Business Analysis: Pushing the right button: mobiles get a move on

There was déjà vu in the air at 3GSM, the annual get-together for the global mobile phone industry. The event in Barcelona is used by mobile executives to discuss the future of their sector and to unveil new products and services.

This year, the GSM Association, the organiser of the monster event, proclaimed that the mobile industry was entering a new era when consumers would use their handsets to watch TV, download music and connect with the internet.

The problem was, delegates have heard about convergence for the past few years at 3GSM.

Rudi Gröger, chief executive of O ₂ in Germany, opened his address to visitors by announcing that "everything that can be said about convergence has been said before".

And the humble consumer, who doesn't tend to get asked along to 3GSM, has continued to use his mobile for making phone calls, sending text messages ... and precious little else.

Meanwhile, competition is forcing down prices for these basic services. According to a recent report by Group 1 Software, the customer communications company, UK mobile operators made a £39.20 profit per customer in 2006, down from £43.20 in 2005.

But after many years of false starts, advances in technology could finally be about to transform the mobile industry- though, it may not be the companies that benefit.

The primary driver is the imminent rollout of a technology called HSDPA. The new software is being installed in mobile networks and will make a huge difference to 3G. Almost over- night, mobiles will have internet connections at speeds approaching fixed-line broadband.

But media companies desperate to find new sources of revenue are determined to sign up mobile customers to their services, and no longer see the operators as essential partners in the process.

Arun Sarin, the chief executive of Vodafone, told 3GSM delegates: "Adjacent industries are moving into this industry. It's time for us to stop talking and deliver. As an industry, it takes a long time to get things done. We need to move faster or others will eat our lunch."

BT chief executive Ben Verwaayen agreed, adding: "There is no technology road map that can be used to predict what the consumer wants."

Vodafone has already signed deals that make it easy for its customers to gain access to the likes of eBay, MySpace, YouTube and Yahoo! from their handsets. But it is unclear what financial benefit the mobile operator gains from such allegiances other than increased revenues for data use.

The big hope is that mobile operators will be able to capture a share of the advertising market that will accompany new media services. The industry, though, is still unsure whether mobile users will tolerate ads.

"Its going to be a year of experimentation," reckons Hamid Akhavan, the chief executive of T-Mobile. "There are a great many business models out there to try."

James Barford, of Enders Analysis, explains that the rush by operators to sign up new media partners is a way of making the mobile internet more attractive to consumers. "Rather than saying, 'you can do internet searches from your mobile', they are now saying, 'you can Google from your mobile'.

"Likewise, rather than trying to say to customers, 'you can upload video on to the internet', Vodafone is saying, 'you can YouTube on your mobile'. It is a sensible move to brand these applications in this way."

But Mr Barford adds that content owners and mobile operators are still at loggerheads over rolling out new services.

"The operators are saying they should pay less for the content, and the content owners want to pay less for connectivity."

That sentiment was articulated by Edgar Bronfman, chief executive of Warner Music, who told 3GSM delegates: "Wireless music has potential for explosive growth ... and in the years ahead, the brightest telecom companies will become the world's most important distributors of music-based content. But at present it's expensive, it's complicated and it's slow."

Currently, non-SMS data revenues account for a fraction of mobile operators' revenues. At Vodafone, for example, services such as picture messaging and video downloads make up less than 5 per cent of overall turn- over. The figure also includes revenues from laptop data cards.

"I don't think it matters hugely whether it's mobile operators or new media companies that get the bigger slice of the pie when it comes to these new applications, because the pie is not going to be that big," says Mr Barford.

In any case, the technology had to play second fiddle last week. The one real story that captured the media at 3GSM was Vodafone's £9bn acquisition of Hutchison Essar, the Indian operator. The takeover puts the UK group in pole position to benefit from the expected boom in mobile services in India.

With 150 million subscribers, representing just 15 per cent of the population, India is already the world's fourth-biggest mobile market behind China, the United States and Russia. It is also the fastest-growing and is expected to overtake Russia this year. At its current growth rate, there will be half a billion mobile subscribers in India by 2010.

The deal also highlighted where operators' attentions now lie. In Western Europe, they account for around 2 per cent of GDP, making it hard for them to grow revenues significantly. But in Africa, Eastern Europe, large parts of Asia and in South America, mobiles are in their infancy. Analysts believe investment in basic low-cost handsets for these markets will bring bigger rewards for operators than the latest music-and-video gizmos for Western consumers.

THE STAR PERFORMERS IN BARCELONA

The battle for the most exciting mobile handset on display at 3GSM was between Samsung and LG, although significantly, neither company majored on new 3G models.

The Samsung Ultra Thin range was on every advertising hoarding in Barcelona. The thinnest model is just 5.9mm wide.

But it was the LG Shine series that received the most attention from delegates. The KE970 (pictured) is a full-metal handset featuring a two-megapixel camera with flash and auto-focus. It also comes with video camera mode and the ability to play MP3 music files.

As is standard among most handsets today, it connects to the internet and also has bluetooth wireless capability. For the business user, the KE970 also has the ability to display PDF and spreadsheet files.

The Samsung Ultra 5.9, the thinnest handset in the world, will not be available in the UK for a few months. It comes with a 3.2-megapixel camera and, like its LG rival, supports music and video formats. The Ultra 5.9 also has a document viewer and a smart instant messaging facility.

A slightly thicker "slider" model in the same range will have a 3.2MB internet connection. However, networks in the UK do not yet support such high speeds, although they are expected to be upgraded by the end of 2007.