PITCOM Meeting

Did the £22 billion auction cripple the Mobile Industry?

The discussion was led by: Phil Brown, Nokia Mobile Phones, Ian McCaig, Nokia Networks, Mike Short, BT Wireless and Andy Eggleston, Ford Motor Company

30th April 2001 - The high prices paid by the Mobile Operators at last year’s auction for Third Generation Mobile Telephony Licences, added to the collapse of high technology shares, has made life tough for the Mobile Industry. What does the future hold?

Phil Brown takes a positive view about the future

People in the UK are very negative about the Third Generation of Mobile Phones particularly since the telephone operators paid – or sunk – so much money in the 3G licences. This negativity has happened before. In 1992, we suggested to a telecoms operator that the number of mobiles with GSM could rise to 25% of the population. The Telco laughed at us. Its estimate was 8%. The reality today is 70%.

Radio took 35 years to get 50 million listeners. GSM took 3 years. The Web got its first million pages in two years. WAP got its first 4 million pages in the same time, despite the people who say "WAP is c**p"

And this was on the back of an application that no-one ever imagined would be important, SMS. Nobody imagined that this would be adopted by teenagers, so that 620 million messages are sent daily.

We can expect that the colour and the extra speed of 3G will produce another similar ‘social’ application, like transmitting clips of family birthday parties across the world.

It is the application that matters. The technology is irrelevant.

Ian McCaig mourns the passing of a low-cost consistent regulatory environment across Europe

It is important that 3g is a global standard. When GSM, the current standard we all use today, first came out it spread very quickly across Europe and the world, and therefore accelerated the usage rate of mobile phones. The existence of that standard allowed Europe to take a leading position in mobile services. 3G is different, in that the standard is being defined from the start, globally. Everyone can contribute from the start.

But, the UK and European industry has to look at the level underneath that global standard. At that level, we find in Europe significant disparities in the way licenses are allocated to operators. We have had auction processes in some countries. We have had beauty contests. We have had different license durations. In some countries, we have seen free licensing.

If you look at Japan and other countries in the far East, they have seen this global standard as a significant opportunity to get a global market share. They have made licensing of 3G an easy and free process, thereby encouraging operators and manufacturers to make investments in 3G technology early, and then look at markets outside their own geographic areas.

We find that Mobile Telephony in Europe has a lead over the USA. We are used to hearing that the USA is 12 to 18 months ahead in the Internet world or in PCs. That is not true in the mobile world. Making a call in the USA is not easy. They have a very fragmented approach to licensing.

But the balance of advantage can change with 3G. We are starting with a licensing scenario from scratch, and if we don’t get it right, and encourage technology providers and service providers to invest in it, we can go backwards financially and competitively across Europe. Not only will British and European companies suffer, but so will the speed with which these new technologies and applications be rolled out to society as a whole.

The UK was leading in the early days to open up a mobile market. The regulatory environment at that time encouraged that kind of growth and leadership. The result was that companies like BT Wireless, Vodaphone and Orange came out of the UK market. Away from the mobile markets, the regulatory environment here promoted the building of competitive access networks, giving more choice.

Now, in the UK mobile market, the operators slug it out on equal terms. There is complete choice, a very rare situation in a telecoms market! Industrially and politically, we need to bring that level of choice, that speed of building networks and services into the 3G world.

There are a couple of contradictions here. We hear that companies in London and the UK are more enthused and e-commerce-ready than anywhere else in Europe. But unless the telecoms services needed are ready, then that enthusiasm will not be met. So, it is our job to provide the fast networks to meet these companies’ expectations.

So, we have to make up our minds about whether we should consider a fast infrastructure for mobile telephony as a necessary enabling tool for bringing services to the people and companies of the European Union. If we do, is it very sensible to take £20 billion out of that industry? This is a question worth pondering. Then, having taken this money, what do you do to maintain Britain’s previous leadership position?

