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Roam. Making Sense of the Wireless Internet
Foreword to the Paperback Edition
(published September 2002)
'I know we're all going to die. There's three of us who are going to do something about it', Thomas Burnett told his wife Deena over his mobile phone. 'I love you, honey', he added.
Those were his last words. Minutes later, United Airlines Flight 93 crashed in a field in western Pennsylvania with 45 people aboard. All died, and Burnett and his flightmates-in-tragedy are now remembered as heroes - some of the few known and more numerous nameless heroes of September 11, 2001.
9/11, the day that will go down in history as a dramatic watershed, Islamic terrorists hijacked four commercial airplanes flying domestic routes within the United States, crashing two of the aircrafts into the towers of the World Trade Center in New York and a third one into the Pentagon in Washington, D.C., killing nearly 3000 people, shocking the world, and forever altering the course of history. Time seemed to stop. We have all stared in disbelief at the television images of the collapsing towers, experienced the horror, and shared the grief.
United Flight 93, en route from Newark to San Francisco, was the fourth plane seized by the terrorists that morning. We may never know the true story of what happened on board before it crashed. But there have been countless official and media reports that converge to confirm that a number of passengers decided to take on the hijackers after hearing about the Twin Towers from their families, over their cell phones. It appears now most certain that Flight 93 would have been used by the terrorists to crash into another building - perhaps the White House, or the CIA's headquarters in Langley, as has been speculated. But Thomas Burnett and several other passengers fought back, preventing further death and destruction by causing the doomed plane to crash before it could be used as another flying weapon.
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Why am I chronicling this here? The original edition of this book went to print just prior to, and was distributed a couple of weeks after, September 11, 2001. That tragic day, and the days that followed, cell phones (and the Internet) reached a new height in public consciousness, becoming for many the only means to be instantly in touch in that time of crisis. The Internet: when most phone lines in and out of New York were interrupted and millions around the world were trying to reach their families and friends with just that question - 'are you OK?' - the Internet provided the only functioning individual communication channel, relieving the anguish of many. The cell phone: Thomas Burnett and numerous others aboard the hijacked planes, understanding that they had little or no chance of survival, called their beloved ones to share final words of grief and love, to say a last tender goodbye, to seek and offer emotional support while the unthinkable was happening. Several of those left behind said later that after the initial shock, being able to talk on the phone one last time with their husbands and wives helped to alleviate the pain and gather the strength to overcome it - and that, per se, is a major alteration in the way we experience and cope with tragedy.
No one was prepared for this experience. As Henry Porter wrote in an article published in Vanity Fair in December 2001: 'It was a shocking novelty, and that was because we had never fully appreciated the potential of the little device we carry in our pockets and purses. We swore by its convenience, praised its versatility, and resented its intrusiveness, but we did not for one moment imagine that it gave us the power to channel one person's consciousness into another's a few seconds before death.'
Because they could reach out to the world and gather, in real time, the information about what was happening in New York, Burnett and his colleagues could also decide to resist the hijackers: to modify the course of the events acting upon the information received through their mobile phones.
Finally, it is fair to assume that most people, at least in Europe and probably in the United States, found out about the events through their mobile phones - almost instantaneously. I was in a meeting with four other people that morning, and three cell phones started vibrating almost simultaneously. Colleagues and friends at the other end of the line were urging us to turn to the television. And short text messages (SMS) started coming in in numbers.
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Among many other things, the tragic events of September 11 have thus revealed how pervasive mobile communication has become, how it impacts even the most intimate aspects of our existence, how it has infiltrated the fabric of daily life. Even more so when it is combined with the resources of the Internet. In developed countries many people consider today the mobile phone as an extension of their body, an additional interface to the world, an expansion of their senses, allowing them to reach out to the world. This increasingly intimate relationship to the device (and to the connectedness it allows) translates into the language used to describe it: in the German-speaking countries, for example, the mobile phone is nicknamed 'handy', while in Scandinavia it's often called 'the small hand'.
