Of all the new, new things that came to seem old over the last year, the near hysteria around the "mobile Internet" in Europe was in a class by itself. Techno-gurus and telecom companies proclaimed the coming of a "third generation" of mobile telephones in the next two to four years. They would offer broadband data speeds 100 times faster than current mobile phones. Color screens, streaming video, real-time music downloads and e-commerce ("m-commerce") galore, all in the palm of your hand.
A few telecom companies believed their own hype. Others were afraid they'd be left to die in Silicon Gulch if they didn't race down the trail. European banks anxious to invest in European high tech saw mobile communications as the new El Dorado and anted up $110 billion for licenses. Now, to build the all-new infrastructure that 3G phones require, they'll have to invest an additional $90 billion to $110 billion.
"That is a lot of money," says Lars Godell, a leading analyst at Forrester Research, "and nobody is sure if they can make it work." Godell sent shudders through many 3G license holders last week by predicting a 3G meltdown in Europe. After he and his team interviewed executives at 26 European operators, Godell concluded that the market for a mobile Internet will not even come close to supporting these investments. According to his models, the average revenues telephone companies will bring in for each user will actually fall by 15 percent by 2005. "This will destroy profits, unleashing major business failures and industry consolidation," he says.
The Forrester report at times verges on apocalyptic: angry shareholders will take to the courts, the bond market will crash under the burden of debt, Sony and Matsushita will supplant Ericsson and Alcatel as leading handset manufacturers. Many license holders think this gloom is overwrought, to say the least. They argue that future markets for 3G cannot be predicted on the basis of prior technologies. But investors are pretty fatalistic.
One striking example: the decision last week by Spanish bank BBVA not to put money into the 3G projects of Spanish giant Telfonica, even though last year the two firms entered into a strategic alliance. Another example: in the past year the stocks of major handset manufacturers Nokia, Ericsson and Motorola have fallen even though sales are up.
Thanks to an alternative technology, however, fast, functional Internet access on mobile phones may be only months away for most Europeans, and a year or so for hundreds of millions of other people from the United States to India and China. This technology is not revolutionary but evolutionary: an upgrade of the existing GSM digital phone services and the hapless WAP data phones, which last spring brought Internet access to mobile phones.
The Global Standard for Mobile Communications (GSM) was slow to take off in the Americas, but with 400 million subscribers it is now the norm in Europe and most of Asia. Global roaming is possible: the same phone can be used in Manhattan, Paris, Hong Kong and even Greenland and Mauritius. Data transmission, though an agonizingly slow 9.6 kilobits per second, is remarkably reliable. The phones work well in almost every corner of the European Union, though some networks have become overcrowded. London can be hellish, since an estimated two thirds of the British population now owns GSM phones. On the Continent, market penetration is usually more than 50 percent.
The new GSM extension is called GPRS (for General Packet Radio Service), and it embodies a technology that bundles digital data into little packets for efficient transmission. Whereas a WAP phone takes 20 or 30 seconds to retrieve a Web page, a GPRS phone retrieves a page in a second or two. GPRS should, in fact, offer just about all you'd want on a tiny screen: stock quotes, traffic reports, movie guides, moving animation, good-quality still pictures. It will also make the phone a more efficient shopping tool: advertisers will target specific customers, and customers will pay with the push of a few keys.
Because of the hype and the huge sums already spent on 3G, many telecoms have treated GPRS like an unwanted stepchild. The industry generally refers to it as 2.5G, implying something intermediate or makeshift. And its WAP heritage (it is based on some of the same technology) is something most marketing directors would prefer you didn't know. Even those who've signed up for the service rarely use it, and for those who do, offerings are meager.
Billed as "the mobile Internet," WAP led to instant disappointment for anyone used to PCs. So how do you sell GPRS to the public? It's not exactly the new, new thing. It's just a new, useful thing.
Nor is GPRS the only game in town. Europeans, looking desperately for positive mobile-Internet role models, have written rapturously about NTT DoCoMo's sui generis i-mode system in Japan. So far i-mode has almost 17 million subscribers in the archipelago and hosts thousands of services. Because DoCoMo has a foothold in the Netherlands, and because it plans to roll out 3G services in Japan this spring, there's persistent talk about i-mode's being something that Europeans ought to want and need. But i-mode technology, as it stands, is based on a uniquely Japanese phone system. And the basic functionality it offers--"always-on" packet-switched service--is little different from GPRS. In fact, a smaller DoCoMo competitor in Ja-pan, KDDI, has been growing fast.
Another alternative for high-speed mobile data may grow out of wireless area networks, even the new Bluetooth, a technology to connect appliances without wires, due to be introduced widely this spring. Although it was originally conceived for electronic devices to communicate over short distances, plans are now being studied that would install Bluetooth nodes in airports and other public buildings. If your laptop or PDA had a compatible chip, you'd have instant broadband access as long as you were in the building.
Nor is GPRS the only high-speed technology based on GSM. Business users willing to pay the connection fees may take advantage of High Speed Circuit Switched Data, which promises reliable lines of about 57.6 kilobits per second. That's about five times faster than woefully slow WAP devices, and as good as GPRS is supposed to get.
GPRS does have its glitches. The service was supposed to take off last fall in France and elsewhere on the Continent. Then it was postponed to "the end of the year." Now January is upon us, and nobody--nobody--has the new phones in France. Across the channel and up in Scandinavia, a few do. But according to James Pearce of London's AnyWhereYouGo.com wireless-Internet lab, which tests the things, the new phones are still on the slow side "if they work at all." The first to come on the market in Finland, late last year, were almost as bad as WAP.
Even so, Forrester's gloomy Godell still thinks GPRS is the best bet in the years to come. "GPRS is going to be a killer," he says, "and where most people should concentrate their attention." In his controversial report, he suggests that smart telecom operators "will milk GPRS" and minimize their efforts to bring 3G online.
So will third-generation phones be the HDTV of handsets? A marvelous technology that everyone admires but nobody needs enough to justify its price? Perhaps. But a better guess is that GPRS is what the world really needs and wants for its phones right now. And 3G will be, well, something else. Analysts see a future, four or five years from now, when 3G technology is adapted to specific uses in specific machines, and they won't have much to do with our current handsets. Gameboys and their ilk, for instance, will allow interactive gaming that knows no bounds. Your laptop, with a nice bright screen, will have a built-in 3G unit. So will your PalmPilot, or perhaps that electronic magazine you're carrying under your arm. Your earphones will be downloading your choice of music in real time. Your car will be tuned in to traffic monitors.
As we've gotten used to all that GPRS can offer, those 3G gadgets won't seem revolutionary at all. Just useful, practical, evolutionary improvements. In that middle-distant future, the consumers very probably will get their money's worth. The investors? They may have to wait a while longer.