Therefore, from a Nokia point of view, there are three messages. How are we to sustain and grow that strong competitive position that Europe currently has? How are we, the operators, the equipment suppliers and the politicians to work together? The next thing is to ask how we are to provide regulatory environments that are soft touch, but also that are clear and concise. We do not want over-regulation but clear and concise regulation. Thirdly, we have to encourage convergence.

In the UK, we have one of the highest concentrations of Digital TV. We have world-class companies which understand mobile telephony. We have a fibre-optic infrastructure in place. And we have some world-beating media companies here as well. How do we merge these things, to sustain global competitive advantage? The creation of Ofcom, a single regulator for all communications, is a positive step. But what matters is how Ofcom operates once it has been formed.

Mike Short emphasises that the Mobile operators paid the £22 billion as a 20-year investment

It is now a year since the result of the 3G auction was announced. It is interesting that the five licensees paid two and a half times as much as the cost to build the Channel Tunnel, but we still cannot offer service. However we in BT CellNet and BT Wireless, are still confident.

The 60% extra spectrum gives huge opportunities, over a 20-year time frame. In 20 years, will you still need many of the things you carry in your wallets, handbags and brief-cases? Will you need a newspaper, if your phones have larger screens? Will you need maps, diaries, keys, cheque-books and cash?

We can extend that into the business environment, which will be a much more visual world, not just hearing and speaking. To start with, it may not be as fast as some technologies, but it will have the advantage of mobility, location and personalisation, in your pocket or in your car. It will be more inclusive.

About a year ago, we submitted some figures to the Government about the contribution of the Mobile industry to the economy. Then, it was about £5.3 billion and 164,000 jobs in the UK. Looking ahead ten years, we reckoned that the cumulative figure in 2010 would be £214 billion and about 519,000 jobs. This is an industry with huge potential.

About the auction itself, we planned for 3G many years ago: for its capacity, its capability and content. There was 60% more capacity, compared with 2nd generation. That is critical when providing more voice and more value. The content is important, when we are already transmitting a billion SMS (short messages) in the UK per day. Currently we have 1200 firms writing packet data services for us. Many of these are based in Britain. This gives a potential for exports.

In the last year, we have started one of the largest trials of 3G anywhere in the world in the Isle of Man. There will be difficulties in getting all of the infrastructure in place, and there will be teething troubles in standards, delays in development or lack of skills.

How can Government help? We need to have a global view of the scene. It is easy to get things wrong. We underestimated the growth in the market. We did not foresee that China would be the biggest GSM market in the world. We must learn from other countries. Otherwise we could end up as tail-end-Charlie in Europe. We may have to discuss sharing infrastructure with other countries. There may be environmental benefits or short-term cost-benefits.

When we look closer to home, we can see that the DTI Select Committee back in April had some key recommendations, which would help the industry a lot. They made some comments about repeated tinkering with planning, and recommended that the health issues should be part of the planning process. Overall, they supported the DETR in its carefully crafted compromise on planning. We would like to run with that now. We’ve had our national debate. Let’s use that planning approach. We are not interested in upsetting communities. We want to serve them.

Finally, we believe that spectrum training and spectrum pricing should be applied more fully. We can learn some lessons from the USA, as they can from us on other fronts.

What is certain is that there is still huge growth in the mobile industry, in volume and in usage, value and variety. We didn’t enter into an auction a year ago very lightly, and we would be happier if we did not have to pay £4 billion for the licence, but overall, we can still see a business case. So, even if the Press may want to look for the guilty, I don’t think this industry feels guilty. I believe it wants to get on with it. We can still make a strong business case for many years to come.

Andy Eggleston lists some uses for 3G in the car of the future

My job, and that of my department "Consumer Connect", is to drive e-business into all the Ford Motor Company brands. That is not only mainstream Ford but Jaguar, Volvo, Aston Martin, Land Rover, Lincoln in the USA and Mazda in Japan. I deal with three new acronyms B2S, Business to Supplier, B2D, Business to Dealer and B2E Business to Employee. Ford is giving everybody in the company a PC and Internet connection, to ensure that all members of the company can use the new technology.

