The Eyes Have It

What can service providers learn from their European counterparts about owning the customers? Maybe nothing.

Paul Newman. People talk about his eyes all the time.

Bette Davis. Kim Carnes sang about hers in 1981.

When wireless-service providers talk about eyes, however, they aren't referring to an individual or even a niche of individuals. They are talking about owning eyeballs, and they want to own as many as possible so they can cash in on the lucrative wireless Internet.

And why not? Internet traffic is doubling every three to six months. Every 30 days, another 18 million pairs of eyeballs join the Internet. In just two years, approximately $63 billion is expected to be generated in IP-telephony revenues, and the value of goods and services traded on the Internet is expected to grow to a whopping $327 billion in 2002.

Obviously, becoming a wireless Internet-service provider (ISP) is a financially rewarding pursuit. According to the Yankee Group, the wireless-data market is projected to capture a healthy part of that revenue, growing from $1.8 billion last year to $13.2 billion by 2003, with up to 25 million wireless-data users expected nationwide by 2002. It took the cellular industry more than 10 years to acquire that many voice customers in the 1980s.

U.S. service providers know and understand the forces of the Internet. However, sowing that component into their wireless-service packages may force them to return to their entrepreneur roots, because there's no blueprint to follow, merely a vision.

Europe and Japan already have set out on their maiden voyages, taking cursory steps into wireless data. Is it possible that U.S. providers could benefit from their direction and experience?

Pricing
Before you can look for similarities or patterns, you have to understand the differences between the European and U.S. markets. The biggest difference is pricing. Local wired calls in the United States are free due to the access structure. This access has allowed subscribers to surf the Internet indefinitely for no additional charge. Europeans, on the other hand, pay for local wired calls by the minute. Internet access is billed the same way. In other words, the longer you surf, the more it costs.

Both Europeans and Americans pay for wireless voice on a per-minute rate. Because Europeans were accustomed to paying for wired calls on a per-minute basis, the transition to wireless voice seemed a natural extension. In the land of flat rate, American consumers wrestled with the notion of paying by the minute and rebelled when their first staggering bills arrived.

Numerous analysts have credited the United States' slower penetration rate to this significant difference in billing. Today, however, this same difference is flip-flopped with the Internet in Europe.

Europeans have been constrained by per-minute charges to browse the Internet. Therefore, the Internet's growth in a wired environment has been significantly slower than in the United States where users can browse endlessly and at leisure for virtually no charge.

However, there are seismic shifts taking place in Europe in the Internet-pricing space. Freeserve, a fledgling ISP, recently set competitor AOL Europe on its ear by offering free Internet access. In a few short months, it has accrued more than a million subscribers in Britain to AOL's mere several hundred thousand. Freeserve's initial success spawned multiple ISP clones, such as Libertysurf and Wanadoo, all also offering free Internet access.

Expectations
Because Internet growth has been more unbridled in the United States, consumers have developed relationships with their ISPs. They have expectations about how the Internet works, how to browse and how quickly they can pinpoint desired information. Wireless-service providers have been saddled with figuring out how best to package the Internet experience with current wireless-delivery devices and service.

In locations such as Europe where Internet growth has been more tempered, service providers view the wireless devices as a means of delivering the Internet to millions of new, currently unserved users.

"In the United States, we're still thinking about ISPs with a fat browser as the way the Internet gets delivered," said Barbara Kay, iPlanet director of product marketing-communications services. "You need to think through the reality of the bandwidth and start tuning your architecture and your investments to reach those millions of untapped users."

For example, Kay said four out of five people in Italy have wireless devices. They're never going to have an Internet connection at home driven by a PC.

"These users want the information available on the Internet, the immediate response time, the whenever-they-want-it, the-whatever-they-need kind of access," she said. To them, receiving it in a wireless device is ideal because of penetration of wireless handsets. Even better, subscribers have no preconceived expectation of the Internet.

Kay said Europe has gone to school on the Internet in the United States.

What drove the Internet in the United States was Web access for information and e-mail for proliferation. In addition to the traffic those services have created, wireless ISPs are creating new services that generate revenue, attract eyeballs, offer personalization, permit knowledge management and increase productivity. According to Kay, European and Asian wireless-service providers are looking at that experience and saying, "OK, that's the way it worked with the Internet. Let's do the same thing on an even shorter timeline."