The numbers tend to concur. Consider GSM, the standard used in Europe (and increasingly in the rest of the world) for mobile communications. GSM was commercially launched in the early 1990s. In most European countries, 70 per cent of the population today uses a GSM phone. That a technology could reach this level of penetration in 10 years is unique, and it can only be explained by its consistently fulfilling basic needs of people - social connectedness, a sense of belonging, convenience in daily life and work, timely information-gathering, peace-of-mind. Or, another example, consider the figures released by the International Telecommunication Union about the exploding telephone usage in Africa: at the end of 2001, 28 million people in the continent subscribed to a mobile phone operator, compared with 22 million users of fixed lines.
The success of mobile telephony is therefore undisputed. Yet paradoxically the whole industry is torn by doubt, and its future potential looks stormy. Wireless operators - the sector's central players - are confronted with some serious problems. After several years of solid and constant growth rates of more than 60 per cent a year, markets are saturated, and customer growth has virtually stopped (in Italy for example, where 87 people out of 100 own a mobile phone, customer increase in the first quarter of 2002 has been less than 5 per cent). The growth of voice call usage by existing customers is almost flat. And this is happening in a context of sweeping consolidation, continuous erosion of tariffs due to increased competition, near-to-the-ground stock markets, and mountains of debt that severely limit their capacity to invest (according to figures published in May 2002, the five European heavyweights France Télécom, Deutsche Telekom, Vodafone, BT and Telefónica had a combined net debt of almost 200 billion euros; the only happy and cash-rich exceptions were tiny Swisscom and Belgacom). Where is the next growth going to come from? What services and products are in the pipeline? Does the market demand these services and are customers willing to pay for them? What impact could wireless really have on individuals, society and businesses going forward?
Roam is an attempt to offer some answers to these (and many other) questions and to map some realistic paths of likely evolution. As these questions have gained in significance since I wrote this book a year ago, I'm particularly glad to be able to say that 99 per cent of what you will find in the following pages continues to be fresh and relevant (for updates on the rest, see below). It's not all to my credit, of course: the industry's development has been significantly slowing down. For the reasons listed above most players (operators in particular) have decided to play their 'optionality' - minimizing investments to the level needed to keep all options open, while waiting for the economic climate to take a turn for the better and for new ideas to come along.
So, where is the 'wireless Internet' heading now, and what has changed since I wrote the original version of Roam a year ago? It has long been an article of faith in the industry that the future resides in wireless data - which can be roughly described as services, content, applications and features that have some similar characteristics to what you can find on the Internet (information, entertainment, messaging, corporate apps, automatic features) but which you can access through wirelessly-connected devices. Today this can certainly be acknowledged for a fact. Short messaging (SMS) is still booming everywhere, and together with the sale of ringtones and logos represents up to 11 per cent of total revenues of some operators in Europe. In Japan, i-mode has reached 33 million subscribers (June 2002) and continues to be a spectacular success. Where it exists (Japan and Korea, and just coming to Europe now) picture messaging is an absolute hit. Many companies are also considering using sophisticated wireless systems in their day-to-day business; some have run their first wireless marketing projects; others are seeking to 'mobilize' their workforce; but all do it with a lot of prudence, reluctant to invest in new and risky technologies without a tangible payback - this is no longer the time for experiments.
All these things are discussed in this book, so I don't need to go into the details here. However, while many see them as indisputable signs that 'the 3G business case is firming up', I dissent and believe that this remains largely unproven. The explosion in SMS usage is definitely a strong indication that mobile data services can be a viable business. Businesses can benefit from using wireless solutions intelligently (see chapter six). But 90 per cent of the revenues of a wireless operator still come from traffic - and not from value-added services that are portrayed as the main characters in the 'vision' videos handed out at industry gatherings. I believe that we are just at the beginning of an amazing discovery: that 3G (or UMTS, or 'third generation', or 'wireless Internet' - the concepts are different but most people use them interchangeably) is way more complicated, technologically complex, and commercially multifaceted than anyone in the industry is willing to admit. That it will take longer than foreseen for the new services to be deployed and to be taken up en masse by customers. And that it badly needs innovative yet more pragmatic ways of imagining it.