Ford is focussed on what we call Telematics, which is connecting the car and people in a car by wireless to Ford and the world at large. Most of this, for safety reasons, will be voice activated, and some communications will only be possible when the car is stationary. 3G telephony is just one element of this.

We aim to provide all the communicating methods in the car, that people expect in the office or at home. In Germany, we have installed on the Focus car, a security button, which calls up the emergency services, giving global positioning, using satellite technology. We will be rolling out these services in other counties. To do all this, we will have to collaborate with other car companies. We have a global agreement, which will include a competitor, a hardware manufacturer a content provider and a network supplier. Our aim is to get costs down by scale.

As well as security, other applications are being developed. One is navigation, providing you with traffic information, so that you can avoid traffic jams. And supposing you are stuck in a traffic jam on the M25, we would provide you with utilities like your bank account. You could send voice or email messages, while you are in the car.

For fleet cars, there are services like "fencing vehicles", not allowing them to leave a geographical area without informing the centre automatically. We could also do remote diagnostics on the vehicle. Or if cars have to be recalled, we could send a message to the car, rather than sending a letter the owner. The car would be able to tell the owner that a service is due, and book the service automatically.

One thing will have to wait for broadband and that is down-loading videos to the car for the children to watch in the back seats on long journeys!

These applications give us revenue opportunities, savings opportunities and may save lives. That is why broadband access is so compelling for us.

Question Time

Gerald David OBE, Aerial Group Ltd: None of the speakers have said how paralysing that £22 billion paid for the 3G licences is going to be in the next 25 years. They have overplayed their financial estimates. The problem they have got is the fear of radio propagation: the drama of mothers worrying in school playgrounds. There should be no fear, but it will persist. We have yet another problem. The coverage on GSM is pretty awful, and we are going to have the same problem with the third generation, unless we can give the industry the sites and encouragement – and give them back some of the money.

Mike Short: On the point about cost, I must repeat that we do expect to recoup our money over twenty years. On the point of drama, I would agree that there is too much drama when finding new sites for masts, but the liaison with the community is improving. And a code of conduct has been published. What is important is that the DTI and DETR should work together to get the release of more sites. There are government buildings out there. There are lamp posts out there. If people round this room could assist, that would be great.

Ian McCaig: On the paralysis point, I would agree that life is tough for industry at the moment. But I think that you should listen to the belief and confidence and the multiplicity of ideas that people have for this technology: education services, leisure services: emailing video footage of your holidays to your relatives’ TV screens. When you think of the number of application developers out there, writing software packages, and the ways we encourage these people, then you will recognise that quiet confidence.

Ian Taylor OBE MP: It was I, when I was Minister, who dreamt up the Auction idea, which, incidentally, was in the Conservative manifesto at the 1997 Election. In mitigation, we thought we would get only 10% of what was actually achieved! Could you confirm whether you will have to pay all the £4 billion up front or pay it over 20 years, and whether you get tax relief on it.

Mike Short: We have paid the £4 billion, as the pay-as-you-go arrangements were not very attractive. We have to see whether we can generate the profits on which we will have to pay the tax.

Ian Taylor OBE MP: On standards, will you build the handsets to use other standards, like CDMA, other than the European 3G standard?

Ian McCaig: We have pushed for the single standard Standardisation – and you have said this yourself – drives consistency, drives usage and delivers a service people want to use more across a broader base and in a seamless way. . However, we cannot impose a standard on any manufacturer or operator or service provider. The "people will decide".

DK Matai, Managing Director mi2g: What are the privacy and security aspects of 3G, particularly if the mobile phone becomes a wallet?

Phil Brown: A new body has been set up, the Mobile Electronic Transactions grouping, on which Visa, manufacturers and operators are represented, which is studying the whole problem of security and electronic signatures. In my view, their main job is not to devise new technical security solutions but to educate people on security solutions that are already available.

