PluggedIn: Voice, not video, is mobile firms' calling

STOCKHOLM (Reuters) - It looks like a sunny day in Italy when Emanuele Sivieri in Milan holds his mobile phone to the window, sending a fuzzy image all the way to Sweden.

"Two weeks ago, I went fishing and I made a call to show my girlfriend what a big fish I caught," Sivieri says, trying to explain the advantages of a video call, even if the voice quality is worse than on a regular mobile call.

Some 20 million Europeans have signed up for subscriptions on the high-speed 3G networks rolled out by companies such as Vodafone and Hutchison Whampoa. But, compared with features such as music downloads, video calls have failed to take off and voice still generates the bulk of their revenues.

"I think it's a generational question -- it's hard to teach old dogs new tricks. I don't believe people above 30 will take this to heart in great numbers, but it will be born out of youth culture," said telecoms analyst Hakan Persson of Kaupthing Bank.

"But even 3G operators primarily market voice telephony and then they, of course, try to sell any other services they carry," he said.

Other analysts point to a lack of handsets and too few users as being the main problems for video calls, rather than the weak picture and voice quality and questionable value of being able to see who you are talking to.

"It's not that it doesn't work, but I mainly use voice calls anyway," said Mikaela Saikkonen of Stockholm, who signed up for a 3G subscription with Hutchison-owned operator "3" because of their affordable rates for voice calls. "It doesn't feel necessary to see the person I'm talking to," she added.

Slow uptake

Operators, who spent around 100 billion euros (US$123.2 billion) on 3G licenses in Europe in 2000, compete aggressively to attract clients with offers of unlimited voice minutes, free video calls and cheap music downloads. They are reluctant, however, to divulge usage data.

"3" said in August that 23 percent of their average revenue per user came from features other than voice calls, while Singapore's number two operator StarHub said video calling was not among the top three of most-used 3G features.

US operators have focused on functions like streaming video clips with news and entertainment rather than on mobile video calls.

"Where's the value in that?" said Len Lauer, chief operating officer of Sprint Nextel Corp, the number three US mobile service. "It's not an application people need."

In Japan, NTT DoCoMo has promoted video calls since 2001, but take-up has been slow even as video traffic has increased steadily.

"You can't say video calling will never take off just because it's not popular now," said Hironobu Sawake, an analyst at UFJ Tsubasa. "I think we'll see an increase in usage once it hits a critical mass."

But research group Gartner said video calling was still a long way from gaining a wider following.

"We have a report on this coming out in a couple of weeks and it's pretty much the same thing across the world," said Gartner industry analyst Carolina Milanesi.

"In Singapore, operators have been offering bundling (cheap handsets when signing a subscription) and free minutes, but it's still not really happening," she said.

Not enough phones

Less than a fifth of mobile phones sold in Western Europe this year will be 3G handsets, according to Gartner forecasts, but only a fraction of them are capable of video calls.

And with the exception of some glitzy models like Nokia's 6680 and Sony Ericsson's K608i, normal design and size requirements seem to have been left by the wayside to make room for a big enough screen.

"They're a very small portion, at best a couple of percent, in a global market of millions of handsets, which would indicate that the demand isn't there either...People seem to be happy to communicate with voice and SMS," said Andy Brown, program manager for European mobile device research with IDC.

"It's only when major handset vendors start bringing out handsets...that the market can take off. And it depends on the number of users, if the handsets are affordable and easy to use and if it's a good end-user experience," Brown said.

While the end-user experience of a face-to-face conversation on the other side of Europe is admittedly fun, the question remains whether people are ready to spend real money on video calls.

"I have plenty of people to call since most of my friends switched to '3' because of the low rates," Sivieri said. "But if they go up, I'll use mine only for business, because outside of the special rates it's really expensive."

Additional reporting by Jennifer Tan in Singapore, Yukari Iwatani Kane in Tokyo and Sinead Carew in New York.