How videotelephony ate the budget
UMTS or 3G, the successor of the classic, slow GSM mobile network was the hype of the early 2000’s. It had nothing to do with consumers directly, as the UMTS spectrum had to be sold to telecom companies first, and only then the infrastructure would be built and services rolled out. The hype emerged from the fact that in the middle of the dot-com bubble over in the US, someone planted the seed of »videotelephony« as the next big thing in the heads of managers across all telecom companies in Europe.
Videotelephony, or video call, was regarded as a natural evolution of voice communications. Bandwidth for internet access was not that much of an important upgrade over GSM as the internet itself only just started to takeover everything. Basically everyone was sure that in a few years, people would walk around with their handsets in front of their faces having indefinite video calls.
UMTS had 2 major economical “difficulties”: 1) the frequency spectrum would be auctioned and 2) the infrastructure would have to be built pretty much from scratch. The hype that made everyone intoxicated with UMTS made sure that 1) auctions would be races for life or death between telecoms (UMTS was perceived as the train you have to catch, or die) and 2) telecoms would have to spend tremendous amounts to build the infrastructure ASAP (due to the insane amounts paid for licenses, the race for revenues was a very fast one).
To keep the intro short, UMTS ended in failure. Videotelephony did not change the world, and telecoms did not gain more profits. Instead the value of the infrastructure kept falling down, making operators nothing more than owners of the cable, not the added value services. Many operators died in that race. The most famous almost dead telecom giant was Deutche Telekom, brought down to its knees by the out of this world auction process in Germany that raised 50B €. Thats 50 billion euros.
Fast forward to 2006 in Slovenia, Si.mobil just bought its own UMTS license for a deflated price (10M€ compared to the 100M€ paid by Mobitel in the 2000’s) and started spending big time in infrastructure deployment.
Early that year, as a big radio enthusiast and train traveler, I started feeling that the FM receivers in mobile phones are useless. I remember losing signal of a station I was listening to and looking to the phone screen to seek a new station. It struck me that while there was no FM, GSM signal was pretty much strong. The light bulb above my head turned on and I started brainstorming on how to use the GSM/UMTS network to deliver my beloved stations regardless of their analog reach. A few weeks later I discovered that Virgin Radio (now Absolute Radio) from London just introduced a service that did exactly that: provide streaming over GSM/UMTS via a simple Java based app.
After some research I contacted the developers of an application (Spodtronic/Spodradio) that did the same and asked for details. While their main business model was to sell the app for a fixed price, we reached an agreement that allowed me to approach operators with a business model that was based on revenue-sharing. Streaming would be a service, and I calculated that a monthly subscription between 3€ and 5€ would work perfectly to keep the service interesting to operators, Spodtronic and consumers. Data transfer would be uncapped (covered by the subscription). The revenue share model was 1/3 for the app developers, 1/3 for the operator, 1/3 for us. All eventual fees for content would be paid entirely by us.
We approached Si.mobil in Slovenia and VIPnet in Croatia (both owned by Telekom Austria). Both were presented with the same business models, demos and concepts: supported UMTS mobiles (with preinstalled software) would be sold with an additional subsidy to increase penetration – subscription would be waived for the first couple of months – existing FM stations would be included in the service – 4 brand new stations would be setup with music aligned with lifestyles (that was perfectly aligned to the marketing strategy of both operators).
The last point was an added value we brought to the table. We would take care of production of these music-only stations that would expand the operators brand image and promote their products and services. Future click-purchases of ringtones included. The production of 4 radio stations was estimated at 12.000€/month. This was completely optional; the concept would work perfectly even without this.
The main point of the presentation was to 1) present the UMTS technology as a step forward in a practical way, and 2) increase the sales of UMTS mobile phones that will bring more contract-tied customers to the network. The problem with UMTS was that operators had no content to show why they introduced it in the first place. We pushed hard on that point to prove that a streaming service would show customers why is this a premium.
Both presentations went well (I was present only at Si.mobil, leaving my Croatian partners to handle VIPnet), and we were confident the path was right.
Days turned into weeks, weeks into months, but there was no actual step forward. The idea never took off, and was left to gather dust in a corner.
We never found out officially what part of the idea did not appeal to the operators, but we did find out that the network infrastructure departments sounded the alarm for potential network overload. For the sake of technical clarity; we used a 32kbps codec. That’s pretty much in the upper boundary for GPRS data transfers, making the service available also via EDGE (enhanced GPRS on the old, 2G GSM network).
Now, years later, no similar service took off in Europe (that we know of). Spodtronic is still present though, with support for all major platforms. The entire industry did change, with the introduction of the iPhone, music players and phones merged.
On the other hand, Si.mobil has increasing network problems with UMTS services with numerous complains from customers regarding bandwidth. They never really managed to introduce content that would raise the value of their services, leaving them trailing behind the leading operator on the market, Mobitel.