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Peter Cochrane's Uncommon Sense: The 3G chasm - deeper than we thought
Have we seen the worst?
Some governments chose to give away 3G spectrum licences. Others ran auctions at the height of the tech bubble, raising billions along the way. Who was wisest? Peter Cochrane pulls no punches...
It has always amazed me that corporations will stare reality in the face and still make stupid decisions. The notion that people spending an average of $50 per month on their mobile phone will suddenly increase that spend by five or 10 fold when they move to 3G beggars belief.
As a primary behavioural example I can cite my digital camera. Since the arrival of the first digital cameras I have been an avid user. My principle spend has been on the cameras themselves which I seem to change and update about every 18 to 24 months, along with my laptop. What I don't do is buy any film for wet processing anymore but my spend is about uniform over time because of the batteries I buy. I think this model also applies to most sectors of IT.
People have a given amount of disposal income and it is difficult for them to put more into the pot. If the telecoms sector is to get more money out of each household, office, and mobile phone it has to be taken away from some other sector. On one level it is obvious how this can be done but it needs different sectors to cooperate and change the way they work.
The music industry is under severe attack from Napster-like services where people can download MP3 files and bypass the entire production, sales, marketing and delivery chain. In countries such as Germany and the US, which have among the most advanced broadband programmes on the planet, we see a fall of 5-15 per cent in CD sales. Conversely in the UK, which has no broadband programme to speak of, a 5 per cent increase in CD sales has been recorded.
The new opportunity is for people to purchase music and download over a broadband connection to a PC or directly to a mobile phone encapsulating an MP3 player. But it means that a large percentage of the new IT money would be extracted from the music industry. Interestingly, it seems unable to adapt to this threat. It means closing down CD production facilities and changing entire business models.
There are many reasons why all of this is reasonably obvious and we have only to look at our now lengthy telecommunications and IT history. Without exception every single service and moneymaking concept has been exceptionally simple and for the most part trivial. The vast majority of telephone calls and certainly almost all of the SMS text messages that are now sent constitute very little value in terms of contribution to society and mankind's progress. But for the individual the trivia they communicate is important and on a very social level, so they are prepared to pay for it.
Meanwhile, in the research labs of the planet our best minds are focused on creating services for 3G telephones that no one is likely to purchase. These include wonderful services such as being able to locate the nearest restaurant with a table free at a particular time and read the menu. In my view such services stand no chance.
Something really trivial like building a small camera into a mobile phone so young people can take photographs of friends and transmit them from one side of the planet to the other is far more likely to take off.
Without a healthy telecommunications and IT sector we will all suffer. With an ongoing spend on 3G that is tantamount to pouring money down the drain I can see operators being in debt for some considerable time. My personal estimate goes like this - the removal of $100bn by governmental rape of the industry, compounded by $100bn spend on new infrastructure, plus another $100bn on the production of handsets, deployment, marketing and sales, sees an average debt mountain of the order of five years of profit for most operators.
My financially based estimate is that the mobile companies will take a further five to seven years to climb out of a huge hole they largely dug for themselves. The impact on the rest of IT and telecommunications will be severe. Monetarily there is no escape and in my worst moments I suspect that this once most vigorous and vital of industries has not only stalled but actually downturned permanently to never return to the golden days we have seen over the past 20 years.
My prediction - companies will close, operators will have to merge, operations will be consolidated and the 250,000 people put out of work by greedy governments will grow further.
This column was typed on my laptop and sent from the back row of an EU conference on the 'eBusiness Future'. And if the speaker was remotely interesting I wouldn't be doing this!