John O’Sullivan, Individual Member: I have a 2g GSM phone, which works just fine, but it claims to be a WAP phone, but I cannot make the WAP bits work. How sure can we be that 3G will actually be useful?

Ian McCaig: WAP stands for Wireless Application Protocol. It is only that: an environment for which you write services. What it is not is a bit of software for surfing the Net. This is a subject that has become very confused over the past 18 months.

Adrian Norman: The time when one will want to press the red button in your car to ask for help will be when you are way out in the country, but we are never going to get coverage of the rural areas even of this crowded island. Five sevenths of the world is wet. You are never going to get 3G services in the wet bits. Another seventh of the world is very sparsely populated. No coverage there. Surely, what we are going to see in three or four years are earth-orbit satellites providing services by another means. Those services are going to be more accessible by satellite than terrestrially. Those people who think they have a 20-year licence will have to get their money back in about five.

Phil Brown: When those technologies offer better services to consumers, we will use them.

Colin Wright, Marconi: Can sites be shared between operators, or is the acquisition and development of sites considered an area for gaining competitive advantage for the individual operators?

Mike Short: The definition of a site is very confusing in the community at large. We are not building so many towers any more. Our sites depend now on the roof space that exists or the availability of lamp-posts and other street furniture. Today the industry has about 18,000 locations, not only towers, two thirds of which are shared. We are now saying we need about 37,000 more, a high proportion of which will be shared.

Ian McCaig: Look at it as a family of services. They have to be transparent between platforms: GSM, which is what we have today, GPRS which is imminent and 3G which is coming. You will have a feature set, which expands with the bandwidth which you have available. But the look and feel and interface will remain the same. The service will shift seamlessly between standardised networks. Site-sharing will be driven by the consumer, by organisations like Ford and by the needs of service providers like BT. The onus then will fall on equipment manufacturers like Nokia to provide the kind of technology that supports site sharing.

Jim Brookes: Mike Short mentioned co-operation between the DTI and DETR to provide suitable sites. Could the Home Office be brought in, to provide a service in parallel with the police and emergency services?

Mike Short: I should point out that it was the DTI Select Committee which recommended the co-operation of the DTI and DETR should work on a policy to encourage more site-sharing, over and above what the industry has already done. The mobile operators have already put in place a mobile sites data base, which is open and visible to other operators who may wish to share sites. We also cooperate with the UK Radio Communications Agency to establish a technical data base, so that sites can be tested to make sure that they are well within health limits. Cooperation with the Home Office is a natural step anyway.

Tom Sandford, Federation of the Electronics Industry: What will be the "killer application" of the third generation?

Phil Brown: Gambling.

Mike Short: An application that caught my attention when judging an award last week was an "Instant Relief" Website! Seriously though, I believe mobile banking will be important.

Andy Eggleston: Beaming down videos to the passengers in the car.

Ian McCaig: Killer apps will vary across age groups and across geographies and cultures.

David Harrington, Communication Managers Association: What does "Fixed/Mobile Integration" mean?

Mike Short: When I look at our WAP statistics for March, we had 90 million WAP page impressions in the UK, but 63 million fixed Web impressions. Thus it appears that Mobile now exceeds fixed. There are some applications which can be used in both environments, for consumers, corporates and trade.

Ian McCaig: The point is to give transparent access to services regardless of the device you are using or where you are. If I am sending a message from a hand-held device, that can appear on a TV screen, a computer terminal and vice versa. At a level below that, you can do more at home with a PC, because you have a DSL broadband connection. The higher speeds are the drivers towards integration.

Ian Bruce MP: It falls to me to thank the speakers. It has been a most important meeting, demonstrated by the presence of a Treasury Minister, Stephen Timms. Treasury Ministers seldom attend back-bench meetings in this place. Stephen was an officer of both PITCOM and EURIM before acceding to high office. I would also like to welcome three gentlemen from the Japanese operator DoCoMo, which demonstrates how we reach out across the world. I would also like to announce that EURIM is launching a working party into the whole subject of mobile 3G.

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