3G Beyond the Beginning

What lies ahead The future of wireless - otherwise known as 3G - awaits

There's nervous optimism in the wireless industry when it comes to the rollout of third generation services. Vendors, carriers and analysts herald the potential billions in revenue these new, sophisticated mobile multimedia devices will bring. Yet doing business in 3G will be an entirely different and painful game.

While European governments are raking in billions from spectrum auction revenues, U.S. government leaders are only dreaming of those revenues as they deal with the thorny issue of encumbered spectrum. Nearly all the spectrum bands that governments worldwide agreed to set aside for 3G services are encumbered in the U.S.

The freeing up of that spectrum faced an uncertain time frame until President Clinton stepped in last month to establish guidelines for vacating the spectrum for auction by 2002. Government leaders will face stiff negotiations as they work to convince existing users - the Department of Defense, educational institutions and fixed wireless operators - to share or give up this precious spectrum.

For now, U.S. operators are vigorously testing high-speed enhancements to their existing networks. Some, such as AT&T Wireless, are trying to determine how to carve out existing bandwidth to make room for spectrum-intensive wideband CDMA systems.

In other parts of the world, the race is on to deploy services in new spectrum. NTT DoCoMo is expected to be first out of the gate, promising service by May 2001. The majority of European operators will follow, offering service by the first half of 2002.

Constructing these networks is a billion-dollar proposition, with paybacks not forthcoming for a decade or more, analysts predict. This translates into a high-stakes game. J.P. Morgan's Iain Johnston, quoted in an article by John Williamson on page 56, perhaps summarized the predicament best:

"No single network operator in Europe has all the experience and skills necessary to provide an end-to-end wireless data solution. The strategy of a traditional operator will have to change.

"Value will reside in ownership of the customer relationship and in content and service provision. Traditional wireless operators will need to work hard to extract maximum value for shareholders in this environment, with higher customer retention costs the price to pay for ownership of the relationship with the end user."

All operators offering high-speed data networks will have to devise compelling services to attract customers and convince them to pay enough to make a return on investments. The new environment forces carriers to partner with others to deliver as many compelling applications as possible.

The question will be, how will carriers make money this way? Most still are grappling with that question. For example, AT&T Wireless as a rule will not share transport revenue and won't pay for commodity content, while others will. Sprint PCS plans to add a premium to high-speed wireless Web applications, banking on the fact that people will be willing to pay more to be mobile.

So, let the 3G games begin....