Europe : As the Chief Executive of Britain’s only pure-play 3G operator I am often asked about the opportunity for 3G.

Bob Fuller ( inset ), CEO of 3 UK gave this speech to the audience at a recent Financial Times Mobile Conference.

What is its potential? Will consumers really use the services? When? How quickly? What’s the revenue implication?

It’s right to ask questions, it’s right to be probing, to be sceptical about a technology that breaks records in terms of infrastructure investment. 3G has not come cheap.

But today I hope to answer some of these questions. Because I believe 3G has massive potential. It unlocks a host of new revenue streams. It has potential for us as operators; it has potential for suppliers, manufacturers, but also potential for consumers. After all it’s the consumer that will make or break us.

THE FUTURE FOR 3G LIES IN HOW WELL WE REALLY KNOW OUR CUSTOMERS

The mobile industry never stands still. It is in constant flux, constant change. It’s always been like that and I guess it always will be. The communications and technology industries never rest because consumers don’t let them. Demand drives choice and choice opens up revenue opportunities for operators.

A little over two years ago the promise of 3G was just words – there were few real believers outside of the five UK operators…. and even the main four had their doubts.

Here was an untested technology – a technology that was born from the most aggressive, the most hyped government auction ever.

No one really knew what would come of it; would it ever reach its full potential? Or would its legacy be the four hospitals that the government built with just our proportion of the proceeds?

Some might say that through the auction blind hope outshone sense, but today I am going to argue that 3G is making significant inroads into old fashioned, outmoded 2G mobile telephony.

As Chief Executive of 3 I have felt not the gentle ebb and flow of change, but a furious struggle. A struggle to prove that you cannot hold back the unremitting advance of technology.

I don’t believe 3G has yet come of age. But take up is accelerating, the market is opening up and fundamentally technologies do not recede they expand.

3G is here to stay, soon it will be ubiquitous. It will be part of our everyday life – nothing new. But there’s some way to go yet.
It’s a truism, but to succeed in this evolving market you need to understand the consumer – almost better than they understand themselves (and you don’t need to be McKinsey to figure that out). No opportunity can go unexplored, no chance unexamined, no trend ignored. Consumers are not just the recipients of a technology they are in the vanguard. Operators need to be tuned in; in a way they perhaps haven’t been since the explosion in usage in the mid-nineties, and the emergence of Orange as an exciting consumer brand.

An ability to spot the opportunities reminds me of that well documented story about competing shoe companies, Clarks and Bata.

Both companies were at a strategic crossroads, they had exploited their domestic markets and were looking overseas for opportunities. So both companies dispatched their brightest marketing stars to central Africa to seek out new markets.

Both men arrived and examined the opportunities. They spoke to potential customers and studied the market. Two weeks later they flew back home.
Back in the boardroom at Clarks their marketing director presented his findings. His conclusions were bleak. “There is nothing there for us,” he said, “They don’t wear shoes.” In the boardroom of Bata the conclusions were very different. “This is an amazing opportunity for us… they don’t wear shoes.”
And Bata went on to be one of the biggest mass-market shoe manufacturers in the world.

My point here is simple – markets are not necessarily visible to the naked eye. You need imagination and foresight to maximise your opportunities.
In our world, opportunities will come from two areas: either spotting as Apple did, a gap in the market for a new product and then delivering it to an unsuspecting consumer, or expanding a product where there is existing consumer demand.

As a mobile operator we need to understand both worlds. Above all we need absolute belief in our product.

Back in the mid-eighties a company called Racal Electronics won a license for radio bandwidth that could be used commercially. The technology that allowed individuals to receive and make calls on mobile phones was revolutionary, but the public didn’t know that yet.

Who would want to make calls outside of the home or office, people said? How would that help anyone, it sounds like a fad. No one has mobiles, so we don’t need them.

We all know of course that it wasn’t a fad, and today across Europe ownership of mobile phones has reached almost saturation point. But there is still a growth opportunity in usage, something that I will talk about later.

3G technology suffered a similar public perception problem to the one Racal (now Vodafone) suffered twenty years ago. Why would you want to see people on your phone, why would you want to download music, or play games, or watch sport? We can already do that on the internet, or through digital television, mobile phones have evolved to their zenith, there is no room for change.

