POST OF THE DAY
Nokia
Bring on 3G

Format for Printing

Format for printing

Request Reprints

Reuse/Reprint

By BRational
March 6, 2002

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

It seems that everyday brings new questions and new doubts about some aspect of Nokia's future performance. Will 3G happen? When and where? Will it be big? Who will control it? What about the OS, and what happens if/when Microsoft muscles in? It is natural to exhibit some skepticism about just how soon and in what form 3G will happen, in the face of much of the hype that gets thrown around by some operators. Those traveling through US airports may have seen the huge m-life billboards set up by AT&T Wireless (AWE) as part of their campaign. Given that AWE has so little to offer by way of wireless web access and fast data services (its offerings, for instance are much less than the services available through Sprint PCS in the US), such hype only reinforces negative attitudes towards the vaporware nature of the technology offerings. That same hype is what drew European carriers into the kind of frenzied bidding for 3G licenses�and the generalized unbridled optimism is now being replaced by the kind of sobering realism, bordering on outright pessimism (engagingly conveyed in Caesium's recent post).

1. We have had several stimulating discussions on this board of the wireless internet, the so-called i-life, and the kind of capabilities and uses that 3G might enable; e.g. Wondrous Wireless  and WW - Services, Devices, and Systems.

Recognizing that any form of technological forecasting is fraught with many pitfalls, and that historical precedent is not always a reliable predictor of the future, especially when it comes to new technology adoption, there may be several principles or behavioral constants (as well as economic and commercial realities) that one could identify and draw upon. Summarizing some of those, now familiar themes: people want more mobility, and more connectedness, yet at the same time more privacy; more bandwidth (and then some!), as new, sometimes unanticipated, uses somehow always emerge to soak up available bandwidth. Supply will drive demand, and the latter will encourage even more supply. Unit costs of staying connected will rapidly decrease, and early adopter premium pricing will quickly go down to allow greater access. Why isn't happening yet? Is it the technology? The economics? The politics? Lack of applications? Lack of imagination? Weren't we promised 3G in 2002?

We could fill pages of posts analyzing the why's and how's of this issue�that is not my point. Mostly, I wanted to convey that wireless connectivity (of the wide area variety, across nations and globally), and the access it promises is to a large extent upon us. Unfortunately, some of the current players upon whom we have relied to deliver these capabilities are botching it, in certain places. Some of the regulatory entities that we have entrusted with enhancing our quality of life through greater mobile connectivity have let us down, by erecting stiff barriers to competition in the name of standardization, and setting high entry costs prematurely for the privilege of controlling the right of way (spectrum). That is mismanagement of the commons.

In some instances, leading market players may be accused of somewhat slowing down the deployment of 3G. An observer might in fact think that Nokia may have fallen into this trap�by increasing vertical integration in the mobile telecom industry, and seeking to maximize profit margins by extending product lifecycles (I am not making this accusation, but I do see symptoms). To date, Nokia has been the slowest at introducing 3G devices, and has dampened expectations of timetables for UMTS availability. One could argue that they have the least incentive, given their undisputed dominance of the 2G world. My main point for noting this is that the pessimism expressed by Caesium may in fact be exacerbated by being a Nokia follower and investor.

Where is the bright side?

2. Look East, and even West. But first, mostly East. There is no revisionism, no going back. It is only a matter who does more when. Who gets there first, and reaches data rate and usage milestones first. I have noted previously the spectacular penetration of 3G CDMA in Korea. Here are some updated numbers, courtesy of Qualcomm:

90% of new handsets will be 3G in 2002
70% will have color displays
31% higher ARPU than 2G users

50% of subs by end of 2002 will be 3G


CDMA 1X-Ev-DO (data optimized, with data rates 2.4MHz) already deployed in selected cities, and will be nationwide by the World Cup this summer!

This is as bullish a story as one could hope for. Why is it working in Korea? A combination of all the above factors: the technology (CDMA 1X was ready because it is an upgrade of CDMA 2G; W-CDMA was more ambitious to develop from scratch); the economics (follows the technology, in part, confirmed by the take-up); the politics (Korean government gung-ho to develop, showcase and export wireless telecom industry). And of course the services which are fueling a highly receptive demand. One particularly bright note above is that 3G data users are already accounting for 31% higher ARPU (average revenue per user) than voice-only customers�and of course the new fancy handsets (70% color displays) sell for more.


3. Look also at Japan. While NTT Do-Co-Mo's W-CDMA launch has had its share of criticism, some of which well founded though not unexpected with a brand new technology, there are also some very bright spots for the rest of the world.

