provide a small cubicle in a vast cubicle farm of 200 people or more, in a low-salary region (up North in the UK, or Ireland, India etc). Then a desktop PC and a VOIP phone (ie headset in this case). You don't WANT these people to wander away from their PC terminals. So "mobility" is actually a bad concept for this type of worker. That is why perhaps 20 million or more corporate VOIP phones have been sold by Cisco and Nortel and others.

But for the home? For "my generation" - I am 46 years old - it seems "logical" for a home to have a fixed phone line. And then, if my fixed telecoms provider, whether BT in Britain, KT in South Korea or DT in Germany offer a "wireless" phone for the home, that doubles as a mobile phone when I step out of the home, that does sound like a good "upgrade" of the home phone.

Except, that the paradigm has already shifted. NOBODY will "own" that home phone. When someone calls your wife, they don't call the home phone, they call her mobile phone. When someone calls your 17 year old daughter, all of her friends call her on her phone, never the home phone. Your 12 year old son, same story, except at that age its almost all SMS. And you? Your friends call you on your mobile.

So the home phone - no matter how cleverly wireless and perhaps cheap - is not used by anyone. Study after study have proven that people will be "lazy" and use their mobile phone rather than place calls on a fixed phone even when those calls might be cheaper or even free. But wait - so then what if you give this new home phone to one of your family members.

Yeah, good idea. Except, that each of them has a built-in loyalty to their brands and phones of preference. It has to be the slim and sleek Moto Razr. No I need my Nokia N-80 with its awesome video and camera. No I want my SonyEricsson Walkman for my music, etc. Nobody wants the Fusion phone.

That is why LG sells a million Chocolate premium smartphones in six months in Britain, while BT sells 35,000 Fusions in 12 months.

The Fusion idea would have been a killer in 1996. Its totally out of its market opportunity in 2006. Will never happen. Never.

What will eventually happen, is the major handset makers releasing WiFi phones (like my Nokia 9300i and my Nokia N-80 - and in fact my third cellular connection as well, my Vodafone data card manufactured by Qualcomm and also having WiFi as well). When these migrate down from the high end smartphones to the mainstream phones, we'll get a mass market opportunity for WiFi VOIP services. That will come. But a Fusion phone has no chance in this market contest against 100 new phone models by the big manufacturers every year.

And about being "settled" - water, electricity etc being settled but telecoms not? I'd say telecoms is rather solidly settled - all houses are built with telocoms wiring. But the technology has moved beyond this. I think its like gas, once a mainstay everywhere, gradually gas lines are diminishing, with households shifting to electricity in stead.

OIM - good points. But I'd say almost all of your reservations have bypass solutions already on mobile - say an alarm system that relies on a fixed cable is much more vulnerable than one that is based on cellular technology. For someone like you and me, who is "accustomed" to this technology and need, these are valid reasons. But for a younger person, who particularly appreciates the mobility - some compromises are acceptable. That person might fall in love in two months, move in with the new girl/boy friend in four months. Does not want to abandon the service portfolio but also does not want to be tied by cables. If wireless broadband is not as fast, and perhaps more expensive, it is fully portable to the next apartment. Cable TV? Same story, what if the next house is not wired. Better to invest in wireless premium TV like Freeview (and its uprades) in the UK, already UK's largest digital TV platform. And again is fully portable. If I move tomorrow, I can take my freeview box with me and most likely that new region (within any city areas in the UK) will also have freeview coverage. Cable TV? More unlikely than likely for any given apartment.

And so forth. These are not absolute reasons, these are relative reasons. For some customers some are more important than others. And you are right, there is a lot of fight left in fixed. But for young people, the choice is obviously clear. They want to be free. Mobile. They don't use fixed. Not EVEN for broadband. Finland is about to become the first country in the world with higher broadband penetration than fixed landline penetration this year. As more broadband is offered via cable TV, wireless and other means. The fixed line business is dying.

Michael - a bit harsh? Perhaps. But it was the Economist title, and honestly, the Economist should hold itself to a higher standard, and not hype a story by relabeling it on the cover. Shame on the Economist! As to convergence? Actually - if we're looking at convergence like the article defines, fixed and mobile telecoms, internet and TV. Then notice in the above response I've already shown EACH of these areas is converging towards the mobile. Not my words, but the biggest players in the world - Google, BBC etc - say not only fixed telecoms going mobile, but internet going mobile and TV going mobile. In a story about convergence, mobile was all but ignored in the story. Still bad reporting. Three years out of date.

Thanks for writing!! We'll track these stories here at this blogsite for you.

Tomi Ahonen :-)

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