Of course, this is nonsense, I know it, and I hope you all do too.

We are at a Bata moment, we can either boldly step forward and show consumers what 3G can do, or we can sit back, absorb the cost of acquiring the license and market 3G as a premium niche product. At 3 we chose the former route and as a result it effectively imposed an entry strategy on the other operators too. Once the first player has set the price and value it limits the competitors’ opportunities in the consumer’s eyes.

The challenge for us though in those first months in 2003 was defining the product. What did we want it to be known for, fundamentally how were we going to sell it.

As the pioneer we were creating something called the 3G market. At this point it only existed conceptually. There were no customers, just the 2G market, in which we also had to compete. The opportunity was to establish the market and the pricing.

In front of us were two choices: premium service, niche product, or inject value into the market, use the inherent efficiencies in a new digital network to re-establish pricing.

Our plan was a simple one. In fact, it was a no-brainer: phase one - bring value for money into the marketplace. That was our strategy. Attract high-value users from other networks with better value tariffs. Get the hygiene factors in place and deliver value for money.

Phase two - build awareness of non-voice content and provide enough headroom so that consumers could spend on 3G services. On top of that, grow the overall market by rolling out new services.

For me 3G opened up multiple opportunities to communicate. It was almost the -- “and then there was light” moment.

Old style 2G limited options to communicate, talk and text, talk and text, talk and text.

How about see, talk and text? For me it was the logical next step.

3G added a new dimension, obviously there are times that you don’t need to see a face at the other end, but there are also times when you do.

Now as consumers we have that choice, and the applications are growing daily. For example, for the first time ever the BBC used 3 to hear the voices, views and see the faces of voters in the general election.

I can say hand on heart that it has changed the way I communicate. It is an amazing thing to experience your grandson’s fourth birthday from 6,000 miles away. It’s easy to forget how significantly things have changed in just two years.

So, we genuinely wanted to break up the old cosy world of mobile telephony, where frankly the product had been commoditised and there was no real point of difference. In fact the pricing meant that it suppressed usage.

We wanted to make the broader services that 3G offers more accessible and more affordable to all. “You like to talk, great, talk, but also look at what you are missing”.

Teething problems that come with the introduction of any new technology meant year one was tough. Perhaps even some of you in the room wrote us off.

But we hunkered down. We fixed the problem. We continued delivering for customers. But I am not going to forecast the future and predict how many customers 3 will have this Christmas, I am just going to go out and win them.

In year two we experienced phenomenal growth. We were the fastest operator ever to a million customers, and at the end of the year we had two and half million. Our ARPUs remained strong. Customers used our non-voice content, and not just text.

In the last set of results from our parent company Hutchison, it showed that globally 13% of our revenues now come from services other than voice and text. We are growing this all the time and as 3G goes mainstream, the revenue mix will increasingly weigh towards these services. This is where the market is heading.

So what are the services – what will be the killer application?

Well firstly, the notion of a “killer application” is misleading. By killer application we mean – the most used product.

If you dissect 3G there are three layers that cross all revenue steams: audio, data, and video. If you ask me which feature will define the technology, it is video. It’s not complicated - video is what makes 3G different.

But if you are looking for some currently unknown product that will drive one massive revenue stream you are not going to find it. Why? Because 3G delivers multiple-revenue streams and that means multiple killer applications.

We are all individuals, we all like different things, content is no different. The live Natasha Bedingfield gig that we streamed recently was a killer application for Natasha Bedingfield fans, our recently launched multi-player games is the killer application for gamers, football is for others.

3G allows applications across a multitude of segments. It offers too many exciting opportunities to weigh the success of the technology on one offer.

To succeed in this multi-faceted environment you need to use strong high street retailing skills – because non-voice content is like fresh food in supermarkets. You need to set it out in an attractive way, and then get it out the door quickly before refreshing it with something new.

Customers simply won’t access content that feels stale, they want immediacy. You can see that very clearly when it comes to our football service. We offer Premiership match highlights delivered to our customers by quarter past five every Saturday – faster in fact than you get it on the television, unless it was a live game.

