In the long term mobile phone networks are a licence to print money

Jim Healy, GSM Association Chairman

Many network operators are faced with recouping the cost of the huge sums they paid out for licences to operate a new generation of phone networks, and all will face similar sized costs to build those networks.

To make matters worse, experts and analysts warn that customers for the new services are likely to be thin on the ground for a long time yet.

As if to emphasise that point, a new survey reveals that less than 25% of companies are willing to splash out on new phones and services to bolster their businesses.

French connection

This week Cannes played host to the GSM World Congress - the annual meeting of the phone firms, handset makers and technology companies involved in the mobile business. About 25,000 people attended the event.

GSM, or Global System for Mobile communications, is a European-developed technology used in 69% of the world's mobile phone networks.

The mobile phone world is at a pivotal moment in its history. Handsets are starting to evolve from convenient gadgets that let people talk while they walk to trusted devices that can act as a purse, ID card, diary, travel guide or music player.

But phone firms wanting to create networks that can support this array of services have had to spend money on a licence for a radio spectrum and some are now starting to spend cash to build the actual network, employing a technology called Universal Mobile Telecommunications Service (UMTS).

Wireless worries

However, the loss of confidence in technology companies is making it very difficult for telecommunications firms to finance this.

As a result, many of the sessions at the conference were devoted to sober discussions of how companies could manage this financial squeeze and how they could attract customers to start paying off debts.

Jim Healy, GSM Association Chairman, said mobile phone firms faced the same problems now that they always had, of needing to invest long before they had the subscribers to support the investment. "In the long term, mobile phone networks are a licence to print money," he told BBC News Online, "but in the short term it is a necessity."

Mr Healy said that customers could take between three and 10 years to move to UMTS networks in large numbers. This could seriously dent the chances firms had of recouping their investment as many licences would last for only 20 years.

He said the reason for this could be the slightly clunky nature of the technology being rolled out. "Today, using computers is not unlike owning an automobile in the 1920s," he said. "It was a very useful thing and gave lots of benefits but you had to be a halfway decent mechanic to make it work.

"When you move into Wap and the things we are doing, it's unfair, unreasonable and unrealistic to think that wireless data is somehow going to be easier to do than wired data."

Slow connections

A study released on Thursday this week implied that companies might be reluctant to sign up for the new services because of the high costs.

A survey by analyst firm Gartner Group found that 82% of European companies saw mobility as increasingly important to their business, but only 24% said they would pay more than they did now to use future phone services.

Some fear the slow pace of change, driven by either the wariness of customers or a spending squeeze, could hold Europe back. The basic technology that underpins the future high-speed data services is already in use in other parts of the world. Korea Telecom, for example, has been running a third-generation network since August 2000.

"Third-generation UMTS networks will be late," said Irwin Jacobs, chairman and chief executive of Qualcomm, which developed the technology behind both Korean Telecom's network and future European third-generation networks.

He added that those building UMTS networks could be waiting a long time for any significant return on their investment. "Everything has been stretched out in time and costs have been higher than anticipated," he told BBC News Online.

Mr Jacobs warned that that the relatively slow data download speeds of European mobile networks could look paltry when set against the speed that other networks, particularly those in Asia, were starting to roll out. Korean Telecom is already building a network that offers peak download speeds to mobile users of 2.4 megabits per second.

Current GSM networks operate at 9.6 kilobits per second. Even the future UMTS networks in Europe will work at roughly this speed but most are still two-three years away from being ready for customers.