European telecoms - a guide to the future?

With two of the top three mobile handset manufacturers calling it home, Europe is one of the key markets in the world of telecommunications. CommsMEA brings you a guide to the European telecoms market.

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By  Philip Fenton Published  February 6, 2002

Introduction|~||~||~|When it comes to the telecoms industry it's an undeniable fact that the Middle East lags a year or more behind Europe in terms of technology and infrastructure. That's not necessarily a bad thing, since it allows operators over here to learn from the mistakes of others. But the time lag means that the state of the market in Europe can be a pretty good indication of what the future has in store for the Middle East and Africa.

Europe is home to some of the major players in the world telecoms market. Nokia, the world's largest handset maker, hails from Finland, and Ericsson and Siemens are also based in mainland Europe. In fact two of the top three handset makers are European, the exception being America's Motorola. Vodafone, the largest telecoms company in the world, was born in Britain, and companies such as Alcatel, BT and Deutsche Telekom all started life in Europe. Many of the world's top telecoms companies are based in Europe, and the market as a whole is highly advanced, but no sector is particularly world leading. The United States is about a year and a half ahead when it comes to fixed internet usage, whilst Japan leads the way when it comes to mobile internet and third generation technology.

Europe is not far behind though, and the past 18 months have seen some major changes in the European telecoms market, with the promise of much more on the way. In early 2000 the UK government became the first in the world to auction off third generation mobile licences. Fearing that without a licence they would no longer be able to compete, mobile operators raced to outbid each other. The way the bidding system was organised, each new bid had to be a certain percentage higher than the previous one. After over 150 rounds of bidding the stakes were astronomically high and the UK treasury raked in £22.47bn, over four times the £5bn the government had hoped for. Realising the potential goldmine they were sitting on governments across Europe rushed to claim a piece of the action. Germany was next to hold an auction, earning £30.4bn for the sale of six licences. Not all countries held their auctions this way however: Spain held a beauty contest, where the winners were decided on who would offer the best service, and made just £12m. When it became apparent how much money it had missed out on, the Spanish government began to consider charging the winners more money for their licences, but by then the telecoms companies were beginning to look at their balance sheets and questioning the amounts they were handing out for licences. The whole thing was a huge gamble on a technology that wasn't even finished.

Not only that, but after winning a licence an operator was faced with the task of constructing an infrastructure from scratch, estimated to cost as much as £2bn per company in the UK alone. Technology shares were already weak, and as speculation began to grow that the companies would never earn enough revenue to pay off their debts, share prices began to slide. Governments' hopes of raising huge amounts of money began to fade: the Dutch government raised less than half the £3.4bn it had hoped for after only six companies lined up to bid for five licences. The telecoms industry was heading for recession, and things looked grim. Fast forward a year or so to the present day and the picture is starting to look a little more rosy.
Europe has already seen the launch of the world's second commercially operational third generation mobile network in the Isle of Man, with Japan's DoCoMo being the first, and networks are being constructed in most other countries at the present time. GPRS services have also been up and running for some months in most European countries, but widespread European 3G deployment may still be some way off. The year 2001 was a year of missed deadlines in the world of European mobiles. At the start of the year Manx Telecom was still publicising its intention to broadcast live video clips of the TT motorcycle races, held each summer, over its 3G network, whilst Spain was still insisting that its 3G licence holders cover every major city by August. Europe's mobile operators are beginning to wake up to the fact that implementing 3G will be a long task in terms of building infrastructure, and even then it will not be an overnight success. If it is to succeed commercially then what they need is partners to provide content. Siemens recently announced a contract with American web portal Yahoo! which will see the German manufacturer design its new phones to give customers easy access to information on Yahoo's web site. AOL has signed similar deals with Nokia and Ericsson. The deals reflect a growing trend amongst American internet companies to turn their backs on the relatively immature US mobile market to concentrate on the more advanced, and therefore potentially more lucrative, European mobile scene.

Such deals could prove to be important in Europe, and indeed the rest of the world. At the GSM World Conference in Cannes Nokia predicted that the number of mobile internet users would exceed fixed line users by 2003.

||**||The Internet|~||~||~|

When it comes to broadband internet Europe lags at least a year behind the USA, and even parts of the Middle East can give many European areas a run for their money. The roll out of broadband has been slow: it has yet to reach most rural areas, and where it is available in urban centres it can be unreliable, expensive and oversubscribed. Companies such as BT have been heavily criticised for their poor performance in this area, with many customers complaining of unreliable connection speeds and unhelpful technical support staff. In November 2001 internet access for every BT customer in the country was severed due to a fault in BT's national IP network, Colossus. In fact in September 2001 BT was ordered to stop claiming it provides a 'reliable' internet service by the Advertising Standards Authority. The complaints came over a banner advert that was being run on the web which stated: "BT Anytime for a fast, reliable service." The Authority ruled that this claim was misleading. UK Prime Minister Tony Blair's dream of 'broadband Britain' seems a long way off.

In a survey carried out in the UK in July last year over 70% of UK businesses said they felt they were being held back by a lack of broadband connections. The Communications Management Association (CMA) spoke to 562 communications managers and found a huge increase in dissatisfaction with broadband compared to 2000, when only 45% expressed frustration. "The quality of services overall that businesses are being offered by almost all the major suppliers and providers is getting worse," said John Wright, chairman of the CMA.

According to a recent report by research agency Datamonitor, just 6% of Europe's 51 million web enabled homes have broadband access. The report does not just blame the service providers, however. It cites a lack of broadband specific applications as another problem: in other words, there are not enough services currently available to encourage customers to pay the extra money to get a broadband connection, and the benefits of broadband access are not always made clear. "Service providers must not run before they can walk. To attract a wider residential subscriber base, they need to improve their marketing message to ensure that European consumers understand the added value that broadband can provide," said Datamonitor analyst, Caroline Bryan.