Take a look at it… [Run clip of football service]

Consumption of the product is very strong between five fifteen and seven o’clock – over half a million downloads regularly take place. It then eases off, and customers look for other content.

These waves of usage determine what we put on our portal, which essentially is like the front page of a newspaper. It is constantly changing, constantly being adapted to fit consumer patterns of behaviour.

Again a simple strategy – give the consumer what they want, when they want it, and make it relevant.

Aside from football what they want is music and games. This gadget is not an MP3 player, it is not an i-pod, it is a 3G phone.

Therefore our music strategy was adapted to that fact. What does the phone have that the other gadgets do not – a screen and the ability to stream moving pictures? Therefore we realised that the screen needs to be part of the music offer.

With Sony/BMG we launched our music video service last August. Based on the popular TV jukebox formula, we offered our customers access to full-length music videos.

And this is what they liked best… [play music video clip]

This service has proved to be enormously popular – with 10 million downloads between August and December. The record companies cottoned on to the fact that on 3 you have a captive audience for exclusive videos. They now come to us to build awareness for artists and videos weeks before the release date.
We have had exclusive videos from Robbie Williams, Natasha Bedingfield and Rooster, to name but three.

Like our music service, I believe you need to do the same with other content products – that is, match the technology to the service.

People say that television will be a killer application for 3G. They are right in one respect, video content, be it music videos, sport, or whatever, will be the future. If you really understand how the consumer behaves, you know that short clips are the key to this. People will watch highlights and behind the scenes clips.
So yes, there will be TV channels, but not as we know them. Like music, the TV offer will work if you are led by consumer patterns of behaviour.

One of the major growth areas I believe though is self-generated content. What do I mean by that?

Well our customers are making mini-movies, creating humorous video mail and even entering their creations into competitions.

People on holiday are mailing back movie postcards across the net and grandparents are watching and making clips of their grandchildren, just as I did.

And they don’t just share all of this by sending them to their friends’ mobiles but to their email addresses also.

I believe that self-generated content will be a major source of usage. Customers are realising that they have in their hands a piece of technology that contains far more possibilities than any of us in this room ever dreamed of.

As operators we need to unlock the power of self-generated content. We can only do that by pushing for interoperability. 3G will only reach its potential when people can communicate across networks.

Just imagine how self-generated content will grow if you could easily send your video to anyone on any network. Revenue will grow only when content is shared. But before we get to this point operators have to build out their networks.

Through all my experiences at 3, I have learnt that this technology offers enormous opportunities. We are not at the ceiling of revenue growth, in fact we are only just at the beginning.

So my final point to you is to consider this fact: on average mobile phone users spend six minutes a day talking on the phone. Six minutes, 360 seconds, no more. It’s an amazing fact.

The presumption is that we are always on our mobile phones, we have reached saturation point, there is nothing left. When you know the “six-minute” fact, you realise that there is a real game on. In fact until 3 came along there was no compelling reason to spend anymore than six minutes on the phone. Things have changed.

What you have in your hand is a very powerful device that is underutilised.

Value is going to drive this market forward, value is going to mean greater usage of both voice and non-voice, value will mean the difference between success and failure. We at 3 are focused on creating that value.

So that is the challenge, that’s the game. If 3G is really going to come of age, you need to listen to your customer, give them what they want, and do it in a way that is affordable to all. Not “no frills”, but “full-frills” at a fair price.

So what will the future look like? More networks, more connectivity, more value for consumers.

Streaming one-off events, like gigs or sport will take off. M-commerce too, perhaps an Oyster card embedded in your phone, a chip that means you can pay in shops.

Being able to see if the motorway ahead is clear or congested, being able to check on your children at home, being able to gauge the snow conditions before you put your boots on. Some of these things are here now and some are very close to being launched.

So in conclusion, as a 3G operator you need to be a pluralist. You are in telecoms. You are in retail music. You are in games. You are in broadcast. You are in e-commerce. The old strategies that worked well in 2G are no longer applicable. You need to be able to understand all these markets not just one of them.

So you can see that 3G creates more opportunities for operators. That means more revenue opportunities. The people who succeed will know this. That’s the strategy that will deliver “real results”.

Thank you