http://www.economist.co.uk/surveys/displaystory.cfm?story_id=811934&C... 45152&CFTOKEN=12828414 SURVEY: THE MOBILE INTERNET The Internet, untethered Oct 11th 2001 The Economist The Internet is going mobile. To succeed, it must learn from the mistakes made in the fixed-line Internet boom, argues Tom Standage NIGHT-TIME on the neon-lit streets of Tokyo's Shibuya district, and the scene seems like a vision of the future. Here are the colourfully illuminated skyscrapers and huge video billboards, there are the throngs of exotically clad teenagers. And everywhere there are people talking and typing into astoundingly advanced mobile phones—tiny devices that fold up like colourful make-up compacts, are incredibly light, and have small, vivid colour screens capable of displaying sophisticated graphics. Most important of all, these phones enable their users to access the Internet while on the move. In Japan, the Internet has gone mobile. In this respect, say prophets of the mobile Internet, the scene in Shibuya is indeed a foretaste of the future. The convergence of the two fastest-growing communications technologies of all time—mobile phones and the Internet—will, they say, make possible all kinds of new services and create a vast new market as consumers around the world start logging on from Internet-capable phones. Market-research firms and consultancies predict that by 2004, the number of mobile-Internet users will rise to around one billion, from 200m today. It was big numbers like this that prompted mobile-network operators around the world collectively to pay more than $100 billion last year for licences to operate “third-generation” (3G) networks (see article). Unlike existing second-generation (2G) networks, 3G systems are designed to handle data quickly and efficiently alongside voice calls, and are thus expected to be one of the key technologies that will underpin the mobile Internet. The enormous sums being spent on 3G amount to the largest bet in business history on the introduction of a new technology. The operators have been trying to justify this spectacular gamble with a torrent of hype. But the downturn in the technology sector, and elsewhere in the world's economies, has cast a long shadow over 3G's future. The huge debts incurred by operators in buying their licences, and their need to cut spending in order to service their debts, were arguably one of the downturn's causes. On top of the cost of acquiring the licences, operators will have to spend another $400 billion or so to build their 3G networks, so they are teaming up to share infrastructure and reduce costs. There are also fearsome technical problems to overcome. This has delayed the start of 3G services: the world's first 3G network was launched in Japan on October 1st, five months late, and 3G networks in other parts of the world will arrive months, even years, later than originally planned. At the same time, expectations have been scaled back. Operators are no longer talking of watching video clips on the train, or videoconferencing in a taxi; instead, they are concentrating on more realistic goals, such as using phones to access e-mail, download news and weather reports, and call up location-specific information. Meanwhile, many operators have already launched so-called “2.5G” networks—upgraded 2G networks that offer some of the benefits of 3G (in particular, an “always on” data connection) but cost a lot less. This means that 3G will not be the sudden miraculous transformation originally touted, but a gradual evolution from today's systems. And the truth is that a great deal is already possible with existing mobile networks. Indeed, amid all the carnage in the technology sector, an important transition is under way. Even allowing for the late arrival of 3G, it will not be long before the number of Internet-connected mobile phones exceeds the number of Internet-connected PCs. Nokia bullishly predicts that this will happen next year; Ericsson, another handset maker, says 2003; even pessimistic forecasts put the date at 2005. It will probably be 2.5G handsets, rather than 3G ones, that will overtake PCs to become the world's most prevalent Internet-access devices. But one way or another, phones will soon become the predominant means of access to the Internet. The obvious recent analogy is with the explosive emergence of the fixed-line Internet five years ago. In many ways, the mobile Internet is at the same stage of development as the Internet was in 1995. There are hundreds of start-ups, and nobody really knows which technologies or business models will win, or what consumers or corporate users want. There are plenty of lessons to be learnt from the mistakes made on the fixed-line Internet. This survey will argue that heeding those lessons will be crucial if firms are to prosper on the mobile Internet. A less obvious but more useful analogy is with the switch from the electric telegraph to the telephone in the last quarter of the 19th century. The telegraph, like the Internet, was a revolutionary communications technology that transformed social and business practices, but it could be used only by skilled operators. Its benefits became available to the public at large only when the telegraph evolved into the telephone—initially known as the “speaking telegraph”. The Internet is still in a telegraphic stage of development, in the sense that the complexity and expense of PCs prevents many people from using it. The mobile phone thus promises to do for the Internet what the telephone did for the telegraph: to make it a truly mainstream technology. Because it used the same wires, the telephone was originally seen as merely a speaking telegraph, but it turned out to be something entirely new. The same mistake is already being repeated with the Internet. Many people expect the mobile Internet to be the same as the wired version, only mobile, but they are wrong. Fixed-line web pages will not fit on to phones or handheld computers. Instead, the mobile Internet, although it is _base_d on the same technology as the fixed-line Internet, will be something different, and will be used in new and unexpected ways. It will rely on content and technology from the Internet, but instead of the leisurely browsing and searching familiar from the PC, it will concentrate on sending and receiving timely, relevant nuggets of information. Meanwhile, of course, the Internet in its current form will still be around. The term “mobile Internet” itself is problematic. “Mobile data services” might be more like it. Other names that are bandied about include “the wireless web”, “mobile e-services” and “mobile online services”. But this survey will refer to the emerging mobile data environment as the “mobile Internet”, even though with the benefit of hindsight it may prove to be as much of a misnomer as “speaking telegraph”. One attraction of the term is that the word “Internet” technically refers to a network of networks, and that is exactly what the mobile Internet will consist of. It would be a mistake to equate the mobile Internet with 3G and assume that, because 3G is in trouble, other mobile-Internet services are too. Instead, there will be many overlapping and interconnected wireless networks. There will also be a variety of access devices, including laptops, handheld computers and other, as yet undreamed of, gizmos. Different networks and devices will be used in different situations by different kinds of users in different parts of the world. But it seems clear that the Internet-capable phone will predominate as the mobile device of choice. Combining the Internet with mobile phones will pose technical, business and cultural challenges. For a start, there is a clear conflict of attitudes between Internet and mobile-phone users. Internet users expect things to be free, and are prepared to accept a certain degree of technological imperfection. Mobile users are accustomed to paying, but expect a far higher level of service and reliability in return. Those on the Internet side of the fence complain that wireless firms don't really understand data networking; those on the wireless side complain that Internet technology is flaky. But the differences between these two worlds also present an opportunity. Content providers see the mobile Internet as a way to start charging for their wares. Wireless-network operators see themselves as potential gatekeepers to the mobile Internet, and may be in a position to grab a share of online commerce revenues, which fixed-line Internet-access providers have failed to do. Hardware and software companies see all sorts of new opportunities in products to knit the Internet and mobile networks together. In short, the mobile Internet is a chance to build a new network, and get it right this time—by learning from the mistakes made by all those failed dotcoms. The biggest gamble in business history; control of a vast new medium; the opportunity, at last, to monetise the Internet: clearly, a great deal is at stake. Some say it is all just wishful thinking. But in many parts of the world—not only Japan—millions of people are even now using phones and other handheld devices to communicate on the move. All over the globe, the foundations for the shift to more advanced services are already in place.