Muscling in on the Mobile Business

InCode's Bengt Nordström says power is shifting away from mobile network operators to nimble outsiders, such as Google, Skype, and Intel

The behavior that sets the wireless industry apart from any other is its ability to consistently innovate and constantly change. The digital wireless revolution has already delivered ubiquitous mobile voice, text messages by the billions, and communication without frontiers. The rise of GSM throughout the 1990s was unimpeded by strategic planning. Operators went for a market that was simply too large for failure to be an option. They chased, caught, and lived the dream.

That entrepreneurial spirit underpinned the industry. The Chris Gents, Jorma Ollilas, and Irwin Jacobses seized the opportunity and built big, solid, and successful businesses -- organizations that now cater to a user base exceeding the 2 billion mark. Today, some 25 years after the launch of those first wireless networks, the innovation and desire for success remains as strong as ever. It's just coming from a different direction.


The power base of mobile communications is shifting, perceptibly, away from network operators. The wireless market is seeing substantial and rapid change, favoring the smartest and most nimble players -- players who come from outside the industry. These outsiders have their eyes fixed firmly on the new market opportunities offered by mobile data, opportunities that should have been sewn up by the developers of third-generation (3G) services, but were not.

Thus, companies such as Google (GOOG) and Skype are looking to muscle in on the mobile business, while manufacturers such as Dell (DELL) and Intel (INTC) are stealing a march on the 3G market by supplying Wi-Fi-ready PCs. These big brands are leveraging their market size and power to provide both content and access. Today Yahoo! (YHOO), Google, Skype, Intel, and Cisco Systems (CSCO) have all successfully positioned themselves closer to the customer than the mobile operators.

An example: Sony Ericsson recently announced a partnership with Google that makes Google the standard search engine for all of Sony Ericsson's new Internet-capable handsets. The announcement comes after Motorola (MOT) said it would offer Google Search access to its users. Internet companies are continuing to build direct relationships with subscribers, simply by using wireless operators as conduits.


The established mobile operators should own the emerging market for mobile data, but it's the Web companies that have a better chance of controlling the market. Intel has even produced consumer guides to Wi-Fi, looking to target "the technophobic mainstream."

And the operators? They've fallen into the trap of contemplating, rather than catalyzing, the market. Five years ago the talk was all about GPRS and how the new Mobile Packet Data Service would deliver substantial new revenue streams. It didn't.

More recently, the hype has centered on 3G services, which to date have failed to meet the unrealistic expectations set for them. While 3G's potential was being discussed, the market moved on without the operators. With the advent of Internet-based mobile data, new players in the market are aggressively stalking and courting the operators' subscriber base.


Also contributing to the new look of the mobile industry are the entrepreneurs who want to build out the Wi-Fi networks - companies such as The Cloud, with networks in Britain, Germany and Sweden, and Fon, a Spanish startup looking to provide shared wireless connections. Fon's investors, not surprisingly, include Google and Skype.

Can operators shift the balance of power back in their own favor? They have a real chance with the implementation of High-Speed Downlink Packet Access -- the network upgrade that offers download speeds up to five times faster than 3G, and provides the security and quality of service lacking in Wi-Fi networks. The risk is that by the time HSDPA becomes commercially available, almost all wireless data traffic will be sent via Wi-Fi networks.

The operators face a real threat to their dominance. They need to look to what the market wants, rather than what the technology delivers, to put themselves back in the driver's seat.

Before it's here, it's on the Bloomberg Terminal.