Technology
Wireless infrastructure differences force U.S. service providers to take a slightly different approach to the wireless Internet. Europe currently is driving hard toward the always-on capability of GPRS and higher data speeds. At the same time, countries are bidding on additional spectrum for 3G implementation. U.S. providers, on the other hand, aren't ready to upgrade their infrastructure.

Andrew Cole, Renaissance Worldwide wireless-practice head, said many U.S. service providers are dragging their feet because they want to "milk the 2G networks."

"You sympathize with them, but at the same time, they are sacrificing the future," he said. "In Europe, at the moment, you'd lose your business if you didn't invest in GPRS soon. In the United States, everyone is more lethargic, focused on 2G, talking about voice because it's 30% to 40% penetration."

In Europe, where penetration quickly is approaching 70% in some countries, service providers are ready to move to the next tier in the wireless experience -- wireless data.

"Europe and Asia were at a place in the production life cycle where they needed to invest in a new set of equipment, and they invested in WAP, which they are bringing to market aggressively," Kay said. "The United States is still riding the previous technology wave."

What to Expect
With pricing, expectations and technology being so radically different, can U.S. providers look outside their borders for lessons or a sense of what to expect?

Renaissance Worldwide's Cole thinks so.

"There are definitely things happening in Europe that are precursors to what will happen in the United States," Cole said.

Cole predicts that certain European players will give away mobile voice so they can generate revenues from mobile Internet and mobile e-commerce.

One service provider that Cole could be referring to is Vodafone AirTouch. At Wireless 2000, Chris Gent, chief executive, promised that Vodafone would do whatever it takes to become the world leader in wireless data.

"That very first window (into the Internet world) will be ours," Gent said. "We will have and own that first access."

A change this significant to the wireless-voice and -data paradigm could fan the flames of an already-hot European wireless-data market. Likewise, it could encourage subscribers to use the Internet more. But this change doesn't concern service providers such as Gent. "Data services accelerate voice services," he said, claiming voice usage on his network is rising "like a rocket."

Cole also expects the mushrooming of mobile-virtual-network operators (MVNOs), similar to Virgin Mobile, to grow in the United States. Virgin Mobile, one of the more recognizable U.K. MVNOs, is a spin-off of Virgin Records, owned and operated by Richard Branson. Currently, Virgin Mobile serves about 300,000 customers and is projecting millions in the next 18 months.

MVNOs tend to be large branded organizations that have nothing to do with mobile communications. They enter the space aggressively using an unbranded pipe behind them, which is actually the wireless incumbent's network, and become wireless ISPs selling services to customers of their own brands. These virtual operators translate services into more traffic on the wireless-service provider's network.

With success comes risk. If MVNOs proliferate, as Cole predicts, it's possible that providers once heavily present in the consumer minds and hearts could be reduced to the roles of mere commodities or utility companies.

"The MVNOs are experts in branding," Cole said. "Carriers are woefully inadequate as far as brand is concerned. All you have to do is look at churn to realize that's the case."

Branding will be fundamentally critical and, according to Cole, much more important than ever before.

A Different Perspective
Not surprisingly, service providers aren't so sure there are lessons to be drawn from the European experience because of the different rates of Internet penetration.

"You don't want to directly extrapolate what's happening there to the U.S. market," warned Jim Ryan, Sprint PCS assistant vice president of products and services.

Because of the U.S. consumer experience with the Internet, wireless ISPs need to give subscribers wireless access to those services that are familiar. However, he cautioned service providers about the inherent risk of subscribers expecting their wireless devices to carry data and Internet in exactly the same way as the Internet on their desks does.

"It's not the Web. It's the wireless Web," he said. "There's a time and a place for the use of the wireless Web, and a place for the use of the wired Web." He said the key is to build an "affinity" with subscribers by making sure they understand the differences and benefits. He predicted the biggest differentiators of wireless Internet service will be personalization, customization and location sensitivity.

Carlton Hill, BellSouth director of Internet initiatives, agreed and said what Americans want to do when they're browsing the Internet on a wireless phone is fundamentally different behavior from when they're sitting at their computers with 17-inch monitors.

"You don't surf on a WAP phone, and you don't go look at the Star Wars clip," she said.

"Where people in an at-home, big machine, comfy-chair environment want their browsers to pick up every little nuance of any site, in a WAP or mobile environment, users will be comfortable with and prefer predefined sets of places," Hill said.

