Editorial : Screwing Up On 3G

The 3G opportunity is up in the air, but it may not

be the current 2G providers who will catch it. The current wireless service providers and regulators, particularly in the United States, are making big strategic mistakes, or in short screwing up, with 3G, and

as a result they may not be the players who will win the envisioned robust, high-speed wireless customers.

Here are my reasons why they are completely messing up and some developments that could let the opportunities slip to others.

At a recent conference, a wireless service provider

executive put a slide up on the screen with an international standards group type definition of 3G that went like this, “3G (third generation) is an industry term for a collection of international standards and technologies targeted at increasing the efficiency and improving the performance of mobile wireless networks.” What struck me was that part about “increasing the efficiency and improving performance.” If this is the goal, it has been lost with 2G carriers and others, especially in the U.S. Yes, 3G radio and signal processing will improve capacity, but there is more to next-generation services than that.

If you ask CEOs of U.S. wireless service providers about the barriers to the success of 3G, they will talk about the lack of spectrum, terminals etc. The reality is the major barriers to 3G’s success is the wireless industry short-sightedness or just plain greed and a lack of a competitive policy. Here are my top 10 problem areas.

1. Network Interconnection

Look no further than the short messaging service (SMS) fiasco. SMS has been available in North America for more than two years, but until recently users couldn’t send a message unless the recipient was on the same carrier network.

Finally this spring the Canadian government mandated their carriers interconnect their SMS systems with their rivals, and now SMS traffic is growing as everyone would expect. Now U.S. carriers are finally interconnecting

SMS networks.

The carriers’ explanation for the SMS interconnection delay was that each carrier saw SMS as an opportunity to get their current customers to convince their friends and family to switch to their service so they could exchange SMS messages. Yeah right. The bottom line is that greed hindered the SMS rollout as a viable hybrid service option to integrate with new 3G high-speed services. European 2G operators drove their mobile customers to depend more on mobile wireless devices for messages, whereas U.S. carriers drove their mobile customers to depend on laptops plugged into hotel and airport services or RIM Blackberry messaging devices.

2. Roaming

Other than voice, U.S. carriers have no serious plans to support 3G roaming among carriers—some exceptions to this include AT&T Wireless and Cingular in selected geographic regions (e.g. super highways). Does this mean six carriers will be spending big bucks in radio gear to cover the same geographic hot spots? Probably yes. Without a mega shift to support 3G roaming you will see the six carriers covering the same real estate. What a waste of hard-to-come-by investment dollars!

3. Clearinghouses

As with roaming there’s no push by U.S. carriers to create financial clearing and settlement houses for anything other than mobile voice. If you can’t settle for data applications, how are you going to settle with content providers? The wireless CEO explanation is we will have one-on-one clearing with our content provider partners. The fallacy here is that it’s highly unlikely ESPN, Disney, HBO, etc. are going to give a wireless provider exclusive access to their content. This means multiple relationships and business models. Clearinghouses for all carriers would speed the availability of premium wireless content.

4. Location

The FCC has been placing mandates on U.S. wireless service providers since 1998 to provide 911 user location for public safety answering points. The U.S. wireless service providers ignored the mandates by saying that the location technology wasn’t ready even though identical technology is working in other parts of the world. In short, the technology is ready, so two years’ worth of a wireless opportunity is lost. If the industry had cooperated with location or 911 services it could be done at a fraction of the cost of each carrier doing it themselves. Again location services are critical to many 3G applications beyond E911.

5. Standards

When a wireless service provider is asked how important are standards in their network billing and OSS decisions, they reply standards are important across their own network. This usually creates standard compromises, which means they have no internetworking value.

6. Phones

Telecommunications policy in the U.S. requires separation of customer premises equipment (CPE) from network services. Before 1969, the Bell System owned the phone in your house. Each subscriber received a black phone, and that was it. Can you imagine the lack of CPE progress if you could only buy your equipment from the phone company, or if you could only buy your Internet connection device (PC) from AOL?

Well this is the situation in wireless—users buy wireless phones from the wireless service providers. You get the features they want you to have, and the phone will only work on their network. This is slowing down 3G because equipment vendors design for service providers and not for consumers. Think about it!

