Wireless lines blur

The GSM World Congress in Cannes, France, in February, made it clear that the approach of wireless data will significantly change the wireless industry in several ways.

Wireless data already directly affects the vendor and operator communities. Their worlds are changing dramatically, causing the businesses they were in yesterday to look different from the strategies they will pursue tomorrow.

"The days of us being in the box business are long gone," said John Hughes, president of GSM/Universal Mobile Telephone System for Lucent Technologies, during a seminar at the convention. Hughes sat on a panel with other heavy hitters in the wireless industry, including executives from Motorola, Nokia and Siemens, who largely agreed with him.

Motorola offered concrete evidence of the shift. Last year the company hired approximately 1500 new engineers worldwide. About 75% of them were hired to work on software products whereas in the past, they would have been almost exclusively RF engineers.

"That's a big shift," said Bo Hedfors, executive vice president and president of Motorola's network solutions sector.

Traditional lines of business are blurring as players in the industry increasingly see that future revenue lies in content and applications. Vendors and operators are entering new spaces in hopes of capitalizing on that revenue.

Consider the recent America Online/Time Warner merger, which was referenced repeatedly at the show. Hitting closer to home is AT&T Wireless Services' recent pledge to invest in e-business companies.

Orange in the U.K. has a similar strategy. "Orange wants to be the leading technology incubator," said Hans Snook, CEO of Orange.

Operators also are noticing that the service providers that have been successful with data services are those that have significantly fostered content and applications.

NTT DoCoMo's successful iMODE offering may be popular, some say, because DoCoMo has partnered with 240 content providers and offers access to 4000 Web sites. "They've been very successful, and it's not the network but the infrastructure around it," Hedfors said.

Snook agreed. "Infrastructure and delivery become irrelevant," he said.

For Motorola, changes have gone deeper than where its engineers work. "We've moved away from being just an RF provider to [offering] end-user solutions," Hedfors said. That means Motorola teams with companies such as Logica to deliver billing solutions and Sun Microsystems for the brains of the network. Motorola also recently introduced a customizable portal for wireless operators.

Operators and equipment manufacturers are eager to play a role in the content and applications businesses not only because it seems as if that's where the profits will be but because they fear someone else will if they don't.

"The subscribers are owned today by mobile operators," said Michel Rahrer, chief operating officer for Alcatel's radio communications division.

But that likely will change during the next year. Operators must partner with content providers or become involved with them "so the business of the operators isn't cannibalized by the content providers," he said.

For example, Mannesmann has established a relationship with AOL Europe. "That preempts an AOL attack by forming a strategic alliance up front," said Arif Hussain, manager of GSM data product management for Lucent.

Both partners benefit: AOL gets a new channel, and Mannesmann can offer customers access to the Internet. "Those relationships are key," Hussain said. In the U.S., Sprint PCS has taken a similar approach by teaming with Yahoo! for its wireless Web offering.

But the days of anyone owning customers seem to have passed and operators are doing their best to determine how to own at least part of customers. "No one owns the subscriber," Hughes said. "A subscriber is owned by a piece of content for a moment in time and then moves on."

Key then will be for operators to follow the Internet model and create an environment that offers customers such good content and applications that they won't want to leave the operator.

Today on Yahoo!, for example, users can leave the site at any time. But Yahoo!'s goal is to provide so much information on its site that customers won't want to do that.

The same concept is porting into the wireless world. "In the Internet, everything is open," said Niklas Savander, vice president of marketing for Nokia. Wireless operators should replicate that environment and be careful not to force customers to access only certain information. "It needs to be an emotional lock-in. It's critical not to create proprietary tunnels," he said.

The shift from operators being just pipes is becoming apparent in the types of companies that bid for third generation licenses in Europe. Banks and supermarkets are counted among bidders in the U.K. Nortel Networks has been in talks with companies ranging from content providers, traditional cable and satellite operators to optical and IP companies, said Pascal Debon, president of wireless for Nortel.

The shift that vendors are making aims to help operators avoid being just the pipe. "Operators don't want to be narrowly defined as transport," Hussain said.

Lucent is moving toward programmable networks that build an environment in 3G networks to allow for easy creation of content and services. Such an environment also will help operators easily access location information, which can yield powerful applications.

Nokia is opening doors for operators by facilitating relationships with third-party application providers. It currently has 50,000 registered Wireless Application Protocol developers, Savander said. In addition, the move toward IP creates the need for a new layer of applications because IP separates the network from the logic. Nokia is becoming involved in that new applications layer, he said.