Access or Content?

The Internet could be a portal to a sea of e-commerce profits for wireless carriers, but opinions about the best passage vary widely. Providing wireless access for portal companies such as Yahoo! may be worth $13 billion by 2003, up from $1.8 billion today, while the number of users is expected to grow from 3 million to more than 50 million and generate $6.6 billion in 2004, according to the Yankee Group.

Analysts differ over whether carriers should stick just to providing pipes for content providers or develop portals and applications of their own.

"I think the carrier will be a pipe," said Jane Zweig, Herschel Shosteck Associates executive vice president. "If you look at the landline side, they are, and the wireless side isn't going to be any different. But in order to be the pipe, you better be the lowest-cost pipe."

Andrew Cole, Renaissance Worldwide wireless-practice head, disagrees. "Anyone who says that (carriers) need to focus on access has, I think, got it kind of wrong."

Cole said that the massive e-commerce market that Yahoo! and others are pursuing will require carriers to develop their own portals, host applications and aggregate content. Pipe-oriented carriers, he said, will become "commodity deliverers," relegated to earning wafer-thin margins from supplying wholesale bytes to portal companies and other entities that will reap the biggest e-commerce revenues.

"I can tell you that most of my clients that are the big carriers simply cannot afford to do that," Cole said. "It would mean a radical alteration of their businesses."

Even while developing its own e-commerce strategy, Cole said, a carrier would be wise to contract with a smaller portal company to operate as a service bureau behind the carrier's brand name. That approach gives the carrier ownership of the customer and helps maintain healthy margins, he said.

"Ultimately, (carriers) are going to see the entry of new types of competitors that are called 'virtual carriers' that don't own networks but provide a branded front end," said Cole, pointing to the Palm VII wireless service that operates on BellSouth Wireless Data's network. "These guys are going to come in, and we know this because we're working with some, and they're going to basically give away access to get e-commerce. In essence, the value is migrating from the network to the customer, ownership of the customer and anything that goes along with the customer."

Carriers have their own ideas on how best to profit from the marriage of the Internet and wireless. Carlton Hill, BellSouth Cellular director of product development, said BellSouth sees itself as more than a "wireless carriage company" and plans to generate revenue not only by enabling access but also from e-commerce.

"It may be true that a standalone carrier first and foremost (should) be sure that it has provided the fastest, most reliable connection to data," Hill said. "But we think that the economic model will shift. There are some transactional revenue streams and maybe some revenue from the people providing the data paying for access to our customers."

AT&T Wireless, meanwhile, appears focused mainly on providing the maximum throughput possible regardless of whose content and transactions it carries.

"We firmly believe that we should stick to our own knitting in terms of doing the things that we do best, which is basically transporting data or voice over the air," said Ken Woo, AT&T Wireless spokesman. "Besides, if you look back in history at the Industrial Revolution, were the railroads just a commodity?"