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Consumers spurn 3, while Vodafone courts businesses

LONDON (12/16/2003) - The results are in and, so far, the U.K.'s only 3G mobile network is a flop. But if consumer-oriented 3G services fail to tempt customers, it might be good news for business, as Vodafone Group PLC enters the 3G fray with a service aimed at business laptop users.

The consumer-orientated 3 network, run by Hutchison 3G UK Ltd., announced at the weekend that it has 210,000 customers, falling far short of the million it was hoping to have by the end of 2003. Rival Vodafone has launched a data-centric 3G service aimed at laptop users, causing analysts to wonder if operators might be re-focussing on the enterprise.

Spokesmen in all the media are blaming the low subscriber numbers on a shortage of handsets, as NEC Corp. failed to deliver the volumes promised, and other handsets don't handle the video telephony services on which Hutchison's marketing depends.

One source said the company "needed more competition to boost demand", which presumably means it is getting fed up with footing the bill single-handedly (that's a mixed metaphor -- Ed) for advertising the concept of 3G services in the U.K. However, the company still has plenty of money to throw at it. "We have loads of money," said Canning Fok, group managing director at the launch of Hutchison's 3G service there this week.

While 3 is having trouble wooing consumers, Vodafone has launched a more business-oriented 3G service in Germany and Italy -- but one which does not involve any phones. The service provides a 3G card to corporate laptop users, allowing them to do email at faster than GPRS rates, beyond the limited coverage of Wi-Fi hotspots.

Vodafone's reasoning is that the 3G handsets are bulky and unreliable, and videophone calls tend to break off when the user is on the move. It has hinted that there it will launch a voice service handsets in due course, but is in no hurry to do so. Instead, it is offering something comparable to Wi-Fi hotspot services, but with greater coverage.

Vodafone's choice of Germany and Italy to launch in could be provocative. Hutchison 3 has its other European arm in Italy -- though we wouldn't say this was a competitor for the radically different Vodafone service. Meanwhile, in Germany, (Europe's biggest phone market) Vodafone is using a 3G service to compete with Wi-Fi hotspots -- in the home territory of T-Mobile, the largest owner of Wi-Fi hotspots in the world. T-Mobile, naturally, owns a 3G licence for Germany, but has postponed launching a 3G service there, until 2004 at least.

"3G services will be in competition with Wi-Fi services," said Alastair Brydon of Sound Partners Research.

"Mobile operators are in a good position to exploit WLAN hotspots, since they have a big base of mobile customers." T-Mobile is not a soft touch, however, it could build out hotspots to keep control of the mobile email market, and then move customers across to a cellular service on 3G network.

If the Vodafone Wi-Fi-like 3G service hits the UK, it could be interesting because the company is already offering a Wi-Fi service using the hotspots of potential rival BT Group PLC's OpenZone.

So, if consumer 3G is not such a hot market, will we see more business-orientated 3G services? Don't hold your breath. 3 is expected to re-launch its service in the first half of 2004, with some changes, but these will most likely be aimed at reaching consumers, rather than business people. The most often trailed addition is the inclusion of a pay-as-you-go service, currently a large gap in the 3 portfolio.

"It will be interesting to see what happens over the next year, as 3 responds to the market and the incumbent players launching other services," said Brydon.