Data in the driver seat

Wireless operators work out the kinks of teaming with Internet content players

Wireless isn't what it used to be. Two years ago, audiences at conferences, such as the annual Cellular Telecommunications Industry Association's Wireless 2000 show in New Orleans, would groan at the mention of data. Conference after conference, year after year, attendees would hear speakers proclaim, "this is the year for wireless data." The problem was that for years, data grew at an excruciatingly slow pace.

Today, speakers don't make that proclamation anymore - and show attendees don't groan anymore - because it's obvious that data's day really has come.

Instead of focusing on pricing plans or the conversion from analog to digital, Wireless 2000 revolved around the developing wireless data industry. Discussions centered on unanswered questions such as what the ideal business model is and whether operators will forge relationships with Internet content players. At the heart of the debates was the desire by wireless operators to maintain close relationships with their customers and to exist beyond being just a pipe.

The discussions took an interesting turn at Wireless 2000 because leaders of the Internet world participated. Although they are new to the wireless world, their insights are valuable because some believe those companies pose the biggest threat to wireless operators. The speculation that America Online or Yahoo! might start selling phones branded with their images and operate on resold airtime rings in the ears of every wireless operator. Generally, the words of those Internet leaders may have been comforting to wireless operators. However, those Internet players also made it clear that they see cash in wireless and intend to chase it.

Strong bonds

Central to which companies can earn the most from wireless data is the issue of who owns the customer.

That question was addressed by Jeff Bezos, CEO and founder of Amazon.com, who joined the conference via satellite from Seattle. "The customers own themselves," he said. Customers have many relationships, so it's wrong to think that they have a primary relationship with any company, he said.

Steve Case, chairman and CEO of AOL, thinks along similar lines. "We're not obsessed about the customer ownership thing," he said. Whatever makes sense to the customer is what AOL will do, he said. For example, if customers already have billing relationships with a wireless operator, operators and content providers should offer them services by building on that existing relationship.

In addition to who owns the customer, discussions revolved around the relationship between operators and content providers. Operators are concerned about those relationships because they fear being shut out of transaction-based revenue. Case pledged that AOL's central strategy will encourage success for all parties. "Our philosophy from Day 1 has been to partner," he said.

Companies involved with all pieces of the wireless data puzzle will win if they cooperate with each other to build a bigger market, Case said. "If you create more demand, you'll generate more revenue," he said. The question for operators should be: "What's the best way to structure this so that we all promote ourselves?"

Others agree that cooperation among the many companies involved with delivering wireless data services will be key. "Who owns the customer depends on how successful each side will be embracing the others," said Alain Rossmann, chairman and CEO of Phone.com.

Bezos did not want to comment on how he envisions the relationships between operators and content providers will pan out. He dodged repeated questions about how the business model may look in the future. "A variety of different relationships with carriers are being experimented with," he said.

Wireless carriers in the U.S. may have more to worry about than their counterparts overseas. That's because most of the content on the Internet is generated in the U.S. where names such as AOL and Yahoo! are much better established and stronger than in some other parts of the world, said Chris Gent, CEO of Vodafone AirTouch. Nonetheless, "it will be a battle everywhere," he said.

U.S. operators realize the strength of those Internet companies' brand names, which is apparent in the number of deals that already have been made between wireless operators and Internet content providers.

"You don't say no if Yahoo! wants to partner with you," said Carlton Hill, director of Internet initiatives for BellSouth Cellular.

The wireless data game is a two-way street, though, and content players are eager to build these close partnerships with wireless operators. "Now carriers are focusing on the real estate on the phone," said Steve Spencer, director of wireless Internet applications for Lucent Technologies. "Partners want to place their content in a privileged position on the phone."

Content providers are anxious to make deals with wireless operators so that links to their content are placed front and center on a wireless portal - where end users see them first. Unlike the PC world where it's simple to type in a URL to visit another Web site, wireless phone users are more apt to use the links that the operator has pre-programmed into its portal. Operators also can provide valuable information to content providers. "We know where our customers are," Gent said.

Going it alone

While some industry analysts advise operators to team with existing content and Internet players to deliver mobile data to customers, some vendors, including Software.com, advise the opposite. Operators would do better to control content themselves, said Software.com's Mark Taguchi, senior director of strategic marketing. "They have to build their own databases - that's where the money is," he said. Customer information such as calendars, mail and address books - information typically collected and stored by companies such as AOL and Yahoo! - is extremely valuable information that operators should control themselves, he said.

The vendor community is split on this issue. If wireless operators want to own that data, they would have to consider a whole new business model, said Dave Murashige, vice president of marketing for Nortel Networks. "To be effective as an [application service provider] would be hard to do inthe current model," he said. However, some vendors are offering products to help wireless operators set up their own data centers to manage customer information themselves.

In addition to creating data centers, operators have only begun to consider other data challenges that the wireline ISP community has faced for some time. For example, few wireless operators have begun to consider how spam will affect their networks and their customers who may sign up for wireless e-mail services. Currently, about 50% of e-mail is spam, Taguchi said. Those messages can be filtered out by wireline e-mail providers. But in the wireless world, it may be more crucial that those messages are filtered out before reaching the handset because customers will not want to pay for the delivery of spam messages.

Offering wireless data services also brings a host of other issues. Operators are beginning to look to the Internet models to create billing and settlement solutions and security and authentication, Lucent's Spencer said.

Ultimately, operators may end up hosting data and acquiring the knowledge of landline ISPs if what some people predict comes true. Phone.com's Rossmann predicted that in five years, Internet and wireless companies will begin merging, and more bundled offerings will become available. "In three to five years, it may be hard to distinguish who is an Internet [provider] and who is a wireless provider," he said. Meanwhile, the goal is to converge markup languages, including WML and HTML, into XML. That will have profound implications on the market, he said.

Despite Case's assurance that partnering is AOL's goal, the company is no stranger to acquisitions, having recently scooped up Time Warner in what was then the largest merger ever. With the cloud of that deal hanging over Case's every word, wireless operators may not have taken comfort in Case's partnership philosophy. Instead, they may have imagined a marriage between AOL and a wireless operator that could yield a superior wireless data offering.

Such mergers may not be that far off. Internet content players have an incredible amount of confidence in wireless. Bezos is so confident in wireless that he believes the far future will see 100% of Amazon.com's revenue coming from wireless commerce. "That's why we're investing so much in this," Bezos said. If he expects wireless to play such a big role in his business, it would make sense for a company such as Amazon.com to merge with a wireless operator.