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Wednesday, 25 October, 2000, 10:20 GMT 11:20 UK
The m-commerce money game
By BBC News Online's Orla Ryan

For a nation that traditionally only gambles once a year, Britain has seen some of its biggest corporate gambles yet this year.

Five companies paid over 22bn ($35bn) between them for licences to operate third generation mobile phone services in the UK.

And in Europe even more money has been spent to buy up 3G licences in Germany, France, and Italy - in total nearly $100bn.

The sale of these licences increased the pressure on phone companies, as well as hardware companies and content providers, to make money from the mobile internet.

But some analysts caution that it may be some time before any of these companies make a profit from these services.

Scepticism

Analysts are already expressing their first words of caution.

"I am relatively sceptical about the immediate revenue potential for mobile commerce," Nick Jones, senior analyst at Jupiter Research said.

How much network operators charge for the services will determine demand, he said.

"Commerce on wireless will be struck dead if the network operators charge an extremely expensive tariff," Mr Jones added.

But the high cost they paid for the licences might leave them with little alternative.

But then, so the argument goes, the mobile operators wouldn't have paid hand over fist for the licences, if they hadn't been sure of their future revenues.

Low charges

Low charges drove demand for Japanese operator NTT DoCoMo's i-Mode service - the mobile internet's big success story - but these low charges were offset by higher revenues from voice services.

Users who found the name of, for example, a local restaurant, on i-Mode, then used their mobile phone to make a reservation.

Daiwa SBCM Europe's telecoms analyst Matthew Lewis says that the Japanese operator earns between 25% and 30% more from an i-Mode user than a normal mobile phone user.

This extra revenue comes from increased voice usage, billing commission, data service charges and extra data traffic, all leading to more time spent online.

NTT DoCoMo takes an estimated 9% commission from transactions conducted on i-Mode, with this surprisingly high charge due in part to the billing system it offers content providers (where goods and services ordered on i-Mode can be paid for through your telephone bill).

Content deals

There are other ways mobile phone operators can boost income, for example, some internet service providers charge a performance fee if the advertiser nets a certain amount of hits.

Consumer take-up may be slow, caution some observers, with the consumer market for replacement phones generally seen as a product of fashion, not technology.

But phone companies might find that the business community proves to be an early adopter and a lucrative customer.

When the time comes for companies to replace their fixed-line networks, they may decide it makes more sense to replace them with wireless networks.

Internet-enabled phones could allow people to access corporate intranets or databases while they are on the move.

Tricky space

Alliances between the three groups - mobile phone operators, hardware companies and content providers - could complicate revenue streams further.

"Nokia is talking about introducing its own portal. It is such a big brand that they [ the network operators] cannot refuse to stock it," Daiwa's Lewis said, pointing out that this could be in direct competition to mobile phone companies' own services.

While some content providers may have signed exclusive agreements with mobile operators, for most the logic is in ensuring that their content is seen by as many eyes as possible - boosting their advertising revenues.

Views are mixed as to whether limiting users' mobile experience by allowing them access to a "walled garden" of content - thus securing content providers' revenues - could eventually backfire.

Some argue that providing users with as wide a mix of services creates a more desirable product.

Others believe that controlling access to content by making it easy to use - the key to AOL, the most widely used internet service provider in the US - will be more effective in creating "sticky" users who stay with one provider.

But with the advertising market for the mobile internet still in its infancy - amid worries that this advertising could prove to be intrusive - some content providers have signed deals with internet providers just to secure revenue.

The strength of the brand and the interactivity of the content is also likely to influence content providers' revenue.

With future revenue streams unclear for mobile phone operators and content providers, hardware companies may gain a march in the first round of the battle for profit.

But all three still have some way to go to convince potential users that there are enough attractive and accessible services available to make it worth buying.



Mobile web worries
See also:

27 Apr 00 | Business
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