The problems that are conspiring to delay 3G are known, and they are discussed in the first chapter of this book: the technical standards are not mature; devices that can communicate in GSM, GPRS and UMTS 'radio languages' don't exist yet; UMTS-only prototype devices are still too big, too expensive, unstable, and drain the battery in a matter of hours; network complexity is far above that of GSM; interoperability remains a major problem; amidst popular fears about the possible health impact, it is increasing difficult to find sites to build new antennas; alternative access technologies such as W-LAN (or Wi-Fi) are growing fast; and so on.
According to the scenarios drafted and marketed in 2000, the first commercial UMTS services were supposed to be available before the end of 2001 and offer everything from music download to wireless games. In Spain, the government had even set a deadline for August 2001 - to which the operators agreed when buying their licenses. Only NTT DoCoMo in Japan (in October, but with limited coverage and a modest success so far) and, as a field test with a few users, Manx Telecom (a subsidiary of BT in the minuscule Isle of Man, in December) could launch within that window. Needless to say, the Spanish target date has been moved. Most operators who bought licenses across Europe are still planning and slowly installing their network, and many are begging regulators to allow more flexibility in the licence's requirements. Even in Finland, home of Nokia and the first country to attribute UMTS licenses in March 1999 (the government gave them away for free, thus avoiding burdening operators with unnecessary debt), there is little enthusiasm and progress is becoming significantly delayed.
I maintain my forecast of 2005 or 2006 at the earliest for the fully-commercial and large-scale availability of 3G services and products in Europe. Until then, it will be a small-volume affair, with not much action until 2004.
Not that I don't believe in the potential of the 'wireless Internet'. On the contrary: this book is all about that. But so far only two technologies - SMS and i-mode - have succeeded in defining and implementing a compelling and satisfactory proposition for the customer, and they both have a peculiar history: the former as a grassroot, unexpected phenomenon, the latter born in a market like no other: Japan (see chapters three and four).
The naïve, crystal ball gazing way in which scenarios and promises have been, and continue to be, developed and hyped shows that the industry is still a prisoner of the same way of thinking (confusing new technology with a cool new service) that made it overpay for licenses and sink an otherwise interesting technology such as WAP - does anyone remember the embarrassing 'Surf the Net, surf the BT Cellnet' advertising campaign? Along the same lines, mobile portals' business models also proved to be largely unsustainable. And to date, the introduction of GPRS (General Packet Radio Service, see chapter one for details) didn't boost wireless data services as predicted, despite aggressive discounting by the operators. Just to mention one figure: at the end of April 2002, the British mobile phone retailer Carphone Warehouse said that out of the 170,000 customers that bought GPRS-enabled handsets, just 200 had signed up for the service.
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Expect the next big mess to happen with MMS (multimedia messaging service, described in chapter four). Curiously, before the annual 3GMS World Congress, which took place in Cannes in February 2002, MMS was seen as just one of the possible features of the 'wireless Internet'. But then, everybody there was trying to tap into established customer needs, and therefore build on the success of SMS. And MMS got pushed into centre stage. It is now presented as the 'next big thing', the successor and heir of SMS, and is in serious danger of being overhyped.
The trouble with MMS starts with its name - multimedia messaging service - which is misleading. It is a technology that allows for sending and receiving text, sound, images, video, graphics, and all of them combined. Its protocols are very powerful. But MMS is not really about messaging, as its name suggests. Sure, one of the first things that users may do is to send picture mail - take a picture with a camera built into your cell phone, and send it to a friend or to a colleague back at the office. Picture messaging has proven to be hugely attractive in Japan, where it was launched at the end of 2001 (it's called 'sha-mail' there, where 'sha' means literally 'making a copy'), and this is encouraging. But "if picture messaging is what it is about, there are cheaper and simpler ways to do it, like attaching a standard JPG file to an e-mail message, as they do in Japan", says Maarten De Wit, a principal with consultancy DiamondCluster. He adds: "MMS is expensive and complex, and there is no real relation between the cost and the value perceived by the user".
MMS is more about entertainment pushed out to users - for those who like Internet buzzwords: it's about 'content push'. It's a way to compose complex animations such as postcards or games, using the features of a website and the tools of a computer (because the interfaces provided by handsets are too poor), and then 'push' them to the mobile device. Think of expensive logos, ringtones and 'snake' games on steroids (and of course advertising animations) rather than interpersonal communication of the SMS kind.
