WAP IS KWAP, BUT KEEP HOPING

So fai; the mobile Internet is

GREAT powers are again struggling for dominion in Europe; except that it is a curi- ously modern, even 21st-century, conflict. It does have many of the hallmarks of a battle between rival chancelleries; clandestine diplomacy, strategic alliances, unexpected attacks and, above all, fearsome costs: already this year about £200 billion has been spent. Yet it is also an odd kind of war. Nobody has yet been — and nobody should be — killed. At issue is a piece of terrain the size of two ordinary postage stamps. The protagonists are not nation states, although they are quite similar. They are, rather, Europe's great telecoms powers: BT, France Telecom, Deutsche Telekom and Vodafone. However, the strangest feature of this contest is that nobody is quite sure if winning is going to be worth it. What the great powers want to domi- nate is Europe's mobile Internet. Yet so far the mobile Internet has been a total disappointment. In the run-up to last Christmas, we were told to love the Wap phone and, in particular, a design from Nokia which featured in last year's top action-flick, The Matrix. It was hoped that the combination of the two hottest con- sumer trends in the last five years, the Internet and the mobile phone, would be a immediate hit. In fact, Wap phones have been a disaster. First, the screens are too small to display much information, a point which, oddly, the phone designers ignored. Second, the access speed, four or five times slower than a home Internet connec- tion, is just too slow.

Third, and most important, once you're online there is nothing to do. There is no access to the full Internet because existing websites have to be rewritten and redesigned to speak Wap (that's Wireless Application Protocol, a different tongue from the Internet's HTML) and to fit on the phones' tiny screens. There are, howev- er, uninteresting mobile websites provided by the mobile operators.

Last year, as Wap was coming into being, conflict broke out. In October 1999, the German telecoms and engineering group Mannesmann, which had built up strong positions in Germany and Italy, surprised the industry by taking over Orange, the fastest growing operator in Britain. The problem was that Britain's Vodafone had considered Mannesmann an ally: the move amounted to a declaration of war. So Vodafone's cricket-loving executives, led by Chris Gent, mounted a hostile takeover bid

— the largest in history — for Mannes- mann, and the Germans finally succumbed last February.

This triumph changed the rules of the game. The resulting group had a position in the European mobile telecoms market that was way ahead of rivals, with sub- sidiaries from Sweden to Spain, from Britain to Greece. Rival telecoms powers felt they had to catch up. Yet their problem — the problem of all great powers — was simple. Could they afford to participate in the landgrab that had begun?

In the spring, costs continued to soar. In March, Britain began an auction for five `third-generation' mobile-phone licences. The third generation (the first was analogue phones, the second, digital) is meant to solve the slow-speed mobile Internet problem. Phone-company boffins claim that third-gen- eration networks will run at speeds at least a dozen times faster than Wap phones.

Nobody was sure how much the licences — necessary because there is only a finite number of radio spectra available — would sell for. Britain was the first country in Europe to hold an auction; Finland and Spain had also issued licences but rashly gave them away. The British auction took eight weeks and raised £22.5 billion, ten times more than people were prepared to predict beforehand. Add the costs of actu- ally building the third-generation networks, and the final bill is almost doubled.

The shock of what happened forced an immediate European consolidation: France Telecom used every last penny it could find and spent £31 billion buying Orange from Vodafone, who had had to sell it for regu- latory reasons. An alliance sprung up between Dutch telecoms group KPN and the wheeler-dealers of Hong Kong con- glomerate Hutchison Whampoa. Smaller powers, such as Spain's Telefonica, were effectively marginalised — another reminder that Britain, France and Ger- many still dominate Europe.

Debts shot up. A third-generation auc- tion in Holland raised £1.6 billion, less than expected. But it was a false dawn. In August, six licences were sold in Germany for £30 billion. Italy will follow in October, while the Spanish decision to give away licences is now a hot political issue.

The company that has ended up most damaged is Britain's BT. A year from now it will probably be unrecognisable. It will have to break up — the only ques- tion is how. The war has caught BT in a vicious circle. In 1999 it started to lose credibility in the City because its Euro- pean strategy was weak. That meant it could not expand by buying companies cheaply, using its shares as currency. This is Vodafone's speciality: Mannesmann was acquired using Vodafone shares. Even better, Mannesmann was a scrappy conglomerate with a series of superfluous interests that Vodafone has since been cheerfully selling for cash, allowing it to reduce its debt.

BT has meanwhile had to pay for its expansion in cash. Its wireless catch-up —buying up businesses in Ireland, Hol- land and, in August, Germany — means that its debts will rise massively. After the German buy, BT warned that its debt would rise to £30 billion (Vodafone's is falling to a mere £8 billion). The City's confidence in the company slumped. Now BT has no choice but to sell whatever it can to get the debt down. It is casting around furiously with a new idea emerg- ing a month, including a possible merger of parts of the group with Britain's usual saviour, the Americans, represented in this case by AT&T.

Meanwhile Wap phones are still as over- rated as ever. The companies struggle to justify the prices they are paying in the landgrab. Without a hint of irony, Orange proclaims that each of its Wap-phone users surfs the net for just two minutes a day on average. And Vodafone claims, without showing its calculations, that for every pound it will invest in groovy third- generation technology, it will get back £1.15. Of course.

However, some relief is at hand. In the run-up to this Christmas, the mobile Inter- net will become up to three or four times faster through the mysteries of GPRS (General Packet Radio Service). The oper- ators are managing to make plenty of money anyway, at about 6p a time, through the growing global addiction to low-tech text messages. In Britain 516 million text messages were sent in July alone.

There's also Japan, the one country where the mobile Internet has really taken off. The country's largest Internet service provider is its largest mobile-phone opera- tor, NTT DoCoMo. It has more than 10 million subscribers, partly because the Japanese love gadgets, but also because its mobile Internet technology, iMode, is much better than Wap.

Unfortunately for BT, Japan is too far away to help in its plight. Instead the job of building the next British empire is likely to fall to the cricketers at Vodafone.