More evidence among the 43,000 FOMA users that data ARPU is increasingly dramatically, in this case based on DoCoMo's (small base of ) 3G users (confirming the Korean experience with 1X-DO). By summer, all three carriers will have 3G networks, up and running virtually nationwide.

In both Korea and Japan, the applications and services industries are growing, developing the content for these networks. Is it the ideal model, will it remain at this level? Probably not, especially with the specter of the Microsofts of the world turning their muscle in that direction.

4. More from Japan�Business Week's latest issue ran a cover story on Sony.

 (Requires subscription, I think). Some excerpts:

From an interview with the company boss:

 

The world was about to change, he declared. The personal computer was quickly losing its status as the heart of the Information Revolution. Soon, the real action in info tech would migrate to the living room, the family room, the automobile, the beach, the holiday retreat. Wherever people gather, or strike out on their own, Net-capable audio and video gadgets, cell phones, and games would keep them entertained and in touch.

Yet another view of where "the real action" will be. In this case not so much on the run, but in one's living room. Yet in both cases the applications call for broadband connectivity, and interactivity. Games will be big in the living room, and on the road, in other people's living rooms.

He went on to argue that nobody--not Samsung (SSNLF ), not Microsoft (MSFT )--had a sharper vision of how consumers would navigate superfast networks in which a single fat wire, or a sliver of radio frequency, would handle multiple layers of voice, data, and video. Already, he noted, Sony's violet-gray Vaio laptops were hits with the digerati, who liked to edit their own photos and music files and exchange them over the Web. Once broadband networks were ubiquitous, all of Sony's cameras and audio devices would meld into a seamless distribution network for Sony's movies, music, and games, supported by the company's own online shopping and financial services.


But, here again, the same skepticism:

Trouble is, Sony managers have been preaching about this glorious networked future for half a decade with little to show for it. The company, in short, is caught between a past that no longer works and a future that hasn't arrived.

But it is well on the way.

And when the broadband future finally arrives, Sony may have a leg up on competitors in both PCs and consumer gadgets, not least because it makes them all, along with the digital "content" that drives their sales. When it comes to linking all these worlds, with a PC like the Vaio as a hub, the rest of the computer world is "catching up" to what Sony is doing, says Will Poole, Microsoft Corp.'s vice-president for digital media. "They've gotten this concept ahead of the others," he adds.

"But in Sony's business model, if we sell one computer [or game machine], we want to sell 10 other peripheral products."


Interestingly, and in some ways good for Nokia, Sony has failed at least once in mobile handsets before. Its hope is that the joint venture with Ericsson will help in that arena.

Japanese rivals such as Matsushita Electric Industrial Co. (MC ) and NEC Corp. (NIPNY) are far ahead of Sony on Internet-ready cell phones.

Software, and Microsoft now always come up in any discussion of the connected world:

And then there's Microsoft, whose managers admire Sony but don't exactly fear it. For all Sony's consumer clout, says Craig J. Mundie, Microsoft senior vice-president for advanced strategies, the company "is confined to the audio-video cluster" of appliances. When it comes to linking devices through software, Microsoft's Windows franchise gives it a tremendous headstart. "I don't think anyone has a birthright in this space," says Mundie.

5. My point of posting the above, about Sony, is that the glorious world of broadband wireless is moving from being a matter of whether, or even a matter of when, to simply a matter of how and in what form. I am increasingly convinced that this domain is so wide, offers so many degrees of freedom, that we will not observe the hegemony of any one type of device or combo device, for universal all-purpose use. Nor will we witness the dominance of a Windows-like OS across the board. These are all specialized devices, with functions that require optimized chips and software�not generic all-purpose OS. As I have noted, MS hasn't even perfected Windows for PC's yet. Stable real-time performance (of even streaming media) is still somewhat elusive on PC's. By the same token, I don't believe Nokia will be all things to all people, nor should it try to be. Nokia has distinguished itself by understanding, creating, nurturing and evolving a keen sense of cool, in the handset arena. Its design and marketing prowess, as well as manufacturing logistics and control of product cycles, have been superb. It need not be the OS Gorilla, and the applications gorilla, and the infrastructure gorilla, and the chipset gorilla. The state of the industry for 3G is very different from 2G�in a nascent industry, the more players and resources there are, the faster will the addiction spread. If the success rates in places like Korea and Japan are any indication, the opportunities may exceed even some of the most optimistic projections�Nokia can sense the pulse of youth, and their concept of cool, in a way that even Sony has not yet grasped. That could translate into devices and services-- must-have, all of them. No matter the OS, no matter the chipsets or the base stations. The sooner they bring it on, the better.

BRational (wireless wonderer)

 


Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.