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The year 2001 witnessed significant progress in the development of applications for mobile data. Advertisements now tell consumers they can get driving directions, manage personal information, access enterprise applications, and even receive video clips on their mobile devices. The mobile Internet appears poised for takeoff, but economic lessons learned from its desktop predecessor will determine its ultimate success.

If we didn't know better, we might think that mobile data, mobile Internet, wireless Web, or whatever you wish to call it is a way to access the existing Internet while sitting at an airport or outdoor café using a mobile device. Some operators market their mobile data services this way. Perhaps there is a resemblance between the two experiences, but comparing mobile Internet to the traditional or fixed Internet is not comparing apples to apples.

There are notable differences between the mobile and desktop environments. The devices used to access content, the way content is accessed, the value of the content itself, and the motivation for users to access mobile data create a new and compelling value proposition. More important, mobile data calls for a different economic model than fixed Internet. And in order for the model to work, mobile operators and content providers will have to work in partnership to create a valuable package that subscribers will be willing to pay for.

So Many Devices, So Little Time
Going mobile is a knotty proposition, with size and mobility creating challenges in the development of applications for both the device and the content that it delivers. With the conventional Internet, the overwhelming majority of access devices are Windows-based PCs running a standard Web browser to which content can be developed in a standard way. In contrast, mobile devices vary in many respects - operating systems, processors, display size, memory, storage, network protocols, markup language, and available applications, to name just a few.

As a result, content and application development is more difficult and more costly. Content providers need to participate in an economic business model that creates an incentive for them to meet these demands. In other words, agreements need to be in place that allow revenue generated by the mobile operator to be shared with the content developers.

Bit Pipe or...
In traditional Internet access, the consumer uses the local telco to get to an ISP and pays for the phone call as if it was a voice call. Alternatively, either via DSL or cable modem, the consumer can purchase higher data rates. In either case, the telco is a bit pipe. The subscriber has access to either free content after clicking through the advertisement that sponsored the site, or they have an individual retail account with each content site and pay via credit card. The value proposition of the Internet is outside the telco's reach.

Not so for the mobile operator. Mobile operators must be more than simply the bit pipe. They have made significant investments in spectrum, network infrastructure, handset subsidies, marketing, and support systems to enable the mobile Internet. They are vital to the value chain. Their aggregation of content is important for customer acquisition and retention, and their billing relationship with the subscriber is an invaluable asset.

The mobile operator's challenge will be to use their billing capabilities in a manner far greater than the traditional telco does today. The retail billing area is where the mobile operator can be the one account the subscriber uses to pay for both voice and data, but not just any data - valued content for which the subscriber is willing to pay a premium price.

Creation of this valued content is not the mobile operator's forte. Many have tried the "walled garden" approach where they preselect a limited amount of content for their subscribers. This limiting factor has been one of the disappointments consumers have experienced with WAP. There simply isn't enough interesting content available to sustain a customer's interest. It certainly hasn't lived up to the promotion of a mobile version of the Internet.

But it doesn't have to. Subscribers don't need a downsized portable version of the Internet. What makes mobile Internet usage and content vastly different from fixed is the ability to take advantage of personalized devices, location, niche time, timeliness of information, constant presence, and connectivity between related applications.

These characteristics, in a nutshell, are what make mobile Internet so compelling. A multitude of content and application developers are creating new and unique applications and information that is specifically targeted to the mobile Internet medium. They are eager to work with operators to reach subscribers - and to be paid. The challenge for the mobile operator is to develop win-win business models to continuously encourage more interesting content. As a result, the business model behind the scenes will rapidly become complex; content and services need to be created, integrated, packaged, priced, and presented to the consumer in a very tailored way.

The subscriber's bill is a wonderful marketing tool to reinforce all this value and personalization. Take location-based services and micropayments. Both are considered high-demand areas that will drive the need for value-based billing. A real-time traffic report billed at 50¢ per report is far more compelling and understandable than a charge of 500 mysteriously used bytes. It reinforces the operator's role in providing a timesaving piece of traffic information that gets the subscriber to the meeting on time, rather than some forgettable content that equals 500 bytes. If operators don't want to be relegated to the role of bit pipe, why are they charging for bytes?

Charging for Value
Value-based billing is an area in which fixed Internet has changed and wireless can follow. The dot-com bubble has burst, and the business model of free Internet content supported by advertising revenue, which didn't work in the fixed Internet arena, is not going to support the wireless data economy, at least not in whole.

There simply is not enough advertising revenue to go around. Fixed sites are now charging for content that once was free. As mobile Internet rolls out, the challenge is to find the right mix of free, flat rate, and value-priced services, and to share the revenue stream among operators and content providers. This creates a complex clearing and settlement model familiar to wireless operators, but less known to content providers.

The Clearinghouse Model
While the members of the value chain may not be feeling the pain today, a clearinghouse will be necessary to support the almost endless possibilities that the wireless Internet offers, such as worldwide messaging, m-commerce, intranet access, entertainment, and location-based applications. The clearinghouse concept simplifies the management and administration of the business relationships among content providers and wireless operators, as well as among wireless operators and their subscribers. A solution that will facilitate data collection, rating, clearing, settlement, and reporting of wireless data records for operators and content providers will capture the true profit potential of mobile Internet service offerings.

Content Providers Are from Mars; Mobile Operators Are from Venus
No matter how you compare and contrast traditional and mobile data services, the underlying factor that will determine the ultimate success of the mobile Internet - beyond the killer application - is a successful business model that allows all in the value chain to prosper. Partnerships among the content and application providers and the mobile operators are key to success. How can these two vastly different cultures cohabitate successfully?

Relationships are consummated quickly in the Internet world. Many wireless operators are the grandchildren of large, incumbent wireline companies. Let's face it, wireless companies differ from content providers. Wireless operators are a little larger, a little less nimble, and a little slower to sign on the dotted line. But in their defense they're not in as big a hurry. They can withstand and sustain risk over the long haul a little better than our content business partners who need cash flow to meet payroll. Wireless needs to think about average revenue per user, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and shareholder value.

It's much like doing business in another country. Wireless operators and content providers need to be aware of the cultural differences and learn to communicate. Partnerships and alliances are critical for mutual success, but the right business partners are needed to develop the right technical solutions and put the right business processes in place.

Making It Work in Today's Economy
If 2002 is truly the year for mobile data, the economic factors have to be faced head on. If not, all of the genius behind the development of wireless content will be for naught. With the dot-com meltdown still smoldering, wireless operators need to demonstrate the real long-term value of their 2.5G and 3G assets. Content providers face an equally daunting business challenge on the other side of the equation as they foray into the world of wireless communications without a cash safety net below them.

Any time a new technology is introduced, the learning and earning curves are steep. If mobile operators simply position mobile Internet as fixed Internet in a new environment, an extraordinary revenue opportunity will be lost.

Developers won't have the resources to develop compelling content, and users won't value what's available and pay a premium price for it. Instead, mobile operators must create a value proposition that subscribers will pay for. Today's techno-savvy subscribers are seeking a rich user experience via their mobile devices. They want location-sensitive, personalized, timely, easy-to-access content. Isn't that the whole point of mobility?

To meet these demands, operators and content providers need to create a sustainable, profitable, shared business model that will enable delivery of valuable content and services supported by the consumer. With this in place, 2002 may indeed be the year for mobile data.

About Lisa Huetteman
Lisa Huetteman is director of business development at TSI
Telecommunication Services Inc.

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