Adapt or contract, mobile operators warned

Convergence has been a key theme at the annual 3GSM mobile phone trade show for many years but in 2007 the discussion has moved on from merely cramming more services onto a mobile phone and on to how the shifting sands within the communications world could affect the business model of mobile phone operators.

The hot topics at this year's conference included advertising models on mobile phones, the increasing speed of mobile internet access and the increasing convergence of mobile devices with traditional computers. Many of those issues are soon to become reality, meaning mobile operators will have to move fast to adapt their businesses to reflect new opportunities, threats and partnerships.

Hamid Akhavan, chief executive of T-Mobile, said: "People keep asking me what is new in mobile this year. What is new is business models. 2007 is a year of experimentation. Mobile operators must actively take part in new models because the old models are expiring."

Ben Verwaayen, BT chief executive, remarked that the fact 3GSM is still billed as a pure mobile conference did not reflect the threat that convergence - which he referred to as "The Dreaded C Word" - poses to operators. "If you guys aren't willing to adapt, then someone will come in on your patch. Everyone in the audience should be aware that we are in a cosy little world at the moment but those business models are going out the window," he said.

Mr Akhavan went on to explain that mobile operators "are not doing that well" in squeezing more revenue out of existing customers who still use mobile phones predominantly for voice and text services. With ever increasing download speeds and content providers in sectors like music and film eager to harness the ubiquity of the mobile phone to sell directly into consumers' pockets, he said mobile operators have to envisage new ways to work with an ever increasing number of partners to survive. He said that the "end-to-end control" of a mobile customer, where a company like T-Mobile controls network access, billing and content, is no longer viable.

Vodafone chief executive Arun Sarin called on the industry to focus on its future. "We need to focus on what happens next. If you don't do that as an industry, the world passes you by," he said, adding that mobile phone companies need to "grow into new industries" such as internet provision and entertainment to see off the threat from media companies like Google and Disney.

Vodafone has signed a raft of deals with so-called "new media" companies like eBay, MySpace and YouTube. It has also signed an exclusive advertising deal with Yahoo! to develop unobtrusive marketing techniques that can be used to grow new revenue sources and fund new content services like mobile television.

The Vodafone chief said that the industry must work faster to agree standards for fourth-generation mobile services - which has been labelled LTE or long-term evolution - or it risks being marginalised by emerging technologies like WiMax, a wireless broadband technology that has been launched in the UK by broadband supplier Pipex and has been tested by BT.

Marco Boerries, an executive at Yahoo!, said the mobile phone market is larger than the computer market so represents a bigger opportunity for internet companies and content owners. "There is a time when people will access the internet exclusively through a mobile phone," he said. T-Mobile's Mr Akhavan said that with mobile speeds of 100 megabits a second "on the drawing board" the industry needs to adapt to fixed-line broadband internet pricing models.

Mr Boerries also called on the industry to solve the mobile advertising riddle. "Mobile advertising is the missing ingredient to make this whole thing come to life," he said.

Damien Chew, an analyst with ING, said mobile operators need to work out how to extract value from content partners as giving customers direct access to the internet means operators could become "dumb pipes" that pass on all the value to Google, Yahoo! or Apple.

Despite all the talk, the industry has been slow to face up to the threat, and conversely the opportunity, that convergence offers. This is set to be a landmark year for companies looking to place a bet on which model will work best but listening to the delegates at this year's conference, it seems that sitting still is no longer an option.