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Putting on the Squeeze

Putting on the Squeeze

Mobile telephony is a very competitive industry, as we all know. But how many people realize that the model of device manufacturers competing against each other while the carriers vie for customers is about to be turned upside down, and that some companies are about to find out that next year's competition is today's biggest customer?

While users are still going to want the latest handsets, with all the bells and whistles that come with them, the next battleground won't be for devices or customers, but for the ability to offer those customers premium services, and to charge them for those services.

Premium services are a big business already, with ringtones being the best-known example. The constantly changing popular music charts provide a never-ending source of content, and in Europe anyway, newspapers carry pages of advertisements offering everything from the latest hits to '60s greats, all rendered in annoying MIDI. But the carriers aren't the ones placing these ringtone advertisements, it's third-party companies that saw the bandwagon leaving and were quick to jump on board, while the network operators were forced to trail behind with their own offerings.

The ringtone market has demonstrated that users are willing and able to pay for additional services, and the race is on to find "The Next Ringtone." Java has opened the door to a much broader range of content, and this time the operators hold the upper hand because, while the ringtone services used premium-rated SMS messages for their charging mechanisms, Java games (it's still generally games) are downloaded from WAP sites, which lack such a convenient charging mechanism. Here the operators have the advantage, as they own the billing relationship with the customers, and can easily add charges for Java programs downloaded from their own WAP sites to the customers' bills.

But downloading games is only the very start of the range of premium services users will have available to them in the very near future. Multimedia Messaging Service (MMS) opens the possibility for massive expansion of such services, with operators already offering daily horoscopes, "Garfield" cartoon strips, and filtered news stories at a premium for every message sent. It's almost impossible for anyone other than the network operator to offer services like this. Content providers are welcome to make arrangements with the operators, but it's the operators who control the billing relationship and so negotiate from a position of strength.

Mobile phone manufacturers don't have any kind of relationship with the users, let alone a billing relationship, at least for the moment. Initiatives such as Club Nokia can be seen as an attempt by the manufacturers to create some sort of relationship, but they are still a long way from being able to bill for content, and none of them has publicly indicated any intent to offer chargeable content direct to their users.

But the opportunity is there, and the temptation is considerable. Most mobile operators - even the ones that didn't bid silly money for 3G licenses - have extensive debts to service, and those debts are secured against future revenues, a large part of which is expected to be made from premium content provision.

As bandwidth increases, the potential for chargeable content also increases, so the current offerings are only the very beginning of what we'll be seeing in coming years. Companies in the UK are already testing music download services running over GPRS networks. While it's unlikely we'll see movies being downloaded over GSM networks for the foreseeable future, it's clear that the quantity of downloadable content is set to increase massively, and with it, the chargeable services users will be billed for. All the operators have to do is make sure users are able and willing to take advantage of the content they offer.

It's clear that control of the user interface is going to be an important factor in the future development of handsets and mobile business models. With the carriers trying to integrate their online offerings into the offline functionality built into the handsets, and the manufacturers trying to maintain their own brand look-and-feel, not to mention increasing their relationship with their users, the third parties who made so much money on ringtones haven't been sitting still.

The fight over your mobile phone screen is only beginning, and though it's unlikely we'll ever see a clear victor, there will certainly be some bloody noses before the battle is over.

More Stories By Bill Ray

Bill Ray, former editor-in-chief (and continuing distinguished contributor to) Wireless Business & Technology magazine, has been developing wireless applications for over 20 ears on just about every platform available. Heavily involved in Java since its release, he developed some of the first cryptography applications for Java and was a founder of JCP Computer Services, a company later sold to Sun Microsystems. At Swisscom he was responsible for the first Java-capable DTV set-top box, and currently holds the position of head of Enabling Software at 02, a UK network operator.

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Most Recent Comments
david klein 01/07/04 02:13:12 PM EST

Dear Sir/Madam,

Could you please provide me with an address which I can reach Bill Ray please. I am interested in obtain additional information from him.

regards,

David Klein

09/17/03 06:35:55 AM EDT

Intersesting article, whilst I agree that the operator's do have the upper hand because of their unique billing relationship with customers 3rd party suppliers are able charge for products downloaded from WAP sites by using IVR when ordering the product or by triggering Premium SMS messages as part of the download mechanism.

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