Phone Company On Isle of Man Aims to Unite The Internet And Wireless
This blip of an island in the Irish Sea has muscled its way to a latter-day prosperity through such attractions as ever-lower taxes, offshore banking and motorcycle races around the twisting roads that gird its hilly interior.
Now the island’s phone company, Manx Telecom, a unit of British Telecommunications, is racing forward in its own ambitious quest: to introduce the world’s first phone network using the much-promoted new technology that European telecommunications operators have cast as their holy grail, uniting wireless mobility with the breadth of the Internet.
The battle had been viewed as a David-and-Goliath contest, stacked in favor of Manx’s main rival, Japan’s mighty NTT DoCoMo. [But when DoCoMo announced on Tuesday that it would postpone its introduction of the so-called third-generation phones until October, the odds were reversed. ”We might consider this to be good news — we have now got more chance of being first,” said Mark Briers, who is heading the Manx project. ”But for the industry, it’s a shame. And we still want to prove that third-generation works.”]
Manx Telecom plans to begin distributing in May handsets capable of hooking up to the Internet at speeds far beyond those currently available on wireless devices, and of someday transmitting music, video, restaurant menus, games and e-mail along with the sound of the user’s voice.
Yet the tiny scale of the project is as much a symbol of how all the hype surrounding third generation, or 3G, wireless technology has fizzled as it is an emblem of Europe’s vaunted lead over the United States in wireless technology.
Unlike other European operators, Manx Telecom got its 3G license free, and the big players — from Britain to Japan — have all announced delays, in large part because handsets are in short supply and networks are still being built.
Only 200 of the wireless devices will be made available in the initial rollout on the Isle of Man — and most of those will be given to a select band of pioneers — for what is basically a pilot project that will allow British Telecom to iron out any glitches before the new technology is introduced across Britain and the Continent next year.
Manx Telecom said the phones, which are eventually supposed to provide novelties like video phone calls and Internet games across this island of just 227 square miles, with a population of 75,000, will not be available in larger volume for maybe another year. With a considerably larger market, NTT DoCoMo said initially that it would sell 10,000 handsets, but that has been scaled back to 4,000.
In what some analysts depict as one of Europe’s biggest corporate missteps, the early mad dash to buy licenses and build networks has left telephone operators saddled with some $330 billion of debt. That has lowered their credit ratings and crimped their ability to invest in the networks they once portrayed as the way of the future. Some European operators are seeking changes in competition laws to allow them to share the cost of the networks.
Just a year ago, telecommunications operators were scrambling to buy a seat at the 3G table, paying a total of some $100 billion for the permits. In Britain, British Telecom, Vodafone and others paid some $35 billion for the 20-year licenses. Auctions in Germany followed, with the government there netting $46 billion. But investor confidence waned, as phone companies realized that the licenses committed them to spending much more to build networks than they were likely to earn from the new technology in the first few years. Indeed, some analysts say networks will not be built on the kind of scale that might coax forth a profit until 2005.
Auctions in Italy, Austria, Switzerland and the Netherlands late last year were disappointing. In Belgium and France, according to a recent study by the European Commission, license sales attracted fewer buyers than the number of licenses on offer.
Companies that did bite have suffered. [In the last year, British Telecom’s stock has fallen by almost half — a factor that contributed mightily to Thursday’s ouster of its chairman, Sir Iain Vallance — and Vodafone fell by a more than a third.] With the fall in stock prices, operators cranked back the breakneck speed of acquisitions that culminated in Vodafone’s $170 billion takeover of Mannesmann A.G. in 2000. In the Netherlands, Royal KPN’s credit rating was cut to just two notches above junk status.
Handset manufacturers have also been feeling pain. Though Nokia of Finland, the world leader, remains strong, Ericsson of Sweden, a leader in 3G handset and network equipment orders, has announced plans to eliminate 12,000 jobs and Motorola has said it will shed 7,000 jobs as demand for the current digital wireless technology has softened.
