How long can this lead last? Wireless networks built and operated for voice are being upgraded to ca...
How long can this lead last? Wireless networks built and operated for voice are being upgraded to carry potentially huge amounts of data traffic. Over the next two to three years, as the next generation of telephony is phased in, European companies will find their positions threatened not just from established rivals in the US but also from Asian companies keen to grab market share.
The US has lagged behind Europe both in technology and in the degree of penetration of mobile telephones. But this is changing fast. Motorola is already the world's second-largest provider of handsets; and (as the chart shows) penetration of mobile telephones in the US is rapidly catching that of many European countries.
Yet it is the evolution to so-called 'third generation' (3G) networks and services where competition is likely to be keenest. Data services on wireless networks are in their infancy, accounting for only 1-2% of global traffic in 1999. Nevertheless, the appetite for new services is clear. In the same year, 12 billion short message (or SMS) calls were made in Europe alone. A mobile handset may not seem the ideal device to connect with the internet, given the small size of its screen and its limited graphical range. But it is likely that applications developed specifically for wireless devices will demonstrate the speed at which the new networks will operate.
As the diagram shows, the shift to 3G telephony is taking place in two main stages. Users will need new, more sophisticated telephones; and new networks will be required to carry their traffic. The handset market is dominated by three companies: Nokia; Ericsson; and Motorola, who between them have a global market share of some 60%. All these manufacturers have already produced prototype handsets for the system known as GPRS.
As 3G approaches other manufacturers will seek to gain market share. Samsung of Korea has already been successful in its home market as well as elsewhere in Asia; it looks well placed to make further gains. In Japan, the picture is less clear. Japan will be the first market to accept 3G sometime in the second half of next year. Whilst this will give many of the Japanese manufacturers a head start in perfecting their new handsets, it will also allow the European manufacturers to enter a market which until now has been dominated by companies such as Matsushita and NEC.
A notable exception from the list of major providers of handsets has been Sony, which is surprising given its success with many other electronic devices aimed at the consumer. Sony has begun aggressively to re-enter the handset market; indeed, with the right products it could present a real threat to the incumbents both in Japan and elsewhere. As data becomes more important, other wireless devices will also emerge. Personal digital assistants (PDAs) such as the Palm Pilot or Psion will use wireless either in conjunction with mobile phones or on their own. Here, US companies already dominate the market and may continue to do so.
Whilst Europe's incumbent manufacturers are likely to face intensifying competition over the devices themselves, there are still areas where they may well retain a commanding position. ARM Holdings, which is based in the UK, licenses the core designs on which the microprocessors inside 70% of the world's phones are produced. The company has worked with all of the existing manufacturers of handsets on the next generation of phones, so its chips are likely to remain popular.
Psion is a significant shareholder in the Symbian joint venture, whose EPOC operating system is one of the emerging standards for wireless devices. Third generation smartphones will be considerably more complex than current models, so the software they run on will assume greater importance.
Upgrading the network infrastructure will involve significant investment for all the mobile operators. Having paid substantial sums for 3G licenses, the winners will be keen to roll out new revenue-generating services as soon as possible.
Ericsson is the world leader in wireless infrastructure, with other European companies such as Nokia, Alcatel and Siemens also serious contenders. Those operators who have awarded 3G network contracts have tended to remain with their existing suppliers of infrastructure equipment, suggesting that providers will retain their current positions in the market. Europe has a leading position in several areas of software. Billing and customer care are critical for wireless operators, ensuring that they capture what customers spend on their networks and that customers remain loyal. The Anglo/French company Sema is a major player, competing with US companies such as Amdocs. Billing for 3G and what is known as 2.5G will be based on the number of packets of data sent, not on the time taken to send it.
This added level of complexity is an extra incentive for operators to outsource their billing systems. Short messaging is a small but lucrative part of operators' services, and the three leading software suppliers in this area - Logica, Sema and CMG - are all European.
Wireless operators are gearing up for the potential of mobile commerce, but software has an important part to play here too. Customers will soon be able to make requests via their handsets for services in a particular area (eg, Where's the nearest Italian restaurant?); retailers will also be able to entice potential customers whom they know to be in their area with special offers based on a customer's previous spending patterns. WAP is the current standard for viewing stripped-down content of this kind over wireless devices; and the microbrowser used for this was developed by Phone.com, one of the leading US companies in wireless software.
For mobile commerce to work effectively, software that can gauge the
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