Come On Over To the Supply Side

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By BRational
July 5, 2001

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Lokicious, an excellent piece; I concur about the evolutionary nature of wireless adoption, with some caveats.

1. You're being too generous by equating GPRS (if it works) with CDMA x1RTT; reports so far suggest that we can expect the latter to deliver at least at about twice the rate of GPRS on average. But the intent (giving the opposite hypothesis the benefit of the doubt) is well taken -- so that's just nitpicking.

2. Much of the demand for wireless capabilities from here on may well be supply-driven (as is much of technology-driven innovation), especially in places like the U.S. where wireline telephony and computers are plentiful, Internet access abundant, and wireline broadband availability is ahead of most of the world. However, there are segments of the world market that will be demand-driven, or at least where the supply decisions are driven by a strong latent demand. Even in Europe, broadband access to the Internet is still very limited from homes (I believe Germany may be ahead of the rest, but in places like Italy it seems almost non-existent). The reason wireless 3G is seeing such a push in Korea and Japan, in addition to a certain gadget-mindedness, is the desire (now need) for connectivity, especially among young people.

3. Another demand factor is addictivity -- once you're hooked to broadband, you can't go back, and you want more. Once you're hooked to wirelessness, clunky wires get in the way; putting the two together can create a 3G monster.

4. Back to the supply side... I think it may be useful to distinguish between the supply of the technology/hardware (i.e., the handsets or terminals, infrastructure, and associated functionality), and the supply of content (the so-called killer-app). We have been focused on the former, then FT or the Economist comes along and says no one would want to pay for 3G because it's not clear what services would be available that people might be willing to pay for. And we can revisit the point about location-based services, and m-commerce and interactive gaming and so on.... which will undoubtedly become available, but that still raise questions about the business model. While the availability of a variety of services via 3G wireless is a virtual certainty looking out five years ahead -- and the existence of an industry built around those capabilities is also a virtual certainty, the process of getting there seems fraught with uncertainties... both challenges and opportunities. More below.

5. We can think of the "content" aspect of 3G wireless much like the content for TV, or radio, and more recently "The Internet" -- which encompasses the above but also now includes services and interactivity. While a mature industry has developed for the creation of entertainment and news content through radio and TV, including cable TV, and also game content for consoles (PlayStation), the same is not quite true about "The Internet," where players are still shaking out and no model has fully asserted itself yet (so far the "portal" is the dominant concept, though it does not hold the same power as a TV network like CNN or CNBC). Also the production end of the web remains relatively primitive compared to Hollywood and Madison Avenue. There are already several companies angling for that market -- working behind the scenes with VC funding to create the applications and the content for 3G. The BREW conference was a showcase for some of those in the CDMA world; Nokia has the "Club Nokia" concept for that. But there are still many questions and possible evolutionary scenarios that might emerge. What really concerns me is whether the telecom operators (i.e. the phone companies) are really the right players to bring about this new content industry. They control the highway, but I doubt that they have what it takes to become a WB or Fox or ABC -- or even a TMF. So the issue of industry structure, which undoubtedly will evolve to allow creative talent to produce content, may be key to adoption and development of 3G wireless. The closest model might be the current cable operators, who are vying for a place in the ISP business -- consecrated by the AOL-Time Warner merger. I suspect there will be much more industry reconfiguration as the so-called "convergence" continues. BREW offers an interesting model, but only one possibility -- perhaps the most serious effort to date to create an industry and business model for the generation and diffusion of wireless content for handsets. Club Nokia may be another, for the GSM operator world.

6. The car analogy may be too extreme -- because of its high initial cost (which dampens the propensity to replace) compared to phones or future 3G handsets. We are fast approaching the point, at least in the U.S. and Europe, where 2G phones are close to being disposable (in fact, there are disposable phones already in some markets... you don't like it, no problem, get another one). The eroding margins of the GSM/TDMA phone manufacturers are perfect illustration of that. A better analogy may be computers; in fact phones and 3G devices are computers. Either desktops or notebooks provide good examples, where the supply keeps driving the demand; where there is a replacement cycle that the manufacturers keep trying to accelerate by obsolescing earlier models; where new applications (e.g. high-rez graphics) feed the demand for the higher capabilities... and higher prices.

7. Finally, while I go along with the evolution hypothesis, which would suggest a smooth adoption curve rather than a discontinuous jump, I suspect it may well exhibit a snowball effect. After a gradual initial take-up, there may well be a very rapidly accelerating adoption. This is not just about better cell phones, but wireless modems for notebooks (and desktops), PDAs, all kinds of video, audio and gaming specialty devices, wearable tags, etc... 400,000 CDMA2000 handsets already sold in Korea is a rather impressive start!

I hope others will contribute their thoughts. This seems like a good thread for some weekend speculative musings about the future of 3G.

BRational (wireless addict)