ÐÓ°ÉÔ­´´

After several years of spectacular growth, the number of calls made
on mobile cellular phones has dropped to around 30 per cent of the network
capacity. New entrants to the business have not come up with convincing
arguments on why we should buy their promised new services instead of sticking
with the existing ones. Suddenly, a licence to launch a new mobile phone
service does not seem such a prize. Too many networks will be sharing too
few customers, raising fears among operators that their licences allow them
to lose money as well as make it.

Following the initial success of the two cellular phone networks operated
by Cellnet and Vodafone, the government decided to open up additional radio
frequencies to cellular phones. In December 1989, it awarded licences to
three groups of companies to set up new Personal Communication Networks
(PCN) which would exploit more advanced technology and would use the new
frequencies.

Last month, two of the three new PCN licensees, Mercury and Unitel,
agreed to merge and cut back their planned spending drastically. This, however,
is only the latest signal that the industry is in a state of confusion.
Its problems are compounded by plans for a pan-European cellular service
and efforts to build a global satellite communication system.

The failure of CT2, the second generation ‘telepoint’ cordless phone
services, also underlines the weakness of the market.

Building better networks

Since the launch of the cellular systems in January 1985, Cellnet (owned
by British Telecom and Securicor) and Vodafone (owned by Racal) have each
spent well over £500 million on building a network of base stations.
Both networks cover well over 95 per cent of the British population. Their
runaway popularity, however, meant that demand exceeded capacity and, too
often, many subscribers failed to make their connection.

Cellnet and Vodafone have invested large sums to improve the reliability
of their systems after many criticisms from users frustrated by difficulties
in making connections. In crowded urban areas, both groups have spent over
£100 million a year on splitting their radio cells (an area of radio
coverage) into smaller cells. This allows each frequency to be used in different
cells by several callers simultaneously, where formerly it could be used
by only one, and so relieves congestion.

These two established cellphone services use a technology known as Total
Access Communications System. Although TACS uses digital signals to set
up calls and switch them from cell to cell, it relies on an analogue signal
to carry speech. Because other countries in Europe use similar but incompatible
analogue carriers, a new technology, known variously as Groupe Special Mobile
or Global System for Mobile Communications (or simply GSM) has been devised
to bring full compatability to the European market. It uses the same frequencies
throughout Europe, and relies on digital coding of speech to squeeze more
calls into the available bandwidth.

An agreement signed by Britain and other European governments requires
Cellnet and Vodafone to provide a GSM service in parallel with TACS by mid-1992.
The GSM phone will require a user to insert a ‘subscriber identity module’,
which is likely to be a smart card with built-in microchip memory containing
details of the subscriber.

Both groups say they are now testing a GSM system, but there are no
handsets available for subscribers to try. Cellnet has admitted that its
planned GSM cellphones will initially be bigger, heavier and more expensive
than existing phones while offering fewer features. It does not expect to
offer a GSM service until 1994.

Vodafone is taking another approach: it will build a GSM network within
its existing TACS. The cells for the new subnetwork, called the Micro Cellular
Network (MCN), will be very small, which means that the handset can work
at low power, using small batteries. However, a service will only be provided
in busy urban areas where subscribers will pay very low prices for calls
– as little as 10p a minute, compared with 30p or more for current cellphone
calls.

While Cellnet and Vodafone were investing in upgrading their systems,
and telepoint services were going under, the government was preparing to
launch the new Personal Communication Networks. Like GSM, PCN services will
use digital transmission. They will, however, operate at much higher frequencies
in the microwave bands between 1.7 and 2.3 gigahertz.

In December 1989, the then junior trade and industry minister, Eric
Forth, granted licences to Mercury and two other consortia, Microtel and
Unitel. Each was expected to spend up to a billion pounds on building nationwide
networks using digital technology based on GSM.

Cellnet and Vodafone were left out of this competition, guaranteeing
a hard fight for the new groups. Having already built up their networks
and supporting infrastructures, and having held their prices at matching
high levels, Cellnet and Vodafone are well placed to fight a war on tariffs.
As soon as anyone launches a PCN service, they will simply cut their prices.

The PCN groups are already feeling the pressure. In July 1991, British
Aerospace, the main partner in Microtel, sold out to Hutchison Telecommunications,
the British subsidiary of Hong-Kong based Hutchison Whampoa. Microtel has
now said that it will definitely not launch a PCN service for at least another
year.

