Chips are down for BT in 3G network gamble

BT's gamble on third-generation (3G) networks was dealt a deuce last week as it was forced to postpone the rollout of its test network on the Isle of Man by three months. It cited problems with handset connectivity as the reason for the delay.

The telco, which will soon be passing the hat around shareholders in an attempt to cut its £30bn debt, is anxious to play up the benefits of holding UMTS licences, as traditional revenue streams from voice services continue to erode.

In this context, the Isle of Man delay could not have come at a worse time. The trials were expected to be the first commercial offering of 3G, and BT had been hoping to flex its PR muscle.

At least this is a novel problem for BT. In recent times, the telco has been heavily criticised for failing to take commercial advantage of its strong technology hand. Its Adastral Park research facility is highly regarded, so it is particularly bitter for BT that the problem emanates from a third party.

Steadying investors' nerves

A BT spokesman said the problem was not in the handset itself but in the software supplied by NEC that links and maintains connections between devices, antennae and base stations.

Called the remote node controller, it houses integrated software and performs a job similar to the 'handshake' protocol in modems. If users move out of a cell while making a call, the network effectively drops the handset.

BT will attempt to steady investors' nerves by pointing out that it is not alone. The glitch that has caused the project to be delayed until late summer at the earliest is similar to that which forced NTT DoCoMo to halt its test network. It's not unusual for engineers to encounter problems when laying down a new network, particularly when the technology is still maturing.

Keeping its options open

But while those close to the industry will put the delay into perspective, some shareholders will view BT's UMTS cup as half-empty. Private shareholders are especially liable to be unforgiving, and who can blame them given that the value of their investment has fallen so steeply.

Tony Lavender, research director at analyst Ovum, said it was bad timing for BT. "What BT needs ahead of its rights issue is a success story," he said, adding that concerns about the cost and lead time in launching an operational network would be heightened by the Manx delay.

"Two operators have suffered similar setbacks, and this highlights the true complexity of getting 3G networks off the ground," said Lavender.

BT is putting a brave face on things. A spokesman said that rumours of a row with its supplier were just that, but confirmed that it would be free to seek deals with other handset suppliers should NEC not be able to deliver robust software.

"Our deal with NEC is not exclusive. We're not locked into a deal but we're not planning to exit either," he explained.

A spokesman for NEC said: "It's not just a software problem, it's about the whole network being stabilised. Maybe call dropping is a problem, but it is not the only one."

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