Telcos battle as Net brands go mobile

BARCELONA (Reuters) - Internet brands are eyeing the 3 billion mobile phone users worldwide as an audience and carriers must fight to get a slice of the profit, executives at the wireless industry’s main trade show in Barcelona said.

People enter the T-Mobile Store in Cologne November 9, 2007. Internet brands are eyeing the 3 billion mobile phone users worldwide as an audience and carriers must fight to get a slice of the profit, executives at the wireless industry's main trade show in Barcelona said. REUTERS/Ina Fassbender

The threat of Google GOOG.O, Yahoo YHOO.O, social networking site Facebook and other Internet brands going mobile looms large over telecoms operators, who want their customers to surf the Web on the go but also want to generate revenue beyond charging for voice and data.

Bit by bit, carriers are losing control.

Apple's AAPL.O iPhone is so popular that operators have to surrender part of their revenue to be able to sell it, the world's top handset maker Nokia NOK1V.HE is pushing into music and gaming, and Internet access on phones gives customers options for finding free content, bypassing paid-for services.

Vodafone VOD.L Chief Executive Arun Sarin said carriers should not sit back and allow themselves to be reduced to mere transporters of data, "dumb pipes" in the industry jargon.

“Customers want social networking, email, SMS, instant messaging, voice -- you name it,” Sarin said in a keynote address to the Mobile World Congress. “Communication is our core business. We have to be in all of these spaces.”

Executives are keenly aware of the backlash that could follow any attempt to target subscribers too obviously or allow ads to become intrusive, but they argued that existing relationships mean they know a lot more about their customers than Internet companies do.

“They are constantly guessing, they are constantly sending you stuff, Internet advertising that is relevant part of the time and irrelevant most of the time,” Sarin said.

“We can target advertising really well. As an industry, this can become a very important source of revenue without giving up the privacy bond that we have with customers.”

Carriers still have a lot to learn, however, said Timo Ahopelto, head of strategy of Helsinki-based Blyk, which offers 16 to 24-year-olds free calls and text messages in exchange for accepting advertising.

“They are not very good at compiling the user data that they actually have and providing that to advertisers for targeting and to gain insight,” he told Reuters.


The head of TeliaSonera's TLSN.ST mobile business, Kenneth Karlberg, urged carriers to be cautious in making deals with Internet companies or handset makers such as Nokia.

Carriers run the risk of getting sucked into a business model that does not benefit them, Karlberg told Reuters.

“We’re not selling handsets, we’re not selling clicks on Google sites, we have to find our own business,” he said.

TeliaSonera is trying to set itself apart by placing a toolbar at the top of the screen while users surf the Web on their cell phones and adding an advertising space below.

“We’re not interfering with the Google logic ... If you want to go to Google, go to Google, we don’t care. But if you do that, we’ll have an ad at the top of the screen,” Karlberg said.

Whether it is music services, mobile social networking or advertising, carriers have learnt the lessons of past failed forays into the content business -- another buzzword at the industry’s leading trade show was partnerships.

When looking for these, carriers can either turn to other companies with big brands or sign up “white label” firms, who can for example provide a music store, but allow carriers to market it under their own brands.


Finnish firm GeoSentric GEO1V.HE, formerly named Benefon, offers a location-enabled mobile social networking service called Gypsii, which carriers can rebrand as their own if they wish.

The underlying database contains a lot of information about the users -- such as where and when they use the service, what places they like -- and can be used to target advertising.

GeoSentric Executive Chairman Dan Harple told Reuters it was a clear alternative for carriers to striking a deal with Google for mobile advertising.

“Google is the fox, and they’re a henhouse,” he said.

Others cautioned that advertising may not be that important.

Masayoshi Son, chief executive of Japanese operator Softbank 9984.T, said advertising was crucial to the PC-based Internet business model because the content was free, but mobile was different.

“In mobile, 100 percent of customers have a payment relationship with the operators. There are multiple sources of revenue,” he said.

“Dependence on the advertising-only model will be less. People will pay for better service, for security ... So the glory of Google may not last another 20 years.”

Softbank owns 41 percent of Yahoo Japan 4689.T.

Jim Balsillie, co-CEO of Blackberry maker Research in Motion RIM.TO, urged telcos not to forget the business market: "Advertising's sexy and this conference falls prey to all the consumer stuff. But just talk to businesses -- they just want to mobilize their workforce and they're happy to write a big check to the operators."

Additional reporting by Georgina Prodhan and Tarmo Virki