Even before their merger, Mercury and Unitel agreed to share a single
network rather than each set up their own. Ironically, the executive chairman
of Cable and Wireless, which owns Mercury Communications, is Lord Young.
In January 1989, as Secretary of State for Trade and Industry, Young launched
the plans for PCN in the White Paper Phones on the Move. For Mercury now
to opt out of PCN, blaming either the recession or the concept of PCN, or
both, would be an acute embarrassment to the former minister who dreamt
up the concept.

The merged network, to be called Mercury Personal Communications, will
now have to give up one set of frequencies, though it is highly unlikley
that anyone else will want them.

Investment in the shared network is also being cut back, compared with
the companies’ initial plans. They will now spend around £200 million,
and their network will cover only the London area within the M25 ring road.
The group now promises to launch a service in the first half of 1993. Few
people would be surprised if even this plan is shelved.

Making the profit connection

Under these circumstances, it is hard to argue the case for PCN. Mercury
has said only that its calls will be of better quality than those that use
the existing TACS, because ‘they are digital’. But Vodafone will be offering
its digital MCN system within the same area. Mercury argues that PCN calls
will be cheaper than calls on rival systems. But Vodafone has already promised
low-cost calls on MCN, and both Cellnet and Vodafone can easily cut tariffs.
Size and weight are no longer significant factors; modern TACS phones are
quite small and light enough.

While the future of PCN remains uncertain, the possibility of salvaging
CT2 telepoint services seems nil, despite the millions of pounds invested
in it by BT, Mercury and Ferranti. Their services, Phonepoint, Callpoint
and Zonepoint, grew out of a plan devised in the mid-80s by the British
electronics industry, led by Shaye Communications, for a second-generation
cordless telephone that would use digital transmission instead of the analogue
technology relied on by the CT1 cordless phones used in homes and offices.
All three CT2 services are now dead.

All cordless phones rely on a base station wired into a phone line to
which a radio handset can transmit at a range of a hundred metres or so.
Base stations for CT1 phones are simply plugged into an individual private
line. CT2 networks provided public base stations or telepoints, where people
could use their handsets away from the home or office. And because it used
digital technology, CT2 systems were secure from eavesdropping and free
from interference.

In January 1989, the Department of Trade and Industry licensed four
competitors to operate telepoint services, using frequencies just below
the 900 megahertz band of the cellular networks. But whereas the DTI had
obliged Cellnet and Vodafone to use the same technical standard, allowing
phones to work with either or both networks, it imposed no standard for
CT2. Three of the four operators rushed onto the market. No home base stations
were available, which meant that handsets costing over £200 pounds
could only use public telepoints which cost more than calls from a public
payphone. There were three kinds of handsets and three kinds of telepoints,
all incompatible. Call quality was erratic. The three operators, BT, Mercury
and Ferranti, invested millions of pounds to gain a few hundred subscribers.
Last year, all three services ceased operations and the infrastructure hardware
is being sold off for next to nothing on the surplus market.

Too late, the DTI and the operators woke up and agreed with the European
Telecommunications Standards Institute on a cordless phone and telepoint
system which will adhere to a European standard, the Common Air Interface.

The fourth licensed telepoint operator, called BYPS (a consortium of
Barclays Bank, Philips and Shell) had delayed the launch of its service
until the technology based on the CAI standard was ready. In February 1991,
Hutchison bought it out. Last week, Hutchison announced that at the end
of June, it will launch a limited service, to be called Rabbit, in the North
of England.

Certainly, the idea of a compatible pan-European service, in which a
single handset controlled by a smart card could be used to make calls from
telepoints anywhere in Europe, remains attractive. But it adds further problems
to the oversupply of services in Britain.

To disrupt the market even further, the World Administrative Radio Conference,
held in February, agreed to reserve frequencies in bands at 1600 megahertz
and above for satellite cellphone services. Both Motorola and the maritime
satellite organisation Inmarsat plan to compete. Motorola’s Iridium service
will rely on a network of 77 low-orbiting satellites to let anyone, anywhere
in the world, make a cellphone call. How the service operators will fund
the venture, while keeping the cost of services low, remains to be explained.

No one can now seriously believe that demand for mobile phones still
exceeds existing or promised supply. Clearly, the scene is now set for major
casualties in this once lucrative market. What is happening in the UK will
happen in other countries. The glaring truth is that no one wants to carry
more than one mobile phone.