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If Music is for the Mobile, No Wonder I Can't Hear Anything!
By Eric de Fontenay (Founder & Publisher)
(more articles from this author)
2001-04-09
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In my last article, I noted Jim Griffin's explanation at DDMI, that "it's more about digital delivery than about digital distribution." In that context another one of his nifty sayings stuck with me: "Music is for the mobile." Now, anyone who spends any time in Paris, London or some other European capital quickly realizes that the US is NOT mobile. Paris has become a city of incessant noise as everyone chats away on their phones. You don't give your office number, you give your mobile number. So Europe is the perfect environment for the digital music revolution, non?

Let me step back before we answer the question. We in the industry have an annoying habit of believing that technology will solve ALL our problems. "If we only had X technology, we could solve Y problem that would drive consumers to our products, generate exorbitant revenues and profits,…" And anyone who doubts this need only look at the dot-com bubble which was based, principally, on neat technology (not necessarily useful to or demanded by consumers) rather than solid business models. So it was no surprise to hear high-ranking Ericsson representatives at Paris Net 2001 & DDMI EU explain that WAP failed because it was only meant to help the major stakeholders develop new services & business models for wireless, not to be widely deployed in the market, and that GPRS would deliver on all the premature WAP promises that littered the press over the last year.

I don't mean to beat on wireless. The customer chaos following the folding of Northpoint tells us a bucket load about getting broadband to businesses today, let alone the home. And to think that in the late eighties, telephone companies were making grand announcements of bringing fiber optic cable directly into neighborhoods, or even the home carrying 500 video channels. Today as it is, you have to wait 2-4 months for installation of an asynchronous (that makes a lot of sense in a p2p environment) pipe that's never full. And the worst is that most of the problem has little to do with technology and nearly everything to do with bad planning and lack of industry coordination (let alone a little monopoly power).

But I digress, we're here to talk about wireless. So is Europe wireless Nirvana? Maybe at one time, then there was UMTS. UMTS is the Holy Grail of wireless: a fat true broadband (1.5-2 MB) pipe, with full roaming available anywhere, anytime. UMTS is what should deliver your music, video, conferencing,… The typical UMTS picture looks something like this: So you're walking down the street and your listening to Britney Spears on your mobile (some things never change). The song might be followed by an ad telling you that the CD is available for 25% off at the HMV around the corner. Or offer tickets to her concert that weekend. And so, I remember Jim Griffin telling the audience at DDMI that we really can't get started with the digital media revolution until bits become ubiquitous. So UMTS IS the answer, right?

Well consider the UMTS auctions. Thanks to politicians wishing to 'beef up' the state coffers, a trend launched by the original FCC wireless auctions, those licenses went through their own bubble-&-burst with, on the one hand, $60 billion for licenses in Germany to only two bidders for four licenses in France. A total and thankful implosion of the market.

But what was the impact of the sudden high? A recent report by Simon, Kucher & Partners, "Mastering The Mobile Internet," paints a grim picture of Germany's post-UMTS experience. Taking Japan's popular i-mode mobile Internet service as a benchmark, the report estimates a 20-25% percent boost to average revenue per user (ARPU) in the early stages of UMTS, now at $300 a year. So UMTS would generate an ARPU of $400 per German user, or $40 per user at a 10% profit margin (ie., $160 million for a user base of 4 million). "For the German carrier with 4 million customers, interest payments will be $100 per customer, or $400 million per year. That not only obliterates our profit, it also represents a whopping 25% of our revenues."

At DDMI, classical.com CEO & panel moderator for "The Approaching Wireless Revolution," Roger Press, stated that each German would need to ditch out 2,000 Euros so the carriers could break even. And let's not think that the US is smelling roses! Not only are we late for our third generation spectrum auctions, set for 2002, but a recent New York Times article reconfirmed that we won't even have the spectrum to auction off. Oh sure, they'll find a solution. In fact, Sprint and WorldCom are working on the problem by not using existing spectrum they're holding, namely MMDS, so the FCC will be forced to reallocate it to UMTS. And how much do you think that will cost consumers?

Why the dire diatribe you ask? Because I want to get three things across. One, we won't see multimedia over wireless until 2006, if we're lucky - 2008 is more likely. So when they regurgitate that same old 'it's around the corner', just role your eyes and walk away. Two, the problem has little to do with technology and everything to do with everything else. Three, if Jim is right (he's certainly convincing), and the revolution won't come unless bits are ubiquitous, and that means UMTS/3G wireless, and we're not getting that till the end of the decade, what are we all supposed to do in the meantime?

Related MusicDish e-Journal Articles:
» DDMI EU Coverage: The Illusion Of Control (2001-04-06)


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