Making money online: Can wireless carriers make the Web pay off?

Original ideas make money. Wall Street's fascination with dot-com start-ups is a good example. Another attention-grabbing prospect is the combination of Internet applications and wireless technologies. The difference is that wireless Internet ventures typically involve a plethora of players.

Wireless carriers racing to offer Internet solutions have leaned on many different players, including content providers and portals, which has changed the face of their business plans. Although carriers have struggled to stay competitive by hopping on the mobile data bandwagon, they have been sidetracked by a different challenge: ensuring that their version of the wireless Internet is profitable.

In a report titled, "Creating the New World Wireless Operator," KPMG's Global Communications Industry Group defines several approaches carriers might take to ensure the success of their wireless Internet business models (see box).

Although the convergence of the Internet and wireless technologies still is in its infancy, carriers have begun to re-evaluate their business plans to account for the wireless Internet trend.

"It is important to experiment with multiple business models because in the long term, there will be different models," said Paul Reddick, vice president of product management and development for Sprint PCS. "No one is clear what business models will work, and anyone that says they are is lying."

Sprint PCS has established four distinct business models that will ensure that it is compensated for its participation in promoting other Web sites via its network. Internet companies might pay Sprint PCS slotting fees that dictate where their site is displayed in the same way companies pay to have their products displayed at grocery stores. Another revenue model will depend on how much traffic is driven to a particular site and whether there are a lot of transactions taking place. If this model were to be employed, the carrier would get a percentage of whatever revenue is generated by such activity.

Although many carriers have yet to look to wireless advertising, Sprint PCS and others might consider this method, provided that customers give permission. "This will never be widely rolled out until it is something that customers desire and if it is personalized and useful," Reddick said.

The main thing Sprint PCS and KPMG seem to agree on is that the wireless Internet will not work without successful relationships between all parties involved. "There is a cooperative environment between content providers and carriers to work [the wireless Internet] out," Reddick said. "We are open to working with application developers."

KPMG surmises that few telecom companies will be able to make the transition from old world voice products to new world mobile Internet services without partners to share the risks, maximize opportunity and minimize time to revenue.

"Operators realize that they need to partner and that they need help developing applications," said Mark Carleton, national industry director of the communications segment for KPMG. "This is a challenge because a lot of these are facilities-based people that are not used to partnering with others. But they do understand what they need to do."

Sprint PCS is not the only carrier concerned with the transition to the mobile Internet.

"Carriers all are looking at how to make money from the wireless Internet. This is a serious issue," said Becky Diercks, director of wireless research with Cahners In-Stat Group. Although Diercks sees carriers looking to per-transaction fees from content providers, she believes that may not make much revenue. Therefore, like Sprint PCS, they will have to look at the other options such as advertising or companies paying for positioning of their Web sites.

To make mobile Internet models cost-effective, operators should:

- Re-focus vision toward a new world of data-centric services

- Ensure that customer management, service provisioning become key differentiators

- Formulate business models that incorporate a wider range of third-party relationships

- Implement technology investments in shorter time tables

- Develop application development cycles that generate innovative and flexible solutions

- Adapt operational resources and infrastructure to achieve necessary cost efficiencies

Source: KPMG