O2 (formerly BT Cellnet) has announced a massive £6 billion write off of the money it spent on acquiring 3G next-generation cellular licences. So was all the fuss about 3G - and data services in general - nothing more than hype?
How does this square with the announcement made at the same time that revenue from data - mainly text messaging - has exceeded all targets, and that data is on course to bring in fully a quarter of O2's revenue by the end of 2004?
The auction of licences for next generation cellular (3G) generated an extraordinary £22.5 billion windfall for the British treasury, and even more for the German government. But has the 3G story - and the money tied up in it - so mesmerised the industry that it has failed to see what is happening under its nose?
Ever since the auction, the telecoms industry has been living in the shadow of the multibillion pound gamble taken by telecommunications operators. So much was invested in the 3G story - money, reputations and market value - that it has been barely possible to conceive any other future possibility. Either 3G works, or there is nothing.
With hindsight, the 3G auction looks less like the dawning of a new era and more like the last gasp of the old one: the last attempt to carve up the telecommunications market in deals between major companies (most of them former national telephone operators) and governments. This centrally planned approach worked in the old world of voice monopoly. But the new era of digital services is proving much more unruly.
Beneath the smoke and mirrors of the 3G story, a new reality is emerging. In a separate announcement, O2 stated that its yearly target for the growth of data services had been exceeded three months ahead of schedule, and that data was on course to deliver a quarter of all O2's revenue by the end of 2004. Data is booming: but it is not 3G. What is breaking all records is the growth of text messaging, a service which started as an obscure feature buried in the GSM digital cellular specification, intended for nothing more than alerting subscribers to the arrival of voice mail.
Text was seized on enthusiastically by users, despite often indifferent service, no standards of service quality, a system that could not handle peak capacity demand, and a user interface that would tax the patience of a saint. Text is now enjoying year on year growth of around 50%, and is used by more people in Europe than email (and incidentally, by more women than men).
O2 did not declare what proportion of its profits came from data, but since text messaging in particular is highly profitable (some estimates have put margins as high as 95%), O2 and other operators may be close to the point where - never mind 3G - they are already making more profit from data than from voice.
What are we to make of this? O2's results indicate that data services can generate real revenue: analysts did not make that up, at least. Meanwhile O2's write down is, perhaps, a first indication that the industry is prepared to come off the artificial life support of the 3G story, and start taking nourishment from the real next generation of data services, which are not necessarily what they were predicted to be. Next generation users do not always do what they are told.
The potential for multimedia data services - '3G' in the widest sense - is enormous. Text has just scratched the surface, and has created an itch that many will want to satisfy. But whether these services will neatly follow the roadmap set out at the time of the 3G auction is open to doubt.
It does not take an in depth analysis to realise that most of the services proposed for 3G require skills that telecommunications operators do not currently possess - creating content, for example, or selling goods and services, or managing transactions and payment. Operators could acquire these skills - for a few more billions. Or they could partner with companies who already have them, and focus on creating a channel for delivering other people's content, services and applications to mobile users - and sharing the new revenue that results.
The 3G auctions may come to be seen as the last attempt by the old telephone operators to preserve the 'gatekeeper' role they had in the monopoly voice era, controlling and dominating every aspect of end to end service delivery. Subsequent events suggest they cannot afford to do it.
Once a realistic value chain is established, with operators passing on enough revenue to make it worthwhile for third parties to commit resources to services, application and content, '3G' will start to realise its potential as a means of marketing and selling just about anything, anytime and anywhere. Until then it will remain what it is today: an attractive story that has yet to demonstrate real substance.