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Why there's little call for the latest generation of mobiles Internet phones are taking off in Japan, yet here the momentum seems to be halted in its tracks by consumer indifference, with companies such as Vodafone paying a high price, says Kay Jardine.
Interview by Kay Jardine
The Herald Newspaper

When first she saw the dinky red phone, with its flashing red lights, Anne knew she had to have it. Into the bin went her bulky old handset and into her palm popped the flash new accessory, which she took great pride in pulling out in front of her friends.

The Nokia 8310 is one of the latest mobile phones on the market with speed text, a radio, high-speed e-mail, and mobile Internet services. However, the advanced features on the phone were of no great interest to the Glasgow student. She uses her new mobile for exactly the same purpose as she did her old one: voice calls and text messages. "Even though you don't use the new services, you still want to have the most modern phone. I have never even set up the Internet on it," she admits. Anne's attitude to her phone is a common one in Britain, which mobile phone companies will have to address for the sake of the future of the mobile Telecoms revolution, currently on hold.

On Tuesday, Vodafone, the largest mobile-phone network company on the face of the planet, reported a loss of (pounds) 13.5bn, the biggest loss in British corporate history. The poor performance is part of a pattern of dismal results for such companies, prompting the question: what is the future for the mobile-phone revolution? Vodafone, with other companies, has delayed the introduction of its futuristic third generation, or 3G, technology until the second half of 2003. This technology will allow high-speed Internet access using packet technology, which breaks up the signals into tiny bits to allow them to carry more information. As a result, connections will always be on, and the speed of data transmission dramatically increased. The 3G phones should be able to receive colour video transmissions and high quality music. But there is some doubt whether 3G phones will ever appear here.

Anne doesn't even access the services available on her GPRS (general packet radio service) 2.5G mobile. Encompassing the latest technology in the UK, it is seen as being half way between the second generation (2G) phones most users in Britain have today and the incoming 3G technology. But Anne says her new piece of kit is not significantly different from her old one, which also provided Internet access that she never used. "When you're in the habit of looking at the Internet on a computer screen, it's really fiddly to do it on a phone. It's easier to do it on the computer. I think you can cram lots of features on to phones, but I only use it for the basics."

Just two years after the UK phone companies paid billions of pounds to buy the rights to operate third-generation mobiles, there are serious doubts about the viability of the technology.

In the not too distant past, mobile phones were the size of house bricks, and weighed almost as much. But as the world of instantaneous communication developed and we demanded to be able to contact each other at any time, from any place, the use of mobile phones spread at breakneck speed. As use increased, their size decreased to neat little packages that fitted into your palm. The evidence of the success of the technology surrounds us daily - on buses, in trains, in the streets, in schools. Alongside the catchy ring tones, the "beep beep" sound, indicating the receipt of a text message is one of the most familiar sounds in our environment today. "Texting" has proved one of the most popular methods of communication, particularly among young people, who enjoy the adult-free zone in which they can chat to friends. Some 200 billion-text messages were sent globally in 2000. The rapid speed with which the technology was taken up worldwide prompted many to believe that by now we would be conducting our lives via our mobiles. So convinced were the phone companies that our mobiles would take over from our computers, videos, watches, radios, cameras, and CD players, they paid the government more than (pounds) 22bn in 2000 for licences to create networks for third generation phones. By now, we were supposed to be routinely connecting to the Internet on the move through our phones rather than via a bulky computer. It's happening to an extent in Japan, where the sophisticated third generation technology has already been launched. Mobile users there can now take digital snapshots via a tiny camera on their phones, and send them in an instant to their friends. Eventually they will be able to watch movies and be guided through towns and cities via their handsets. First impressions of the new phones have been enthusiastic. Shintaro Yanagisawa, 24, said of his: "It's great, it's so fast." But the costs are high, and while Yoshihiro Fujita thinks the new phones are "cool", he is reluctant to fork out extra for a 3G phone.

Here, however, the launch of 3G phones has been delayed and there have been suggestions that it may never roll out. Peter Cochrane, former head of technology at British Telecom, says the industry in Europe has gone from being "massively profitable and successful to being massively bankrupt in less than 18 months". He blames the 3G licences' auction, which took place, "raping the industry". "It's in an increasingly sad situation. It's going to take at least five years to get out of this mess, which has been created by governments being greedy," he says. "Far from promoting competition, there's going to be a massive consolidation of the industry. Companies will collapse and we won't have five or six companies, we'll have two or three, which will mean less competition and prices won't come down."

The professor, who was responsible for BT's 3G research programme until November 2000, said that for 3G to be a workable proposition, people would have to increase their spending on their phones to almost (pounds) 1000 a year. "That assumes that everybody instantly changes over to 3G. They won't do that."

James McCoy, a senior consultant at Mintel, says consumers' experience with the Internet via mobile phone so far has not been impressive because the Wap phones that have been available had only limited power, meaning access to the Internet has been limited, graphics have been limited, and the speed has been slow. He adds: "When they first came out, people expected them to be a lot more advanced than they were. When we did research into this in January 2001, people were more concerned with phone size, lightweight, and text messaging. People were more keen to text and speed text than e-mail." The uptake of 3G in Britain will depend on customer perception, according to McCoy, with marketing convincing people to abandon their current phones to trade up to something that "may well be a lot more expensive". "Potentially, it could be absolutely huge, but for the next couple of years manufacturers are going to have to convince people to trade up to really expensive handsets. It's not so much what the consumer's want. The phone companies are going to have to tell customers what they want and create that demand at that level."

Yet despite such sceptical sentiment, the telecom companies remain confident. A spokesman for Vodafone said that while the (pounds) 6bn the company spent on a 3G licence for the UK alone may seem like a lot, "we've already made (pounds) 2bn on 2.5G networks and because of the evidence we have from Japan, we're confident the services we'll be launching will justify the cost (of the licence) and that people will buy them".

Anne, however, remains unconvinced. She says: "I don't think I would pay a lot more for a 3G phone and the extra services. I think I've learned a lesson. "I only use the basic features now, phone calls and texting, so I don't think I would bother with things like sending pictures. I think a phone is always going to be a quick convenience thing rather than something you spend a lot of time with."

She says she would be reluctant to pay a lot of money for a phone again, simply because "I still use my new one for the same thing as my old one. The basic difference between them, and the main reason I bought the new one, was because it was smaller and cuter".