RIP 3G - time to cut losses for next-generation mobile?

A leading analyst house is urging mobile operators to abandon their plans for third-generation (3G) networks.

In a note entitled 'Death bell tolls - 3G RIP', Datamonitor analyst Nick Greenway writes: "Within the next 12 months some licence holders may shelve 3G aspirations, possibly having to treat the cost of licences as a write-down."

He urges: "Give it away now - there's more sense in abandoning the market altogether than rolling out a service on top of giant sunk costs."

Greenway's argument is based on likely return on investment (ROI) for licence holders and the business viability of companies that will supply them, from big network equipment and handset makers to small content producers struggling for funding and contracts.

He told silicon.com: "I'm annoyed people are pussy-footing around. Now is not a time for banks and VCs to be delusional. People talk about an ROI 'sweet spot' of three to eight years but one-and-a-half to two years is what any decent VC would want. There will have to be debt restructuring."

Not everyone sees it the same way, however. Simon Buckingham, CEO of consultancy Mobile Streams, said: "There are many people who will take a long-term view and invest in services that have payback periods of this kind - the very nature of mobile communications network building is high upfront costs followed by relatively low marginal costs of operating the network and handling the traffic."

Datamonitor's Greenway also reckons affordable (sub-E250), reliable handsets won't be available in the right numbers soon enough and uptake of mobile data services so far hasn't been strong enough to engender any confidence in 3G. He also said the big equipment companies aren't even promising 3G will be successful.

Andrew Farrell, project manager at Trend Consulting, publisher of the '3G Market Study', said: "This is too extreme, though I agree we are likely to see operator consolidation. And sure, the equipment companies are sounding conservative but the whole industry is conservative right now. Every 3G message seems to be shot down, whether true or not."

Greenway pointed out that Sonera and Telefonica have ditched their German 3G joint venture while operators such as Orange and Vodafone are stalling in certain markets.

He added: "If you're an operator, do you launch with no handsets and a sub-standard network or wait? You're between a rock and a hard place."

We'll bring you the operators' response to this report soon...