One major provider of internet connections in the UK is NTL, which began life offering homes cable TV, but has since expanded to offer both broadband and narrowband internet through its cable network. But NTL has fallen on hard times. The cost of digging up the UK's streets coupled with rapid expansion has seen the company's debts rise to £12bn: at the time of writing the company's share price values it at less than £200m, just over 1% of its debt mountain. In fact its share price in New York has fallen from a high of over $130 to less than 70 cents.

NTL said it was cutting 4,000 jobs in the UK, bringing forward 2,000 redundancies planned for next year and axing another 2,000 workers on top of that. The company also announced a pay freeze for managers, a review of all operating and capital expenses, and a review and removal of all non-essential consultants and contractors. The company has already reduced its work force from 21,800 to 17,000 in the past 12 months, and had planned to cut another 2,000 in 2002.

It seems likely that the company will be saved by the banks exchanging their loans for shares in the company, but the case highlights the problems faced by the internet in Europe.
Internet access in Europe is still prohibitively expensive when compared to the US. Internet traffic travels for the most part over leased telecoms circuits, which can be hundreds of times more expensive than the US equivalent. Amazingly, it is often cheaper to route traffic to the US and back rather than directly between two European cities.

But it's not all doom and gloom. Despite the many setbacks and problems, the rollout continues across Europe, with more and more homes and businesses taking advantage of the internet. According to internet research and analysis company Jupiter MMXI, the number of households in both the UK and Italy will increase threefold during the year, whilst Belgium and Sweden will continue to lead the way in broadband with 12% and 18% of homes online respectively.

Rich Hudson, director of European internet strategy for the UK based operator Cable and Wireless, argues that Europe is catching up with the US, but he says it will take an investment of about $5bn over two years to reach North American standards.

And whilst the US has an 18 month lead over Europe in terms of internet infrastructure, Europe leads the way in the field of mobile telephony. In the US less than half of all mobile phones are digital, compared to 95% in Europe. With GPRS networks newly in place and the world's second 3G network now commercially operational it's possible that in the very near future the rollout of high speed internet access may not be tied to fixed infrastructure. Martin Heath, telecoms specialist at UK consultancy KPMG, believes the mobile internet will make it possible to jump a generation in technology, transforming the way the internet is used: "Within five years, more than half the devices attached to the internet will be portable," he said, pointing out that the devices will not necessarily be recognisable as phones.

Europe's fixed infrastructure is improving, however. It has always been hampered purely by the overcrowding seen in many European cities: it's hard to dig up busy streets to lay cables, but the process is continuing. Siemens recently installed a DWDM optical backbone for number one Italian ISP FastWeb. The backbone transports data, video and voice at a transfer rate of up to 0.8 Tbit/s, that is, 80 channels with 10 Gbit/s over a single fibre. This allows FastWeb to offer high-speed Internet servicse throughout Italy, with the scalability to increase capacity only where it is really needed.
Despite all the problems mentioned above, internet usage continues to increase across Europe, with more and more homes going online. And with the advent of high speed mobile devices, the sorry state of fixed broadband rollout may become less and less of an issue.

||**||3G|~||~||~|

Last year there was a well publicised race between Japanese mobile operator DoCoMo and Manx Telecom, based in the Isle of Man, to be the first to launch a commercial 3G network.

After months of delays due to technical problems, such as calls being dropped when the caller moved between base stations, it was DoCoMo that became the first to launch 3G.

Manx Telecom, a subsidiary of mmO2, the former mobile arm of BT, followed hot on DoCoMo's heals, launching Europe's first UMTS network on December 5, 2001.

The problem still faced by 3G licence holders is how to make money out of the services they offer. UMTS has huge potential, and the technology allows practically endless possibilities, but what should the operators try to offer, and how should they charge for it? To this end Siemens has been testing applications in Monaco which allow the user to send and receive e-mails, browse both the internet and intranet, listen to hi-fi quality music, view videos and, perhaps most interestingly, access location specific information: in this case a mixture between a map and a yellow pages.

"The mobile Internet, made possible by UMTS, will run on all kinds of devices (laptops, PDAs, mobile phones etc.) and it will generate new user preferences and communication habits," said a spokesman for Siemens.

"It will enhance the PC-oriented wireline channel. Mobile users will demand all kinds of services: services that are tailored to people on the move, for example, location-based services. This will be the added value of mobile business and this is why I am convinced the new generation mobile telecommunications will be successful."

The Isle of Man was selected for the location of Europe's first 3G network because it is so small. It allowed a complete network to be constructed whilst keeping things on a relatively small scale. UMTS is a very new technology, and as yet it remains untested. The Isle of Man network will provide valuable experience that will be used in the construction of further networks across Europe and the rest of the world.

As mentioned earlier in this article, ever since the licences were sold, 3G has been a technology characterised by missed deadlines. At the start of 2001 Manx Telecom were hoping to launch in time for the summer, and Spain was still insisting its operators cover all the major cities by August. At the start of 2002 even the most optimistic industry watchers don't expect to see much action before the end of the year, with most operators admitting that some time in 2003 or even 2004 is a realistic bet. Even when the networks are launched, they won't be as widespread as GSM networks for some time, and the take-up by consumers is expected to take some time to gather pace. It's important to remember that mobile phones had been around for over a decade before they began to become anywhere near as popular as they are now. Third generation mobile will not be an overnight success, in Europe or anywhere else, but it will happen, and Europe, along with Japan, will be leading the way. ||**||

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