MOBILE DATA GETS REAL

The year 2000 was going to be the biggest, most exciting year the wireless sector had ever seen. The industry promised high-end capabilities such as streaming video served up on high-tech wireless phones. Venture capitalists were pumping dollars into every company that had a mobile Internet affiliation. And application providers and carriers thought they were going to make tons of revenue from innovative applications that would bring wireless subscribers by the score.

The dream fizzled in 2001.

As it turned out, customers hated wireless access protocol (WAP) phones, which featured drab monochrome screens and took several tries to access simple information such as stock quotes. GSM carriers didn't roll out general packet radio service (GPRS) — which was supposed to provide high-speed data capability in an “always on” mode — as quickly as the investment community had hoped. Things began to get ugly.

This year, the industry has entered into a new reality, and it appears all the parts needed to make a successful wireless data industry are finally falling into place. Gone are the hyped-up promises of high-speed data. So is the defiant nature of the mobile carrier industry, which tried to build a walled-garden approach to the wireless Internet market in its attempt to control customers and the content they accessed via wireless devices.

Now more advanced data-ready handsets with color screens are entering the market. Meanwhile, technologies such as Java and Qualcomm's BREW are making wireless data application development easier and more attractive to the end user.

The days of writing applications for monochrome screens are nearing an end. “We are so glad we don't have to write for WAP anymore,” said Mitch Lasky, president of gaming application provider Jamdat. In San Diego in February, Verizon Wireless introduced the first BREW-based wireless data services that include games from Jamdat. Verizon plans to roll out BREW nationwide this summer.

“WAP is a limited platform, and the gray-tone phone with a small screen was unattractive,” said Eric Aledort, senior vice president of business development and strategic partner marketing with Walt Disney Internet Group, who works on content deals for ABC, Disney and ESPN. “We're glad to see a new attention on data services. Carriers are beginning to explain to their customers how to use them, and handsets [have made] a huge leap forward.”

Indeed, this year's Cellular Telecommunications & Internet Association trade show in Orlando served as the coming out party for a plethora of data-friendly devices. Sony Ericsson Mobile Communications, for instance, introduced the P800, a multimedia smart phone that incorporates a color touch screen, built-in digital camera and Bluetooth connectivity. Verizon and Sharp announced the availability of the Z-800 handset, the first BREW-enabled handset with a color liquid crystal display screen in North America. Major carriers will see an introduction this year of about 20 new phones with new features.

“The new terminals are pretty well packed with a lot of new features — color screens, Bluetooth, Java or BREW — that are allowing the stars of mobile data to align,” said Bryan Prohm, senior wireless handset analyst with Dataquest. “But there's still danger carriers will over-hype technology. There's always danger that the first type of apps aren't going to be as user-focused to drive revenue and create loyalty.”

This is a reality carriers are very much aware of. “I've always said we ought to be looking at an evolution and not a revolution,” said Stephen Carter, president of Cingular Wireless.

Many carriers in 2001 turned the pages back to find more simple applications that are guaranteed to drive more robust data applications down the road. Cingular was the first to offer downloadable ring tones last June for 99¢ apiece. Downloads jumped from 1000 a month in June last year to 350,000 in December, said Carter. “On a color screen, someone will pay 50¢ to play a Gameboy game,” Carter predicted.

U.S. carriers have historically kept short messaging service traffic on their own networks, but since opening them up to interoperability this year, traffic has exploded. AT&T Wireless' traffic increased five-fold when it began allowing customers to send messages to any wireless customer. InphoMatch, a short messaging service (SMS) clearinghouse, predicts cross-carrier messaging could produce a $5 billion revenue stream for North American operators by 2004.

“SMS is the first step in getting people comfortable with wireless data,” said Andy Willett, vice president of data and mobile multimedia services at AT&T Wireless. “It's the big story in 2002.”

Telecom Italia has developed a WAP push technology to send messages to its non-active SMS users to help drive usage, making it easy for non-active users to access information.

“We incorporate what's called KISS: keep it simple, stupid,” Mauro Sentinelli, managing director of Telecom Italia, said during a keynote session at this year's CTIA show.

Openwave is reinventing WAP based on the same concept. Earlier this month it kicked off its first development of an end-to-end solution for Telesp Celular's CDMA network in Brazil, which will use Openwave's technology to push messages such as soccer game schedules and news to mobile phones during the World Cup.

“Our push technology is standards-based, which allows two key advantages when compared with SMS,” said Omar Tellez, marketing strategist with Openwave. “Once a person receives a message, they can directly go to a WAP session. This latest version of WAP has graphics you can send while the phone is in standby.”

This lack of push content has been one of the main reasons WAP has not taken off in the past, analysts have noted. “Prior market studies have indicated that consumers want an always-on experience and want it pushed to them,” said Tellez. “What this does for the operators is help drive adoption rates.”

Nationwide higher-speed data applications will also mark 2002. Verizon Wireless has already launched CDMA 1X in select markets and will continue a phased launch strategy until the end of the year. Sprint PCS will offer nationwide 1X technology this summer. AT&T Wireless Services will complete rollouts of GPRS by the end of the year and has launched its own data services called m-mode that are based on NTT DoCoMo's i-mode service. And Cingular Wireless is in the process of building out GPRS in all of its markets.

Most operators are looking to digital imaging, messaging and gaming as the wireless data catalysts.

“We'll be selling phones with digital cameras,” said Sprint's Levine. “It's a very powerful application because it has some real money-saving implications.”

Insurance agents, for instance, could take pictures of accidents at the scene, download the information and cut a check on site.

U.S. operators should be carefully studying the success of South Korean operators with their deployments of 1X technology because personal computer penetration there is 50%, similar to levels in the U.S. Popular belief is that the wireless Internet will only be successful in markets where PC penetration is low. However, Korea Telecom Freetel, which launched 1X technology five months ago, is seeing a 35% penetration of wireless Internet use, with 1X users consuming twice as much airtime. After introducing BREW applications, data revenue increased again by 60% (see table).

DATA REVENUE FOR KT FREETEL (IN U.S. DOLLARS)
	2G	1XRTT	BREW
Average data revenue per user	$1.30	$4.50	$7.60
Total average revenue per user	$22	$33	$38
Source: KT Freetel and SoundView Financial Group

“This is a strong potential indicator of what U.S. operators may see in terms of wireless data contribution,” said Timothy O'Neil, wireless analyst with SoundView Technology Group.

While the future of mobile data looks bright again, the wireless industry is still collectively waiting to exhale.