According to Hill, the wireless Internet will relate to the U.S. wired Internet by first being a wireless adjunct to it. For example, if you have a Priceline.com travel account, you'll be able to wirelessly access it. But then there will be real-time, personalized functions that are tailored specifically for a mobile environment. For example, the wireless Internet could tell you how many traffic lights are out between your current location and the grocery store.

"In its simplest sense, location-based is: I know where I am now, and I want some information about here," Hill said. "We all hope it's going to evolve to: You know where I am now, and you've got something to tell me."

For this reason, Gary Cohen IBM general manager-global telecommunications industry, said the wireless Internet will drive the Internet of the future.

"Subscribers don't want to have a personalized experience in wireless and a non-personalized experience in wireline," he said.

Cohen predicted wireless ISPs wouldn't simply wirelessly enable current Internet services. He predicted a cottage industry would spring up in which companies would be developing services specifically for the wireless environment, and wireless ISPs would optimize them for the mobile environment.

Larry Swartz, Compaq group vice president & general manager, agreed.

"You are going to see new Web sites that aren't just being designed to do more eBay trading or Amazon.com book buying."

He said location sensitivity would become an important filter for dealing with the endless pipe of available information. Instead of telling a user about the 75 Chinese restaurants in the greater Des Moines, IA, area, it could tell the subscriber the three that are within five blocks of his current location.

Will the Real ISP Stand Up?
The golden rule of the Internet age is that companies that own content are kings. The point of contention revolves around whether service providers should team with existing ISPs or go it alone by developing their own portals. The AOLs, Earthlinks, Yahoos and Amazon.coms own the content and have the ability to package content for various communities of interest, including mobility users. The strength of U.S. wireless-service providers is that they supply the vehicles over which ISPs' content travels — the handsets and networks.

According to Renaissance's Cole, it's all about content navigation and about owning the eyeballs of customers.

"Carriers absolutely have to develop their own portals," he said. "They must not under any circumstances set up alliances with the existing portals." Cole said wireless-service providers should view current ISPs as their competitors. Even starting a wireless-data strategy with a large ISP as an interim solution is dangerous, he said.

Cole suggests that U.S. providers use companies such as Phone.com, Oz.com or i3Mobile or other enabling companies that offer off-the-shelf applications to help wireless-service providers to deliver their initial portal and e-commerce applications.

Sprint PCS' strategy seemingly flies in the face of Cole's warnings. The service provider has partnered with a number of content providers, including Yahoo, Amazon.com, Bloomberg and CNN. Sprint PCS's Ryan isn't too concerned.

"Lots of our competitors have looked at us and said that Sprint PCS is selling the farm, giving up control, giving up those eyeballs," he said. Ryan argues that it's the right model for the United States.

"If I was in Japan, I would have done what i-Mode did. If I was in Europe, I would have done exactly what the Europeans are doing," Ryan said. "I wouldn't put Yahoo in this business, but let's not make any mistake about it, Yahoo owns the Internet. I would be disserving my customer to deliver an isolated island of services, call them wireless Internet and not deliver the things that are the Internet today."

IPlanet's Kay agreed. "Here in the United States, I'm not sure a partner-independent model would be effective." She said U.S. service providers face time-to-market pressures, a paradigm suggesting the early entrant will capture and control the subscribers' eyeballs.

"The only one who owns that eyeball is the user," countered Sprint PCS' Ryan.

When it comes to customer control, he said it's the service provider's job to provide a differentiated, value-added service that thrills and delights customers.

"It's not because we kept out competition that we win; it's because we beat competition that we win."

Compaq's Schwartz agreed and said the service provider still is the gatekeeper.

"One will not dominate the other, because they have different core competencies," Schwartz said.

IBM's Cohen said providers shouldn't spend a lot of time worrying about who is leading and who is following, at least in terms of geography. He suggested focusing on the key players, the value they bring to the product and the power of their brands.

IPlanet's Kay agreed and predicted a resurgence of the value of marketing people.

"It's less of a race of the engineer and more of a full-service, whole-product type of challenge," she said. "Our customers are looking for a way to have a marketing presence, have a brand image and reinforce the branding message through the entire interaction with a customer. You're trying to not just get the eyeballs initially, but really retain them, and retain them as knowing you."