Repeating history

There seems to be one lesson that the telecom industry keeps relearning, and it is simply this: Without a business plan that includes profits, the best technology won’t succeed.

The best example came during the Internet boom of the late ‘90s, when there was a rush to build fiber networks in anticipation of tremendous e-commerce traffic. Unfortunately, most of the Web sites expected to fuel that traffic went belly up because no one was certain how to make money selling things on the Internet. Since that issue was resolved, Internet sales have taken off, and just now we are seeing that the network capacity built in the ‘90s has been consumed and is generating profits.

In the U.S., the municipal Wi-Fi boom/bust cycle was pretty much the same story. A few years ago, every town wanted a citywide wireless network to provide broadband for “economic development.” The problem is, there was no way to pay for all that broadband, and so, for cities that counted on advertising revenues or subscriber dollars, Wi-Fi was an expensive bust.

These are just two examples of the failure of what is now commonly ridiculed as the “build it and they will come” strategy.

It’s apparently a lesson Nokia could learn. The company is defending its strategy of giving away music to owners of its “Comes With Music” phones. After buying a CwM phone, owners can download as much music as they want from two major catalogues -- Universal Music and Sony BMG -- and keep it after a year.

The problem is, according to The Register, the song downloads will cost Nokia 70 cents each in royalties, and since the phones cost an average of $123 today, the CwM service could cut mightily into Nokia profits.

The idea is to compete with the iPhone by subsidizing the cost of the music to attract young consumers. Unless Nokia limits this feature to very expensive phones, however, it’s hard to see how the CwM feature will be anything but a loss leader -- that just leads to losses.

E-mail me at cwilson3@telephonyonline.com