In Europe, 2.5G Goes Nowhere Fast

WAP mania left the Continent's phone outfits burdened with debt. Now, when a promising technology comes along, they turn their backs

By Stephen Baker

Two years ago, when Europe's phone companies were launching their first models equipped with Internet access, the letters WAP were plastered nearly everywhere. I saw more WAP ads than chocolate eclairs on the back of Paris menus. The acronym was all over buses in London and Amsterdam. It was a massive, Continent-wide campaign, and it introduced -- at great expense -- this ungainly new acronym that soon become synonymous with "frustrating and expensive experiment to try wringing useful data from a mobile phone."

In case you've tuned out the tech scene for the last year or two, WAP, which stands for wireless application protocol, flopped. And European phone companies, which bet billions on this new technology, have been groaning under debt ever since.


  Despite this, I still hold out hope that these mobile services will someday work -- and perhaps even make money. This faith has led me to hunt for the next wave of Internet phones. These are the so-called Generation 2.5 machines, the phones that are supposed to maintain a faster, always-on connection with the Net.

What does this mean? Assume, just for laughs, that you, like me, are a Philadelphia Phillies fan in Europe. This phone will alert you of the latest heartbreak from Philadelphia, no matter where you are, even before the dejected players are finished trudging off the field. Other applications may prove to be even more important.

No question, this is a service I want. But something strange is going on in Europe. Everything is in slow motion. Industry leader Nokia has yet to roll out the new handsets, the phone companies are taking their time launching the new, improved networks. And unlike the WAP craze, they're barely whispering the news about 2.5G. I couldn't even find a reference to it on the Web pages of the three French telcos.

What's going on? Well, no one can afford another failure like WAP. So they're working to avoid hype at all cost -- and saving on ad budgets at the same time. The risk, of course, is that this next vital stage of the mobile Web will stall at the outset for lack of buzz. For publicity, the entire industry seems to be counting on Nokia. No one, say analysts, will really believe in the new 2.5G service until Nokia, the market titan, comes through with its new phones -- and promotes them with a massive marketing campaign. "Competitors are blaming Nokia for hurting their business," says Douglas Smith, a Credit Suisse First Boston analyst.


  Nokia, which stumbled with its first WAP phones two years ago, insists on testing and double-testing its new units, and then testing them again. The concern is that the phone might work in one network, but then cough, sputter, or crash when the user roams across a border and begins bouncing signals in a different network. You can't blame the Finns for being careful: After all, if the service takes off, few will remember the delay in 2001. And if the phones come out too soon and bomb, few will forget that either. Nokia and the rest of Europe's beleaguered wireless industry can ill afford a failure. So Nokia says the new phones will come out sometime in the fourth quarter.

Still, Europe's reliance on Nokia is not a healthy sign. Sure, the mobile Net amounts to nothing without handsets and networks. But few subscribers will pay the extra $20 to $30 per month the telcos are craving until the new system can offer useful services. Trouble is, the phone companies in these bleak times don't want to invest in hot new applications for an unproven industry. And yet, without these applications, the new industry will never take off. "It's a chicken-or-egg problem," says Robert Youngjohns, Sun Microsystem's senior vice-president for Europe, the Middle East, and Africa.

A problem, yes, but not terminal. The latest trend among application developers from Microsoft to garage outfits in Stockholm is to offer wireless services for free -- and then take payment as a slice of the revenue they produce. Throughout Europe, software companies are mining this model for contracts. They then show those contracts to venture capitalists. This way, some of them are landing funding.


  Take MobileWay. This two-year-old French company offers to ship mobile data for any company, from Vodafone to Yahoo!, that wants a piece of the wireless Web. MobileWay, for example, can move e-mail from a Web-based service to mobile machines. It sounds simple, but I have all kinds of trouble moving e-mail to my phone. If companies like MobileWay can make it easier, the new industry may take shape.

Money? It's still out there. MobileWeb just announced last month $27.9 million in venture funding. A Swedish company called Anoto, which makes a radio-equipped pen that turns handwritten notes and drawings into e-mail, picked up $45 million in investment. Janice M. Roberts, a partner with Silicon Valley's Mayfield Fund, says venture funds have gobs of money on hand. Mayfield, an investor in MobileWay, raised $1 billion for a tech fund last year and has deployed only a third of it. Says Roberts: "We still believe there's going to be a big move toward next-generation mobile services."

At least a few of us are anxious to give this next generation a try. I'm hoping to have a whole grab-bag of 2.5G services, from box scores to e-mail, by next baseball season. For this to happen, Europe's newly cautious phone industry has to start taking chances again.

Baker covers the European technology scene from BusinessWeek's Paris bureau

Edited by Douglas Harbrecht

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