HELSINKI (Reuters) - The world's first advertising-funded mobile telecoms operator, Blyk, will enter the German, Spanish and Belgian markets next year, the firm said on Wednesday.
Finnish-British Blyk offers a number of free calls and text messages to 16 to 24 year olds in return for users accepting advertisements.
The company is a pioneer among wireless carriers, which are only slowly entering the mobile ad market, helped by new technologies and the spread of more advanced phones.
Strategy Analytics analyst Nitesh Patel said Blyk's continued growth depended on demonstrating value to advertisers through superior ad response rates, growing its highly targeted subscriber base, and learning more about its customers.
"The reality is that advertisers are still testing the waters of the nascent mobile ad market," he said.
Closely-held Blyk opened the service last year in Britain and a launch in Netherlands is scheduled for later this year.
Germany and Spain are among Europe's biggest ad markets and Belgium's ad spending per capita is among the region's highest, Blyk's co-founder and chairman, Pekka Ala-Pietila, told Reuters.
The top German mobile operators -- Deutsche Telekom's (DTEGn.DE) T-Mobile, Vodafone Group Plc (VOD.L), KPN's (KPN.AS) E-Plus and Telefonica's (TEF.MC) O2 -- are competing hard on price, driven by E-Plus, which owns a host of budget brands.
The situation is similar in Spain, where Telefonica, Vodafone and France Telecom's FTE.PA Orange, along with a dozen virtual operators, battle each month for 350,000 people hopping from one operator to another.
Ala-Pietila, a former president of leading cell phone maker Nokia NOK1V.HE, said the firm was in advanced talks with operators over network renting in the new markets.
"These talks are in quite a late stage," he said.
In Britain, Blyk has signed up more than 100,000 youngsters offering 217 texts and 43 minutes of voice calls per month for receiving up to six texts a day from brands including Adidas ADSG.DE, L'Oreal (OREP.PA) and Manchester United.
Ala-Pietila said it would be similar in Spain, Germany and Belgium. "The offer is seen as very attractive and as a proof we reached 100,000 clients six months ahead of our plans."
Blyk said the ad campaigns had generated average response rates of 29 percent, compared with the usual response rates in advertising of just a few percentage points. The campaigns are built on messages, and aim to engage users in dialogue.
"For 16 to 24 year olds, communication is strongly focused on instant messaging and texting, and that works extremely well as an advertising channel," Ala-Pietila said.
According to various studies, mobile ads will generate revenue of anywhere between $1 billion and $24 billion within four years. Advertisers are drawn to the sheer scale of the potential audience: 3 billion people worldwide use handsets.
Strategy Analytics this year lowered its forecasts for the mobile advertising market and expects it to reach just over $10 billion in 2012.
"Although we are impressed with what we've seen so far from Blyk, with respect to the reported numbers, we are still unsure about how sustainable the model is," Patel said.
Blyk plans to open in more European countries later.
"The concept can be adjusted to several markets," Ala-Pietila said. "Our target is not to stop at five."
Additional reporting by Robert Hetz in Madrid and Georgina Prodhan in Frankfurt; Editing by Braden Reddall and David Cowell