Goldman Sachs Says 3G Svcs May Not Catch On As Expected

date: 14th December 2000

Goldman Sachs expects the widely-touted third generation mobile telecommunications services may never take off among consumers, despite billions of dollars of investment from firms eager to tap the latest technology, an Internet analyst with the investment bank said Thursday.

Speaking at a Goldman Sachs investment conference on developments expected over the next five years, Rajeev Gupta said despite the 3G hype, many consumers may find 2G and so-called 2.5G may satisfy most of their needs - at lower costs.

If Gupta's predictions prove true, it would be bad news for the telecom companies that have poured billions of dollars into winning the coveted 3G licenses, particularly in Europe.

The U.K. government raised $35.5 billion auctioning off five 3G licenses, while the German government raised EUR51 billion in its 3G auction.

The license fees are only the beginning - 3G winners will have to invest much more to roll out the new technology.

Gupta said the earlier generations of mobile phone services may lack features available through 3G spectrum, but the 2G and 2.5G have three key advantages - users, applications and global Internet interoperability.

As a result, he expects the earlier generation services may be able to hold onto customers, despite the massive marketing campaigns expected to be rolled out in coming years in a bid to get consumers to migrate to 3G.

Gupta said he expects some markets, such as Japan, Korea and Scandinavia, to embrace 3G more than others, particularly the U.S.

The prime reason the earlier services will be able to maintain consumers is price advantage as they won't be hindered by huge bills for spectrum licenses and network build-up, Gupta said.

He said given higher prices, consumers may not see the benefits of the wider range of 3G features.

Gupta predicts the personal computer won't be replaced by wireless data services over the next five years as expected.

Again, price will play a key role as consumers pay for wireless services at a metered rate, while PC use at home and in the office can be tapped at a fixed rate, Gupta said.

Because consumers won't rely entirely on wireless services as their main means of accessing the Internet, they will be satisfied with slower wireless services, which will slow their adoption of 3G phones, he added.

If Gupta's predictions prove true, the telecom firms that lost in the recent and upcoming 3G auctions may prove to be the winners in the future and well poised to move into the next generation of services, or 4G market.

Gupta also predicts that broadband access to the Internet may happen at a much slower pace than expected.

Instead of seeing the ubiquitous use of broadband by 2005, he predicts many households will still be using dial-up services five years from now.

Broadband networks are more complicated and costly to install, while competition from other high-speed platforms will also slow growth, he said.

Broadband may also prove not as lucrative for operators as expected, he added. As a result, providers may curb spending on efforts to lure more subscribers.

Eventually, Gupta predicts broadband will become a moneymaker with 60% penetration by 2010.

In the meantime, the biggest winners will be companies that offer both narrow and broadband services.

The predictions, however, are simply possibilities rather than hard forecasts for the Internet's future, Gupta said.

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