Vodafone fails 3G test

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Vodafone has admitted that its third-generation (3G) mobile phone networks will not be fast enough initially to offer full multimedia services.

This means that transmitting live music and video clips is likely to remain slow and expensive while the technology will fall below the internationally-accepted standard definition for 3G mobile services, some analysts said.

But other analysts were more upbeat.

“It’s not as if this announcement today wrecks the whole 3G notion. It doesn’t,” said West LB telecoms analyst John Tysoe. “It’s only really video and music that require higher speeds, and these will come in time.”

Vodafone said consumers’ expectations had been artificially pumped up by press reports and that concerns over this affair were exaggerated.

Vodafone has spent about £13bn acquiring 10 European 3G licences. On Friday, investors continued to mark down the shares, which lost 2% to 134.75p, having already lost 3.7% the previous day.

Vodafone and other phone firms have built up massive debts buying 3G licences, spending a total of about £70bn on European licences over the past few years. And some analysts fear that Vodafone’s warning could send telecoms shares tumbling further. On Friday, telecoms stock in Europe fell 2.6%.

Stocks in the sector have fallen steeply in recent months because of investor concerns about the telecoms companies’ ability to generate profit from 3G services and repay those debts. For many investors, the news that 3G will not live up to expectations has long been the nightmare scenario.

Vodafone said its service would run at a minimum of 64,000 bits per second, which will allow it to offer improvements in text messaging and text-based internet information, but is insufficient for good quality pictures and sound files. But it said “most coverage areas” would be capable of 384,000 bits per second.

Existing WAP-based mobiles offer text messaging and text-based internet, but most analysts consider these services have disappointed consumers.

Vodafone is also attracting criticism in the City of London for releasing the news to telecoms analysts, without making an official stock market announcement.

The warning follows an earlier one in June, when Vodafone said the launch of its 3G phone services could be delayed into 2003, rather than taking place in 2002 as originally scheduled.

Problems with 3G start-up are not limited to Vodafone. Japan’s NTT DoCoMo – which has led the race to introduce the new services – has itself had to delay commercial roll-out by three months to October. And British Telecom, which is piloting a project in the Isle of Man, has also faced hold-ups. Delays announced so far have mainly been because of technological or software hitches.

But analysts say problems are likely to continue, with slow supply of handsets from manufacturers becoming the main cause of delays.