Will Czechs snap up new third generation mobile phones?

21-08-2001

The mobile phone has taken the Czech Republic by storm in the last five years; 'mobile penetration' - as the experts call it - is heading for 60 percent, meaning that well over half of the country's 10 million people now own a mobile. Particularly popular among Czechs are text messages or SMS - get on a tram or sit down in a restaurant anywhere in the country and you'll see at least one person frantically thumbing the keypad on their mobile, sending messages to colleagues or loved ones. But while SMS has been a runaway success, the Internet-based WAP technology has been conspicuously less popular. WAP - or Wireless Application Protocol to use the jargon - is expensive, slow and frustrating: the display screens of the present generation of phones are too small to show more than a few words and images. But all that could change, with the introduction of 'third generation' or 3G mobiles which will begin to replace the current GSM phones in a few years' time. Ondrej Datka is a telecoms analyst for Patria Finance.

"The key new thing is the great speed at which data is transferred. This allows a wider spectrum of use for customers, starting from pictures, to getting on line with your mobile rather than depending on a fixed line."

3G phones will operate to an international set of standards known as Universal Mobile Telecommunications System (UMTS), delivering a bandwidth of up to two million bits per second. That is around 200 times what is currently possible on a mobile phone. This quantum leap in technology will offer fast Internet access, real-time high-quality video calls, audio and video in almost broadcast quality, and in-car navigational systems, to name just some of the features that will be available to 3G users.

But 3G, of course, will be extremely expensive, and the real question is how many people in the Czech Republic will be willing to shell out large amounts of money for the new phones.

The country currently has three operators: the first to arrive, in the early 1990s, was Eurotel, offering Czechs exclusive but expensive mobile access. Eurotel is still top dog in the mobile world, controlling more than half of the Czech market. In second place is RadioMobil, with its highly popular Paegas network. And finally last year saw the arrival of Cesky Mobil, with the third network Oskar. The three operators are far from united as to whether UMTS technology will be affordable to all, but Roland Maler, General Director of Radiomobil, is clearly one of the optimists:

"UMTS is being targeted at everybody - certainly at the businessmen, but also to private users. We see at the moment on the basis of the second generation that really everybody is interested in mobile communications and this will continue to be the case with the so-called third generation."

But Cesky Mobil, which runs Oskar, is more cautious than the people at Paegas. The company says that because 3G technology will initially be about speeding up data transfer, the new mobiles will be targeted primarily at businessmen. And in the beginning at least, says Cesky Mobil spokesman Igor Prerovsky, non-business customers will simply be priced out of the market:

"It's more likely that these type of services will be attractive mainly for business clients, corporate clients, first of all by the nature of the services: the new services will mainly enable faster data transfer, an expansion of database services. And at the same time the service will, at least in the first phase, probably be more expensive than the current mobile services based on GSM technology. This obviously means that customers will need to spend much more to enjoy the services, and obviously the consumer segment is much more sensitive about the price."

Not necessarily, says RadioMobil General Director Roland Maler. He says Paegas will make substantial economies of scale to make 3G accessible to everyone:

"There will be huge economies of scale that we will build our offers on. We certainly want to make business, and we want to attract as many customers as possible. We have to take into account the budget of these customers, and that's why we will have to - and I'm sure we will be able to - cut the cost of the system in such a way that our offers, our services will also be affordable to the Czech customer."

Eurotel, meanwhile, are sitting on the fence. Spokesman Jan Kucmas says it's simply too early to say whether 3G will be as successful as GSM, or whether it will be too expensive to be anything more than a highly sophisticated executive toy:

"Nobody knows. That's the problem with UMTS and 3G. Nobody knows if it will end up like GSM, which is really, really a service for everybody, or whether it will end up as an exclusive and very expensive service. Because the phones are the biggest problem of these 3G or UMTS services. There are no prototypes working in the world, except for in Japan, which has a small market with special terminals. And most of those terminals weigh around 20 kilograms - so it's a technology which is only in the first phase. So we - not only Eurotel but also experts in the telecommunications sector - expect the first terminals to be available at the end of 2003. And they will be very, very expensive."

So the operators are clearly opting for caution, but nonetheless two weeks ago produced something of a surprise for telecoms analysts. Tuesday August 7th was the deadline for operators to submit bids to the Czech Telecommunications Office (CTU), in the first round of the UMTS licence tender. Only Eurotel and RadioMobil accepted the asking price of 6.7 billion Czech crowns, and even then they had a few conditions. Cesky Mobil, however, didn't submit a bid, saying the price was too high. The company says it's still interested in a licence, but hopes to obtain one in the second round auction. Spokesman Igor Prerovsky explains why Oskar - for the meantime at least - is happy to stay out in the cold:

"Cesky Mobil has consistently expressed its interest in securing the UMTS licence for the Czech Republic, and we have also always expressed our willingness to pay a licence fee which would reflect commercially reasonable terms and conditions for the territory of the Czech Republic. Cesky Mobil has advised the Czech Telecommunications Office that we are not submitting an application for the first round of the current UMTS tender, as the price offered to the three incumbent operators is 6.7 billion Czech crowns, payable over the next two years. The Czech market is not ready to absorb the new technology so fast that this huge investment would pay off in the given time."

And playing the waiting game is a strategy which could pay off, says Ondrej Datka of Patria Finance:

"At the moment it doesn't seem like there will be another bidder, so it could turn out to be a smart move by Cesky Mobil, because they may get the licence more cheaply than the two operators who have agreed to the fixed price. And even if there are more bidders for the third licence and Cesky Mobil doesn't get the licence, there is still the option of becoming a virtual mobile operator. That means striking a deal with one of the operators with a UMTS licence and renting part of the spectrum for Cesky Mobil's services and customers."

Leaving aside the financial constraints of the operators, however, what about the new phones themselves? If WAP - surfing the net from a mobile - is so unsatisfactory - does 3G really have a greater chance of success? Well the analysts certainly think so. WAP, they say, is unpopular because it's slow and expensive, and it's slow and expensive because it takes so long to transfer data using existing GSM technology. 3G, they say, with its large colour screens and built-in video cameras, will completely transform the way we use our mobile phones. And it's only a matter of time until the technology becomes cheap enough to be accessible to all - or most of us - just as was the case with the mobiles so many of us carry around today. Ondrej Datka says the Czech love affair with the mobile phone means 3G stands a good chance - when the price is right - of eventually being a success.

"I think that having seen the success of cellular telephones in the Czech Republic and the success of Short Message Services and so on, I do think the Czech Republic is one of the countries where UMTS services can succeed. But it's going to be a question of quite some time."

21-08-2001