"Providers of music download and video files are only making small margins - despite charging prices that most mobile phone users see as expensive," he says. "Only at high levels of 3G ownership - say more than 50 per cent of the market - will they be able to make good money."Paul Mumford, who manages the UK Opportunities fund for Cavendish Asset Management, believes investors may be able to benefit from future merger and acquisition activity."The whole industry is ripe for consolidation and a lot of people are recognising there are opportunities within the telecoms market," he says. "No one knows what is the best future use of phones."But content providers are unlikely to be major winners for investors, suggests Jones. Investors in European equities can capitalise on this trend by looking for companies that have tapped into this potentialIn the banking industry, Western European groups, such as Erste Bank and Bank Austria, are benefiting from their operations in these markets, which boast high organic growth rates. Austrian oil and gas group OMV is reaping the rewards of an acquisition in Romania.Private equity investment is another catalyst driving a shake-up in corporate attitudes and structures across Europe. As an increasing number of the region's private companies are restructured under this type of ownership, public companies are also compelled to re-think, often becoming more shareholder focused.
"There isn't a really compelling reason to have 3G at the moment, apart from faster internet connectivity and one or two other extras," he says. At one stage there were high hopes for photo messaging, but this failed to catch on. It happened when everyone was going dotcom mad and companies had to bid for licences to stay in the game. Any operator without 3G now would be at a huge disadvantage and their share price would suffer."The key to success, says Ovum's Hewett, will be discovering the next "killer application". "Some companies have abused these services," claims another industry observer. "Customers thought they were buying one ring tone, but they had unwittingly agreed to a monthly contract and ended up receiving large bills.
This has made people very cautious."Also, will the major operators fully recoup the billions of pounds lavished on the licences? Britannic fund manager Ralph Brook-Fox says they won't, but that doesn't make them poor investments. "The licence fees are a cleverly designed windfall tax by the Government," he says. "The companies were criticised for paying such high amounts, but they didn't have much option. "It makes it a long process."Subscription services also have an image problem.