On the move

Mobile phone operators have invested a colossal £22.5bn in licences to build networks for third generation phones. How will they recoup that investment?

Mobile phone companies are preparing to explode a marketing bombshell in three years’ time. They will launch marketing campaigns for third generation (3G) mobile phones with the offer of free phone calls.

The free calls will be subsidised by new streams of m-commerce revenue. By 2003, a quarter of that revenue – E5.4bn (£3.16bn) – will come from advertising, according to a recent report by Internet research and investment company Durlacher.

But the five mobile phone operators – Vodafone, BTCellnet, Orange, One 2 One and Canadian company Telesystem International Wireless – who agreed to pay a total of £22.5bn for the licences to build 3G networks in a public auction which ended last week, will have a problem in driving take-up of the new technology.

They will spend the next two Christmases pushing Wireless Application Protocol (WAP) phones and, after that, the more sophisticated General Packet Radio Services (GPRS), which allow faster connection to the Internet. But they are likely to meet considerable resistance from consumers when they then try to encourage them to fork out again, this time for the 3G phones.

Substantial inducements will be required to promote the new technology, as digital TV operators have discovered to their cost. They have had to give away set-top boxes to drive take-up.

Internet-enabled forerunners of 3G phones, WAP phones, have already begun to change the role of mobile phone operators, manufacturers and brand-owners.

In 1998, the European m-commerce market was worth E323m (£189m). By 2003, Durlacher believes advertising could account for almost a quarter of Europe’s E23bn (£13.45) m-commerce revenue.

But first, brands must grasp the potential of 3G phones, and learn how to market them to consumers, who must be persuaded to use them before a model for mobile advertising can be established.

3G phones will operate on the super-fast Universal Mobile Telecommunications System (UMTS), allowing e-mail, voice-activated response, videos, booking services and shopping.

Consumers will be able to purchase products and receive information and services from any location. Brands will be able to reach their consumers anywhere, any time.

Subscribers’ personal details, held by the mobile phone operators, will be supplemented by personal preferences, such as leisure activities, and shopping patterns to target ads and promotions.

Location-specific advertising – for example, an offer available at a shop you are walking past – time-sensitive advertising and sponsored information services will allow one-to-one marketing.

Users may be paid, in money or credits, for accepting an ad. The question of who delivers the advertising – operators, manufacturers or content providers – and who will own the revenue stream has yet to be resolved.

Durlacher head of European research Falk Müller-Veerse says: “The £22.5bn cost of the 3G licences will force the operators to come up with innovative means of generating revenue.

“Mobile call charges will be subsidised by the new services introduced to the market by the operators.

The operators will no longer focus on voice telephony. Rather they will become “portals” for mobile Internet terminals – the phones. Operators’ brands must begin to reflect this and must be trusted by m-commerce consumers.

After advertising, financial services are the second biggest area for m-commerce revenue, according to the Durlacher report. The operators are planning to become banks themselves.

Banks are already embracing WAP. The Woolwich launched a national WAP service on April 18 with Vodafone. Consumers can access accounts, make transactions, pay bills and receive Reuters news services through their mobiles. Sports information services will follow.

New pricing models will emerge to drive take-up. Woolwich WAP customers will be able to buy the Nokia 7110 WAP phone for £49.99 instead of £129.99, receive a 20 per cent discount on a monthly Vodafone tariff, and won’t have to pay a network connection fee.

Packaging mobile financial services with non-financial services will move the banks into a new role as content providers, using the operators to enable customers to access their packages.

Woolwich group media director Hilary McVitty says: “It is conceivable that other brands will advertise through us. We will increase banking facilities and other information such as shopping, which could mean linking with retailers for consumer offers or using mobiles for our own advertising.”

Peter Duffy, head of online banking at Barclays, which has 850,000 online customers, says: “WAP will come into its own where time is a crucial factor. If you want to sell shares in a company the moment the price hits £2.50, we could send you a message when that happens, and with the press of a button you could sell them. Or we could inform you when you pass your overdraft limit and arrange to extend it.”

Barclays is considering offering better interest rates to customers using WAP services as a way of attracting people to the services it plans to launch by the end of this year.

As the mobile phone operators become suppliers of a range of services, brand-owners are moving to become “virtual” operators, branding services and offering them through mobile phones.

Steve Walker, UMTS marketing director for Ericsson, believes brand owners and operators will offer packages of services and information, both containing services from other brands.

He says a debate is raging over who will take the lead on the packages – the manufacturer, operator or content provider.

One thing is certain: manufacturers will stop producing phones without Internet capability over the next two to three years, and a much broader range of mobiles will become available to suit different needs.

Walker says 3G phones will only take off if they are cost-effective for consumers, and believes competition will ensure that.

Marketing 3G to consumers will grow steadily, says Walker. The technological advances leading up to 3G – WAP and General Packet Radio Services (GPRS), which allows faster connection to the Internet – will enable consumers to get used to the new mobile services.

Teenagers – early adopters of mobile services, such as text messaging – and professionals will be targeted by WAP advertising campaigns by the end of this year, says Tamer Garip, chief executive of MyWapWorld, which produces WAP promotions and content for brands.

Garip says: “The way WAP works now is not simple, but I am confident it will become so. Every major manufacturer and operator is putting huge resources and marketing budgets behind solving the issue of simplicity.”

The Durlacher report forecasts that by 2003, 35 per cent of phones will be GPRS enabled, but 3G UMTS will have no more than three per cent penetration across Europe.

Then the hard – and expensive – task of persuading consumers to buy 3G phones will begin in earnest. UK brand owners spend about £20bn a year on advertising and direct marketing, little short of the £22.5bn bid for the 3G licences. The end of the auction last week heralds the start of one of the hardest sells in the history of UK marketing. And brand owners will be at the heart of establishing the new mobile model.

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