Lean by Design

OVUM now claims that 2006 will be the year of 3G. It appears that growth has been higher than anyone expected for the first time in 6 years, with up to 95% of new net additions in Europe being WCDMA phones. They attribute this to greater reliability of handsets, lower costs,and other signs of a maturing technology.

I am sure that the telecom execs (especially those in Europe) must feel some relief …about this, given the massive investment they made over the last decade.

Reading Ovum’s assessment, I must confess feeling some nostalgia as well as regret. I should be happy with this milestone. Some might see it as a vindication of sorts, for those who promoted and sweat over the development and deployment of this technology. I can personally attest to the impressive talent and hard work that went behind the development and delivery of this technology. But I can’t help feeling regret, and unease over the whole affair as well.

I am sure history will record the UMTS chapter as a disaster, and possibly the last gasp of an industry that failed to understand the new realities.

I don’t wish to ‘dis‘ the efforts or the initiative, but enough time has passed that it is important to look back and see what can be learned from this adventure. Some failures could be summarized as;

• UMTS has failed to deliver a sufficient increase in bandwidth to justify the investment. It was NOT a disruptive technology. It is generally believed that to be so, would require a greater than ten fold increase in capacity and speed over what was possible with the existing technology – GSM. Depending on how you measure it, GPRS can deliver greater than 30% of what can be achieved with UMTS. Only a disruptive technology would justified the massive investment required for UMTS in terms of spectrum licences and technology. It is doubtful, for example; whether most of the vendors will ever come close to realizing an acceptable return on their investment in this technology.
• The technology hasn’t enabled a significant change in business models. Yes, the extensive standards (part of the huge cost of this technology) has improved the negotiating position of service providers vis-a-vis the vendors, but even here, the improvement is not nearly as great as first expected. It certainly doesn’t support a plug and play approach to networks, and the reality, is that Service Providers have gained far greater leverage with the growth of competition from Chinese vendors than from the increased scope of standard interfaces.
• It has taken much too long for the technology to come to fruition.  Gartner talks of ‘Hype Cycles’, and certainly it could be said that UMTS fell victim to a cycle that was far too long and high. The world has changed since the late 90′s when UMTS was being planned, and it is likely that executives would not have invested in UMTS given today’s environment. Consider Nortel’s desperate plea for someone to off load their UMTS biz on, after spending billions on it. The future of the so-called wireless internet (and it’s high valued applications) is looking less likely to develop in the walled gardens of UMTS and more likely to grow in an open WiFi (or hybrid) environment.

So what conclusions can be reached from all of this? Well, I am sure each of the large vendors and service providers is performing their own detailed post-mortem so that the same (or perhaps more importantly – similar) mistakes are not made in the future. Many would not survive a repeat of the 3G disaster. There are however, some high-level learnings from this that should be common:

1. UMTS represents the last of the grand planned communications technologies. Today, standards documentation for UMTS would fill a large office – many times more than required for GSM. The cost of this is prohibitive, driving massive R&D efforts, and protracted developments before it can be deployed and businesses validated. The future is more closely aligned with organic processes pioneered within the internet and Web development communities. That is, foundation standards with prototypes driving the process in an incremental fashion.
2. What ever comes next must be based on the principle of ‘Open’ competition in applications. Standard interfaces below the application level fail utterly to enable the kind of competition that is necessary to develop a rich application ecosystem. This has been perhaps the greatest failure of UMTS. All this investment, to enable rich multimedia applications, and it is still primarily being used as a voice service. Walled garden solutions like IMS will fail to spark the creation of a rich multi-media applications ecosystem.
3. I believe it is becoming increasingly clear (with luminaries like Martin Geddes and Telco 2.0 helping others understand) that the business of providing connections/pipes and that of providing services are too different to reconcile effectively, within a single enterprise. An effective partitioning of this business will lead to a more open application environment; and associated rapid growth of rich applications. The providers of the piping will in turn become more effective and profitable by focusing on their core strengths and leaving an open application environment to drive growth in demand. See a terrific article by Andrew Odlysko, that nicely explains the delema faced by Service Providers today.

Update: After completing this post, I came across a great piece in the Harold Tribune on 3G status and lessons. Some interesting figures and assessments. Check it out