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A development that many are nervously watching is the European rollout of i-mode, the very successful service of NTT DoCoMo of Japan, which is described and discussed in detail in chapter three. KPN Mobile, the Dutch operator partially owned by DoCoMo, launched the service in Germany through its subsidiary ePlus in March 2002, in the Netherlands in April, and in Belgium in June, with France set to start later in the year. (In the United States, AT&T Wireless rolled out a version of i-mode, called m-mode, mid-April, with similar characteristics.)
As in Japan, the service enables e-mail and gives access to a myriad of official sites (news, weather, games, banking, auctions, city guides, dating, adult content, directories: about 60 to start with) and unofficial sites. As in Japan, the partners providing the official content are first-class: Der Spiegel, eBay, Brockhaus, Fleurop, Comdirect, and other top German and international outlets. Like in Japan, users pay a basic monthly fee (three euros), plus additional fees based on the amount of data transferred and on the content services they subscribe to. This works out to something like four euros for 300 e-mail messages, which looks cheap. But e-mail is a low-bandwidth application: sending a picture at these tariffs would cost a couple of euros, downloading a song in MP3 format, 30 euros or more.
Unlike Japan, i-mode in Europe is facing many hurdles. To start, the vast majority of KPN customers (like those of most other operators) subscribe to pre-paid offerings, and will need to be converted to the monthly billing model used for i-mode. There is only one i-mode handset available, and it costs 200 euros (two more are to be released later in the year). At the time of introduction of i-mode, seven out of ten Europeans already own a cell phone. And KPN has nowhere near the iron grip on the market that DoCoMo has in Japan (see chapter three).
Nonetheless, i-mode's arrival in Europe is a crucial test for the 'wireless Internet'. As the only high-profile novelty out there, its itinerary will tell a lot about the prospects of wireless data services. If it succeeds, that will show that there is a potential. If it fails, it will significantly compound the industry's troubles.
KPN declared to target 600,000 customers in the first year in Germany alone (400,000 new, 200,000 'converted' existing ePlus customers); in the first two months it signed up 35,000 in Germany and 11,000 in the Netherlands. It may look like a slow start, but it matches the initial pace of development of i-mode in Japan, 3 years ago. More importantly, early users are raving about the service. "Itīs incredibly easy to set up, incredibly easy to use, incredibly useful, and cheap", says Vincent Everts, a Dutch investor who is known for voicing no-compromise opinions about new technologies. While KPN declined to give more details about usage, one figure filtered out: after only a couple of weeks, 77 per cent of total usage of the entertainment channel was generated by the site run by Playboy Enterprises (for a discussion of wireless adult content, see chapter five).
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At the end, everything comes down to what kind of services customers - you, me, and the companies we work for - want beyond mere voice calls and SMS and how much we're prepared to pay for them.
In the first pages of chapter five, I report the details of a survey realized in January 2001 by consultancy A.T. Kearney, which found that only 12 per cent of those surveyed in the United States, Europe and Asia were interested in 'mobile commerce', down from 32 per cent in June 2000. The consultancy, together with the Judge Institute of Management (the University of Cambridge's business school) carried out the same study again in January 2002. They surveyed 5,600 wireless customers in 14 countries, and found that only one per cent of them was still interested in mobile transactions of any kind.
It's probably time to acknowledge that the development of the wireless Internet is going to bring benefits to those who adopt a pragmatic approach. Rather than acting as disruptive models, successful new services and applications will be an extension of these that exist already, leveraging the immense potential of mobility and building on the current perception of mobile phones as communication tools.
Users seem to be primarily interested in very ordinary and obvious things: mobile phones that work reliably, good voice quality, networks without holes, systems that give them mobile and easy access to their e-mailbox, basic convenience features such as alerts or calendaring. Until these simple concerns are satisfied, they don't seem in a hurry to advance towards more complex, non-communication-related services.
B. G.
June 2002
(copyright Bruno Giussani 2002. All rights reserved.)
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