The combination of debt and reduced expectations of income from the 3G phones has left phone companies in another bind: without the cash to buy large numbers of handsets at cheap prices, they cannot create a mass market, and that will further hinder their earnings ability. And troubled manufacturers like Ericsson do not want to build large numbers of devices for fear of creating warehouses full of phones.
”The risk is that you won’t be able to get them out because there are so few networks,” said Gunnar Liljegren, a director of corporate marketing at Ericsson. ”There’s a little bit of a Catch-22.”
Such are the scaled-down expectations that both Vodafone and British Telecom plan to introduce a kind of halfway technology called General Packet Radio Service. G.P.R.S. will provide some improvements — including relatively high-speed e-mail and data transfer — over current wireless technology without the costs, and all the bells and whistles, of the full third-generation technology.
British Telecom says it will be the first to start selling G.P.R.S. next month in Britain. Vodafone says it will combine G.P.R.S. and third-generation phones on dual-use handsets when it introduces the fastest mobiles in the second half of next year. But even this technology is likely to be delayed, along with its potential for profits, some analysts say.
All these travails have left some denizens of the Isle of Man feeling pretty smug.
”We actually gave our license away” before Europe’s first splurge of auctions, said David North, the minister of trade and industry for the island’s largely autonomous government, which has even declined membership in the European Union. ”At least, in our case, no one can claim that the cost of the license was prohibitive.”
The third-generation phones will mix nicely with the island’s cocktail of low taxes, offshore status and government grants to start-ups, providing a big lure to online businesses, said Tim Craine, the island’s director of e-commerce, who has a $17 million annual budget to persuade Internet-related companies to do business here. As a very advanced part of the wired world, added Mr. North, the trade minister, ”the water around the island disappears.”
According to Mr. Briers, the British Telecom executive leading the Isle of Man project, the government’s decision to grant the license ”gave us six to eight months to get ahead of the game” by building a network, ordering handsets from NEC of Japan, creating a local Internet portal and setting up an innovative Web-linked billing system.
Of course, no one is pretending that this tiny island is much more than a test-bed where British Telecom and its partners can study some of the many 3G imponderables. At present, for instance, the technology does not allow users to ”roam” from one European country to another as current mobile phones do. The transmission speeds, theoretically up to 40 times the speeds of current wireless devices, will not actually be nearly as quick, Mr. Liljegren of Ericsson said. Some analysts say the technology is far less developed than operators suggest. And most of all, no one is quite sure whether consumers really want the 3G services enough to make them profitable.
In part, wireless operators are banking on past success for future riches. At the beginning of the year, nearly 70 percent of the European Union’s 350 million citizens had a mobile phone, according to the study from the European Commission. Mobile communications brought in some $170 billion last year, almost one-third of Europe’s entire telecommunications market, and the cell phone business grew 12.5 percent — five times the forecast rate for overall economic growth. And all this is happening in an industry whose prospects were initially treated with some of the same skepticism the new technology now generates.
”I think history is going to repeat itself on this,” Mr. Briers said. At the rollout, 3G users here will be able to make voice calls to one another, he said, but that will soon expand into video calls, where callers can see each other on an add-on screen; online news and sports; and features based on satellite navigation to guide people around the island, from restaurants to, say, fairy glens and other idiosyncratic tourist sites.
But for all that the island may gain from new technology, such topics are lately well off the radar screen of many locals.
Instead, what is on people’s mind here is the news that Isle of Man authorities just decided to cancel the decades-old, world-famous TT motorcycle race to prevent foot-and-mouth disease from spreading to the island via any of the 40,000 expected visitors. The two weeks of motorcycle trials and races, which were to begin May 28, represent by far the biggest income earner of the year for many low-tech businesses, from pubs and T-shirt vendors to taxicabs and campsites.
”It’s very bad news for the island,” said Alan Rogers, who runs a cab company, Motion Enterprises. ”It’s really looking like a bad year.”
Will 3G help lift the gloom? ”No one has seen any of the new phones yet,” Mr. Rogers said. ”There isn’t much excitement about them.”