7. Mobile Virtual Network Operators (MVNOs)

MVNOs are wireless service providers that resell under their own brand. They bring in their own customer base and do the billing and customer care. If you have never heard of them in the U.S., it’s because the current wireless service providers don’t provide a framework for resellers to make it (a reasonable wholesale discount on air time), and as usual the FCC sits on its hands with regard to sensible competitive pricing directives. Yes, Sprint PCS is sweetening its deal with Virgin Mobile and Working Assets, but it’s not under a MVNO model. It’s just prepaid voice—a market Sprint PCS is not aggressive in except under resale.

So where’s the 3G play? Today’s wireless service providers, like their wireline counterparts, know nothing about content. It took Verizon about 12 years to figure that out as evidenced by their turning over DSL content supply to Microsoft last month. The same can be said about SBC’s DSL offering with Yahoo! Without 3G wholesale market support by today’s service provider, the content providers will not have a play, and 3G loses.

8. Research and Development

Today’s U.S. wireless service providers have virtually no R&D when it comes to new service development. They totally rely on equipment vendors. Look at Japan’s NTT DoCoMo which created i-mode, the most successful 2G delivery of wireless content anywhere. I-Mode allows for easy development of content by content vendors and easy consumer use. NTT & DoCoMo spent big bucks developing i-mode. At the same time, U.S. wireless service providers relied on their vendors for R&D, and they ended up with Wireless Application Protocol (WAP). WAP is a failure because it’s too complicated for a content provider to host the content and too complicated for the consumers. Almost everything you see in the switched voice network market today that includes local, long distance and wireless was orchestrated by the old Bell Systems’ Bell Labs. With 3G there is no current service provider counterpart to Bell Labs and no significant R&D on their own behalf.

9. Unlicensed Spectrum

Wi-Fi or 802.11b has been around for two years and it’s poised to dominate the high-speed data market where users want it—hotels, airports, college campuses and in businesses and homes. The wireless carriers are two years late for integrating Wi-Fi 2G spectrum wireless devices. Also the PCS spectrum holders are screwing up by not taking advantage of the unlicensed 20 MHz of bandwidth spectrum in the PCS 1.9 MHz band. Two years ago Wi-Fi needed 3G technology, today 3G needs Wi-Fi. Finally the thought that Wi-Fi will seed 3G usage is stupid hype. What mobile laptop traffic Wi-Fi doesn’t capture the new unlicensed ultra-wideband will.

10. Federal Communications Commission

Last, but not least is the FCC. I get the impression that the commissioners are bored with telecom. The Republican appointees probably feel they got screwed by the White House by being assigned to their current jobs. They’ll believe any story that the big service providers peddle, but they don’t understand what the FCC staff are talking about regarding competition and more. The above nine 3G screw ups could have been avoided if the FCC acted. Their biggest screw up is trying to take 40 MHz of PCS spectrum away from the C-F band designated entities like NextWave and sell it to the established service providers. They justify the action by supporting the myth that current wireless providers need the spectrum for 3G. The reality is that the current wireless service providers don’t want a new start-up wholesaling spectrum to MVNOs, IXCs, ISPs and content providers like NextWave planned to do.

So Who Can Win With 3G?

An emerging, new player can win, but what would it take?

1.Microsoft: The company can easily take over the Wi-Fi opportunity and dominate the billing, security, settlement process and more. Also it could do it with a profit generated during the time it takes to read this editorial.

2. A Big Six Bankruptcy: If one of the today’s big six wireless providers runs into trouble and goes into bankruptcy, a new debt-free owner could easily turn around the operation into a MVNO wholesale business and win at 3G.

3. Reawakened FCC: All the FCC would have to do to shake things up would be to turn that 40 MHz of nearly national PCS spectrum over to a 3G wholesaler. But don’t hold your breath on this one.

There you have it. If you need a better understanding of 3G technologies and opportunities, TeleStrategies offers a number of seminars at convenient locations and times. For more information, see www.telestrategies.com.