Article

The 3G Challenge

Par Michael Garstka

First published on août 01, 2000
min


While the mobile operator and equipment vendor communities are today filled with excitement about the future of 3G and the wireless Internet, it is worth a moment's sober reflection on some of the challenges ahead. The transition to 3G-and more broadly the migration from wireless voice to wireless data-represents a strategic inflection point facing mobile operators and equipment vendors. Such inflection points are the most frequent source of dramatic share shifts in industry leadership-a primary driver of corporate success and/or failure. Speaking about an inflection point in another industry-the shift from the mainframe to the client-server environment-Larry Ellison, CEO of Oracle recently noted: "These technology transitions are like the Tertiary-Cretaceous boundary. They are extinction-level events." Consider the last transition in the mobile sector. Taking advantage of the shift from 1G analogue to 2G digital, Nokia raced to displace Motorola as the leader in mobile handsets, transforming from a Scandinavian company to one of Europe's largest conglomerates. In the Asia-Pacific region, the 2G inflection allowed startup mobile operators such as Optus Mobile in Australia and Hutchison in Hong Kong to dramatically gain market share from previously dominant mobile operators. The shift to 3G and wireless data will likely result in similar outcomes. The next few years will be a period of considerable industry turbulence and share shifts. While much of the industry debate has been focused on the technology choices and challenges, these-albeit significant-are likely to be the less critical challenges. The winners of the next generation are likely to be those that most effectively manage elements of their strategy, business model and culture. The technology challenge is non-trivial and is the most important investment decision operators will be making over the next 12 months. WCDMA or CMDA2000 aside, a quick bit of math reveals that the combination of new spectrum, new network costs, and handset subsidies will quickly pass the billion-dollar mark for most operators making a decision to go to 3G. Just as some operators are beginning to come out of the J-curve of their 2G network investment (and some such as One.Tel and AAPT in Australia have just started to spend on 2G networks), this raises questions about the likely return on capital on this next major fixed cost investment. Indeed for some operators, 3G could be Ellison's "extinction-level event." The winners are likely to be those who aggressively consider non-traditional approaches. Winning in the wireless data space will require a reconsideration of almost every element of an operator's business definition, strategy and business model. Operators must ask from scratch questions such as What services will we sell (earlier it was simple voice)? What customers will we focus on (who will drive profits in the data world)? Where in the value chain should we participate, and where not (can we just be an access network operator, or do we move downstream)? What assets should we own, and how should we finance them? What sales channels will we need for data (are they the same as voice)? How will we price and bill for new services to drive profitable usage? What new capabilities and skills-and types of key executives-will we need and how will we recruit and retain them? Are new partners and/or share holders critical to winning? Entering wireless data effectively involves the building of a fundamentally new business on the platform of an existing network access voice business. This is a strategic step change, not an incremental transition. This is the challenge facing traditional brick-and-mortar players in all industries. The winners in the wireless data space will be significantly different companies than they are today. They will be those who quickly master the softer skills of change management, and use these to develop the capabilities and culture needed to succeed in the wireless data space.

While the mobile operator and equipment vendor communities are today filled with excitement about the future of 3G and the wireless Internet, it is worth a moment's sober reflection on some of the challenges ahead. The transition to 3G-and more broadly the migration from wireless voice to wireless data-represents a strategic inflection point facing mobile operators and equipment vendors.

Such inflection points are the most frequent source of dramatic share shifts in industry leadership-a primary driver of corporate success and/or failure. Speaking about an inflection point in another industry-the shift from the mainframe to the client-server environment-Larry Ellison, CEO of Oracle recently noted: "These technology transitions are like the Tertiary-Cretaceous boundary. They are extinction-level events."

Consider the last transition in the mobile sector. Taking advantage of the shift from 1G analogue to 2G digital, Nokia raced to displace Motorola as the leader in mobile handsets, transforming from a Scandinavian company to one of Europe's largest conglomerates. In the Asia-Pacific region, the 2G inflection allowed startup mobile operators such as Optus Mobile in Australia and Hutchison in Hong Kong to dramatically gain market share from previously dominant mobile operators.

The shift to 3G and wireless data will likely result in similar outcomes. The next few years will be a period of considerable industry turbulence and share shifts.

While much of the industry debate has been focused on the technology choices and challenges, these-albeit significant-are likely to be the less critical challenges. The winners of the next generation are likely to be those that most effectively manage elements of their strategy, business model and culture.
The technology challenge is non-trivial and is the most important investment decision operators will be making over the next 12 months. WCDMA or CMDA2000 aside, a quick bit of math reveals that the combination of new spectrum, new network costs, and handset subsidies will quickly pass the billion-dollar mark for most operators making a decision to go to 3G.

Just as some operators are beginning to come out of the J-curve of their 2G network investment (and some such as One.Tel and AAPT in Australia have just started to spend on 2G networks), this raises questions about the likely return on capital on this next major fixed cost investment. Indeed for some operators, 3G could be Ellison's "extinction-level event." The winners are likely to be those who aggressively consider non-traditional approaches.
Winning in the wireless data space will require a reconsideration of almost every element of an operator's business definition, strategy and business model.

Operators must ask from scratch questions such as
What services will we sell (earlier it was simple voice)?
What customers will we focus on (who will drive profits in the data world)?
Where in the value chain should we participate, and where not (can we just be an access network operator, or do we move downstream)?
What assets should we own, and how should we finance them?
What sales channels will we need for data (are they the same as voice)?
How will we price and bill for new services to drive profitable usage?
What new capabilities and skills-and types of key executives-will we need and how will we recruit and retain them?
Are new partners and/or share holders critical to winning?

Entering wireless data effectively involves the building of a fundamentally new business on the platform of an existing network access voice business. This is a strategic step change, not an incremental transition. This is the challenge facing traditional brick-and-mortar players in all industries.

The winners in the wireless data space will be significantly different companies than they are today. They will be those who quickly master the softer skills of change management, and use these to develop the capabilities and culture needed to succeed in the wireless data space.