Wireless Communications Future
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RAY SUAREZ: Financially these CEO brokered the biggest deal in the world, the world’s largest cell phone company, Britain’s Vodafone announced plans to acquire Mannesmann, the leading wireless firm in Europe, for a record $180 billion. Although Vodafone’s CEO Christopher Gent concedes that it’s rare for a German company of this size to be taken over by a foreign competitor, he said Germany will benefit from the deal.
CHRIS GENT, CEO, Vodafone: I think the German public have understood that we’ve got constructive and created purpose here. I think it’s actually a victory in the sense that Germany is developing, evolving and you’ve got to say that the share price that we are delivering to Mannesmann shareholders with the management supporting it, I think this is very, very good news for Germans.
RAY SUAREZ: Vodafone is a relatively young company, only 18 years old. It owns Britain’s largest mobile phone network and recently purchased U.S. mobile carrier Air Touch. It also is allied with Bell Atlantic in the U.S. and multimedia company Vivendi in France. Mannesmann began as a steel pipe maker in the 1800s based in Dusseldorf. Together the two companies have a presence in four continents and have 42 million subscribers or 10 percent of the world’s mobile phone users.
The merger comes at a time of phenomenal growth in the world of mobile phones. Today there are more mobile phones than personal computers and the market is growing by some estimates at 50 percent a year. A third of people in North America use mobile phones. The rate is even twice that among some European countries. For the wireless phone industry, it’s not just the numbers that are promising. It’s the new applications.
Today so-called Web phones can surf the Internet, allowing access to hotel reservations, stock quotes and sports scores. Companies are promising even more innovations in the future.
RAY SUAREZ: For more we’re joined by Bob Egan, vice president and research director at Gartner Group, a global Internet technology consulting firm, and Paul Saffo, director of the Institute for the Future, a technology forecasting think tank.
Bob Egan, during the sometimes rough negotiations over this merger, Vodafone had to raise its bid per share $150. Why do they want Mannesmann so badly?
BOB EGAN, Gartner Group: Because Vodafone understands they need to make it a whole lot easier for people to buy mobile phone service, with this acquisition, Vodafone becomes a one-stop shop for consumers worldwide. And given that these subscribers are going to be on Vodafone’s network, they will — accessing voice services today, data services tomorrow and because Vodafone owns so much network on a global basis, they’ll not have to wholesale air time from other carriers and they’re not going to have to pay interface costs that their competitors are going to have to pay, thereby lowering their overall cost basis.
RAY SUAREZ: Does it mean, though, that it’s going to get any easier to do that kind of things in the United States? They have one technical standard in Europe. Here we have a patchwork quilt of providers, places you can call and places you can’t call.
BOG EGAN: Yeah. That’s true, one of the things happening here in the United States is we’re beginning to see convergence occurring within these networks. We have really three major wireless standards, and as they are coming together into something known as “third generation wireless,” this is going to allow Vodafone to begin influencing how that, you know, evolution is going to take place and demanding larger discounts from its suppliers on behalf of its consumers, lower handset prices, thereby increasing its margin and also being able to pass these cost savings on to their consumers.
RAY SUAREZ: Paul Saffo, what the two big companies, they were already big companies were working out the details, they were also fighting over that French company, Vivendi, News Corp., Murdoch’s company was involved. You heard talk about AOL Europe and Yahoo Europe, why is so much of this negotiation about content when we’re dealing with two companies that supply you the phones that you can call people on?
PAUL SAFFO, Institute for the Future: Well there, is a tremendous dynamic going on here. You know, at moments it feels like that old Irish saying, “Is it a private fight or can anyone join?” In the short run this is about global dial tone and above all it’s about people connecting with other people via phone. In the long run, though, it’s going to be machines connecting with other machines on the behave of their human owners, and a key part that have is going to be rich content and new kinds ever experiences.
RAY SUAREZ: So it’s going to be more than just being able to call somebody when you are in your car or walking down the street? Why is it that there is all that emphasis on getting these other services onto a telephone?
PAUL SAFFO: Well, everyone loves the Internet today. But the problem with the Internet is the only place you can get it is at your desk, and your desk is where everybody is spending ever less time. People want the Internet to follow them around wherever they are — and that means wireless and in the short run Internet access via phone but also by a galaxy of other devices. And doing this kind of a deal gives them the global dial tone and the muscle to start positioning themselves for the next wave of Internet.
RAY SUAREZ: So, Bob Egan, are they creating the means for people to live out desires that they already have or creating means to create new desires — I mean things that never occurred to you and then you can’t do without it once you have the ability to do it?
BOB EGAN: Well, it actually depends on what region you are in. In Europe there are three times as many people that use mobile phones as there are people using PC’s connected to the Internet. In the United States, there are about as many people that use their phones as they do connect to the Internet. So in Europe, it’s become a way of life, and in Europe, in the United States, it’s become more of a convenience. So we’ll see access to these services in a more target market — and so it depends what region you are talking about.
RAY SUAREZ: Because I’m trying to follow the growth of this business like anybody else. I’m seeing more people on the streets with these phones and so on. I’m trying to figure out whether this is a mass business that wants to become as ubiquitous as your home telephone or a business that really is concentrating on the high-end user, that is going to do things like check sports scores or buy a stock on the back of their telephone.
BOB EGAN: That’s the magic question. In the United States it has been a convenience item, but it’s also true that people’s lives are being becoming more complex and the mobile phone and access to the Internet services in those mobile phone market are really something that creates free time and convenience. And so you know, what you are — if you think about the kind of e-commerce excitement around Internet – you know – PC-based access to the Internet, wait till you see the kinds of excitement that is going to occur where people are making e-commerce transactions over mobile phones.
