THE PORTAL WARS: WHERE NEXT FOR THE MOBILE INTERNET? THE EMERGENCE OF THE PERSONAL INTERNET This comprehensive study assesses the development of the Mobile Internet over the last five years and demonstrates that many of the observations, conclusions and warnings provided in our first study published in May 2000, still hold true. In May 2000, we argued that the Mobile Internet would not come to fruition as conceived by the mobile industry at that time.

Today, this has proven to be the case and given current and expected developments in the industry, we predict the emergence of a new paradigm, and perhaps a new opportunity – the Personal Internet. This is a world in which the Internet Effect -- successfully populating a network with content that flows from "infinite" sources -- is felt throughout the telecoms, IT and media industries, and the Internet becomes truly ubiquitous, i.e. access to any individual’s desired services and content is obtained via the Internet over a multitude of access mechanisms – some of which will be public networks while others will not.

The concept is not entirely new, but it does have enormous implications for the mobile industry, and offers exciting opportunities for those who recognize and act upon the signs of this shift. This implies new pricing and business models, an expanding value chain and the requirement for new network architectures which will embrace these changes.

Rather than paint a picture of doom, we discuss the strategic options for those already competing, or those intending to enter the Mobile Internet market and the emerging but potentially much larger Personal Internet market. The study defines "Personal Internet" and the key success factors. Included in our analysis are implications for operators, vendors, content providers, software developers, and others who comprise the expanding value chain.

In this study, The Shosteck Group shows that the revenue expected from the Mobile Internet may be starting to materialize at last but that the mobile operators themselves may not be the major recipients of that revenue. Consequently, the return on investment in their networks and platforms intended to facilitate the Mobile Internet, may be significantly reduced. Therefore it is even more critical that vendors and operators focus on the lowest cost/most efficient architectures and value-added network services to facilitate a growing wholesale transport, "bit pipe," business, while developing customer-centric strategies for adding value in their retail businesses. Even emerging markets are not immune from this. In fact, emerging markets may be as much of a model and will leapfrog, as they do not have legacy environments to contend with.

THE PORTAL WARS: WHERE NEXT FOR THE MOBILE INTERNET? THE EMERGENCE OF THE PERSONAL INTERNET identifies and analyzes four key threats for the mobile industry:

• the rapid adoption of Internet pricing
• the false sense of security stemming from a belief in the exclusive nature of the Mobile Internet
• a misplaced belief that mobile operators can successfully profit through a "Walled Garden" strategy
• the threat of market entry from outside the traditional telecoms industry.

Any market the size of the mobile market, over 2 billion subscribers in March 2005, will attract ambitious new entrants. Thus, major players from the pure (wired) Internet world, from the world of media and entertainment, and the consumer electronics world, are gathering to get their slice of the action. So where does this leave mobile operators and what does this mean for the future of the industry?

Will these other players offer such fierce competition that the mobile industry will be reduced to, at best, marginal profitability?

Alternatively, is the market so large that these new entrants offer opportunities for partnerships and alliances that will increase profits for all?

These are the two overriding questions that this study answers.

To do so, it examines the changing landscape of the Mobile Internet market. It assesses the potential impact of technological and competitive trends and analyzes the implications for the variety of players, both incumbent and new entrant, now vying for the mobile consumer’s cash. It analyzes what is required for the Personal Internet to become a success.

It addresses key issues such as:

• How much longer, if at all, will the "walled garden" approach make sense in the mobile world?
• Will mobile operator branded portals continue to dominate in the face of competition from multiple off-portal offerings or from portals operated by the major Internet Portal players (AOL, MSN, Yahoo! and Google)?
• Will mobile operators be able to retain "control" or "ownership" of customers as more off-portal content services emerge? What will be most important - ownership of the primary customer relationship or capturing customer revenues?
• As cellular and non-cellular "broadband" technologies mature, will we witness a shift in the business models and value chain of the mobile market? For example, will mobile operators follow the same path as ISPs did in the late 1990s, and become commodity bit pipe providers or can they avoid doing so?
• If mobile operators are relegated to the bit-pipe role and focus on managing low-cost, high-capacity networks, can they still profit? What does potential profit – or lack of it – mean for their network and marketing strategies today?
• What alternative network infrastructure might be required to deliver lowest cost/most efficient networks?
• What is the potential for consolidation in the wireless Internet market? Will major Internet Portals buy smaller Mobile Internet players such as direct-to-consumer portals or can they leverage the power of their considerable customer bases to control the Mobile Internet as they do the fixed Internet?
• Will the major Portals be successful in competing in the telecoms world? Will they establish successful mobile brands themselves or will they be better off aligning with mobile operators?
• If these Internet Portals subsidized "free" services like email, IM and VoIP with advertising on the fixed Internet, then how will they make money on the Mobile Internet?
• Will advertising be a key factor in portal strategies in the mobile world as it is in the fixed world?
• Will the Mobile Internet become too constrained by technology, and will a broader Personal Internet market emerge? If so, how will the mobile industry and the rest of the converging IT, media and telco worlds adapt to this new environment, and how might they profit from it?

STRUCTURE OF THE STUDY

Chapter 1 provides the foundation and the introduction to the key concepts.

Chapter 2 discusses the Internet Portal and its strategic importance in the converging communications, information and entertainment markets, and goes on to describe the landscape or battleground of the war that is unfolding between the telecoms and media worlds for control of these markets. It also puts the wireless industry in the context of this broader war.

Chapter 3 reviews some of the observations and predictions we made in our previous study and contrasts and compares these with how the mobile industry has evolved since 2000.

Chapter 4 looks at two trends in particular that we foresaw would shape the Mobile Internet since 2000, and analyzes the extent to which they are now setting the scene for potential market disruption. First, we look at Internet pricing and how this mirrors the experience of wireline ISPs, and implications for the wireless industry due to consolidation of ISPs as a result of having to deliver lowest cost. Second, we look at developments in alternative wireless (access) technologies and consumer electronics that will potentially provide consumers choices beyond mobile.

Chapter 5 examines the current portal strategies of mobile operators and how they have evolved from the early days of mobile portals, and discusses the relevance of the "walled garden" approach as the Mobile Internet evolves towards a broadband model.

Chapter 6 looks at the emergence of the "off-portal" or "direct-to-consumer" market and analyzes its impact on the business models of mobile operators and other players, and its role as a catalyst in driving the "walled garden" portal out of the market.

Chapter 7 looks at trends in the broader Internet and broadband world, and specifically analyzes potential strategies for the leading global portal players in the telecoms market and their impact on the mobile industry. It also considers the impact that the entry of consumer electronics and media companies will have on the mobile content market. It looks at distribution strategies such as the MVNO and device strategies.

Chapter 8 describes the Personal Internet and demonstrates how the industry must evolve. It identifies the need for new network architectures, new business models, and new relationships between industry players and between service providers and their customers. It analyzes the strategic options for each major category of player in the Personal Internet value chain, especially the mobile operators. It assesses the opportunities and risks and provides suggestions for appropriate actions different types of players should take in order to position themselves for success in this ever increasingly complex and competitive marketplace.