RAY SUAREZ: Paul Saffo, maybe you can help us out here. So much of the broad band argument has to do with streaming video and rich graphics and great colors. And then the largest merger in the history of the world and we’re talking about a one and a half by three inch screen on the back of a telephone in black and white, ugly graphics, just text, help us out here?
PAUL SAFFO: You can do a lot with that screen. Imagine it’s 5:15 in the afternoon in San Francisco. You are walking down Sutter Street. You happen to have a cell phone in your pocket. In the next 12 months all cell phones made in this country will be required to have a position location system in it, so your phone will know where you are and be able to tell who you are calling.
It’s 5:15 your phone chirps and it’s a message chirp. You look at your screen and you go, oh, that’s interesting. And what it is, is an electronic coupon from a Chinese restaurant a block and a half away in your direction of travel; it says if you get in here in the next ten minutes, you get 50% off at dinner.
RAY SUAREZ: I’m not so sure that is a good thing. So you will be able to be tracked in fact, marketers will know where you are as long as your phone is on?
PAUL SAFFO: It will be consensual. It’s really intended for 911 service. But you’ll be able to opt into all sorts of new kinds of services.
RAY SUAREZ: And cost, will that start to come down because a lot of people are standing at the threshold of having their own wireless phone in the United States, not sure whether to jump in because of the cost.
PAUL SAFFO: Well, the cost is dropping, but Bob was right about this back becoming a mass phenomenon. If you go to Stockholm today over 95% of people under 25 are carrying phones, it is a mass phenomenon there already at the current cost. You just can’t be a member of polite society and be 20 something in Stockholm unless you have a phone. We’re all headed that way.
RAY SUAREZ: Or impolite society if you are in a movie theater or restaurant –
PAUL SAFFO: That’s why we have vibrating battery packs.
RAY SUAREZ: Bob Egan, what has to happen in the United States? Is it a business barrier? Is it a technical barrier? What needs to happen for mobile wireless communication in the United States to start moving down the road toward this tremendous market penetration in Europe?
BOB EGAN: Well, it’s actually not a technical barrier. It is a focus barrier by the wireless providers to realize that, you know, the Internet can drive a lot of services for e-commerce providers to a very qualified audience. As Paul was alluding to, you know, people know a lot about mobile phone users. Right. You have to qualify from a credit standpoint – you know — the networks will be able to locate you and they will be able to track the kind of buying habits that you have. So really in the United States, it’s more focusing on looking at the mobile phone user as a very qualified distribution and retail outlet for wireless e-commerce services.
RAY SUAREZ: So what does the Vodafone-Mannesmann deal mean in the use since the newly-emerged company has an alliance with Bell Atlantic, one of the biggest players in the United States?
BOB EGAN: That’s right. In fact, the combination of Bell Atlantic, GTE and the Vodafone Air Touch properties make the Bell Atlantic arrangements the new sheriff in town. You know, this allows people to, you know, have a pretty ubiquitous service to them available for both voice services and wireless Internet services as they bring that new capability in this marketplace to compete against some of the players that have done very well here in the united states like AT&T.
RAY SUAREZ: So either of you guys packing? Do you have wireless on your hip?
PAUL SAFFO: Yes, I’m packing. I carry enough electronics on my person to get nervous in lightning storms.
RAY SUAREZ: Like what?
PAUL SAFFO: Pager, cell phone, I don’t have them on me now. I wouldn’t want them to go off at this moment.
RAY SUAREZ: Is there a convergence where one of these will eventually become one unit or they’re going to have their own discreet uses?
PAUL SAFFO: Absolutely not. This is a divergence, you are going to see a whole range of different kinds of devices for different kinds of occasions.
RAY SUAREZ: Bob.
BOB EGAN: Well, let me show you a couple of those devices: Here is an example of what Paul was talking about. Rather than being a phone, this is a palm pilot. Now this is the most successful palm handheld in the world. They have shipped over 6 million units. So the palm has now been married to a wireless device. As you can see, I have taken, you know, and put some very personal and relevant services. I can get my map. I can get my New England weather. I can get my relevant news and a lot of people are talking about these wireless evolutions as sort of Internet wireless surfing. That is not it at all. What it is is a surgical cut into the Internet for services that are very valuable and very relevant to consumers.
RAY SUAREZ: But why not try to marry that thing that you had in your hand with a phone?
BOB EGAN: Well, let me show you an example of that. I have with me a phone made by a company called Neopoint. Now, here is an example of a phone that provides phone capability but also has access to the World Wide Web, and I can buy a book from Amazon.com. I can access My Yahoo services to get My Yahoo mail or My Yahoo finance or My Yahoo personal news. I can also check flight statuses. In fact, under most circumstances it’s more accurate than I’ve been able to get from the gate agents — knowing what planes will arrive — what gate they will arrive at and how late they maybe or do I have to go and make changes and then, you know, do them through the phone.
RAY SUAREZ: Let me quickly double back on a question I tried to get at earlier. Is consumer desire for these services driving their development or our manufacturers trying to create a desire for you to want to find these things out and then giving you the goodies to do it?
BOB EGAN: I think it’s a combination of both. We have seen people to some extent like the graphic rich environment when they are sitting behind their PC at home but – you know — over time a lot of the carriers are beginning to realize that they’re getting a lot like drug rehab center managers in that they have a new people out there addicted to the network. They are addicted to things like their e-mail services and information services that are relative to them, whether it’s sports, news, weather or whether it’s communicating with people at work and friends and so, you know, the carriers are providing this marriage of the desire for people to get at Internet based services through devices that are very familiar with them and mobile phones are a very similar device anywhere in the world.
RAY SUAREZ: Bob Egan, Paul Saffo, thanks a lot.