Mobile Web Promise

The wireless Internet will be all talk for cell phone companies--hopefully.

HYPERBOLE IS THE FUEL OF A THOUSAND IPOs. Nevertheless, the numbers being touted by some on Wall Street are compelling. More than 54 million Latin Americans are gabbing on cellular phones now; by 2010, that figure is projected to rocket up to 145 million, says Salomon Smith Barney. IDC Latin America sees nearly that number--143 million--as soon as 2004.

Without a doubt, cellular has been a boon for the region, where installation of a traditional fixed-line phone can run hundreds of dollars. No surprise, then, that wireless telephones have outpaced fixed lines already in Mexico, Chile, Venezuela, Bolivia, Paraguay, El Salvador and Guatemala--and will do so in the rest of the region by 2005. Deregulation in Argentina and Venezuela and long-awaited wireless frequency auctions in Brazil are speeding the process.

Here's what keeps telco executives up nights: Cellular has boomed, and now it's heading toward a bust. The average time spent talking on the cell phones is declining in most countries, say industry observers. That's because huge numbers of subscribers were brought into the loop with prepaid cards and phones sold at cost or financed in easy installments.

In Venezuela, where the prepaid practice originated, and in Mexico, prepaid users account for almost four out of every five phone subscribers. In Brazil and Argentina, half of all users go the prepaid route, and that is expected to rise in the months ahead. Too many customers buy the phone and simply wait for an incoming call which, in many countries, is charged to the caller, not the cellular subscriber.

Prepaid is quick, easy money for telcos. There are no billing costs and carriers typically charge the highest perminute rate for these subscribers. But as lower-income users have crowded in to the cellular scene average revenue per user has dropped by almost half, from around US$70 a month to $40 or lower.

Amid the encroaching panic, the bewitching song of a siren: the mobile Internet.

The hope is that compelling services via the Web, crunched and sent to millions of cellular users via their phones, will keep Latin Americans on the line longer and help make mobile phones a high-margin business again. IDC believes around half of cellular users by 2004, nearly 72 million across the region, will be turning to their phones for rudimentary Internet content, including driving directions, stock quotes and email. Even getting out of Latin America's interminable bank lines might be enough to tip the balance in favor of mobile Internet.

"For middle class people who don't have people who can do that for them, the ability to pay bills and do banking over the phone lengthens your life immeasurably," says Noah Elkin, Latin America analyst for Internet statistics provider eMarketer.

Most Latin Americans pay their monthly cellular bills to one of four regional giants: Telefonica Moviles, America Movil (Telmex's new spin-off and partner of Texas-based SBC Corp. and Bell Canada International), BellSouth or Telecom Italia. Discounting a tectonic shift in the competitive landscape, Latin Americans new to cellular will be signing on with one of the Four Horseman.

BellSouth in Chile is looking to bridge the gap for lower-income clients with voice portals; users dial a number and an electronic voice reads their e-mail. In Argentina, the company offers a service that matches a user's geographic location to retail outlets in the online yellow pages. With that phone, callers can find out just how many steps they are from the nearest drugstore, bank or sushi bar.

That may be enough Internet for masses of Latin Americans who otherwise connect at cybercafes or at work. An additional $40 to $50 monthly phone bill for per-minute Internet service on a PC at home might not be welcome or even necessary, says Doug O'Neil, director of strategic product development for wireless Internet at BellSouth. "In the U.S., for about $35 a month, I get all-you-can-eat Internet service. I paid about $1,000 for my computer, so that's pretty cheap," says O'Neil. "In Latin America, they don't get a flat rate,"

Persuading users to get on board, however, could be tricky. Millions in the United State already carry latest-generation Internet phones, yet they only use them for talking. Part of the solution will be to market specific services to specific audiences--livestock market quotes to rural customers, financial data in the cities, even specialized professional data streams and applications for doctors and lawyers. "Cell phone companies are going to have to come up with whole new marketing and sales strategies," says Hector Hernandez, research manager for telecommunications at IDC Latin America. "And that'll be expensive. Right now they launch a plan for the entire country and they get what they get."

One major challenge will be cell phones themselves. A swath of users, especially in Mexico, continue to talk on analog phones, useless for dealing with Internet data. Regionally, digital penetration is at 66%. Switching the remaining handsets over to digital systems will be an expense for someone, probably the carriers if they want users to exchange older phones for new handsets that now cost upward of $150.

To market the wireless Internet successfully to the masses, phone companies will also have to find services that people will pay for, says Richard Downes, the Universal Wireless Communications Consortium's director for Latin America and the Caribbean. Cellular penetration may rise, even precipitously, but minutes per month could stagnate without a sure-to-win application, in industry lingo a "killer app," like e-mail was for the PC. "The industry is going to be put to a test in terms of marketing to that group," says Downes. "The highest 20% of Brazil's population gets about 64% of the income. Good luck on the rest of them."

At the same time, the big telcos will have to make sure they don't fall into the advertising trap of over-promising. Many people expect the wireless Internet experience to be the same as surfing on a PC, but the experience in Europe and Japan, although wildly successful, has been closer to paging with dime-store graphics.

An avalanche of recent TV and magazine advertising would have us believe the Internet--graphics, animation, text and sound in all its digitized glory--is about to burst into millions of information rivulets, spilling out on command from electronic agendas, cellular phones, even souped-up watches. In Latin America, ad campaigns sometimes only a tad more discreet, or focused on business publications, promise a near-nirvana of data on demand.

Vaporware. It's about time, executives say. "Today, the Internet and the wireless phone are our tools," says Carlos Lozano, general manager of Fort Lauderdalebased MACH Americas, which clears roaming charges between cellular carriers in Latin America.

If anybody is clued in to the cutting-edge wireless world, it's Lozano. Yet he admits that he has been unable to find a wireless phone with real, powerful Internet services. He doesn't expect a serious option, he says, for two more years. "I'm looking for a solution, too, like any business person," says Lozano. "I know of one solution that is being sold right now, but I know the whole thing is only on paper."

Still, applications are looming that might drive time "online" with a phone in Latin America, even among marginal users. Somewhere down the line cellular phones will merge with more powerful personal digital assistants--some prototypes are already on the market--and provide a device which can run specialized software, download data by the megabyte and still take phone calls.

"The name of the game in wireless Internet is applications," says Raul Lucindo, strategic planning and marketing vice-president for Swedish handset maker Ericsson in Mexico City. "In the beginning, we must focus on the enterprise, corporate and education level. For the first time, the majority of students will have access to the Internet through a mobile device rather than a wire line and ISP."

One strategy already being adopted by content providers is to generate a dependable, branded source of information, then make it as simple as possible for cellular users to access it on the fly. StarMedia, the pan-Latin Web portal that made its name on the PC platform, now sees a fair chunk of its future audience peering back at it through the tiny screens of cellular phones. Industry giants Yahoo!, AOL and Microsoft are busting to do the same all over the world.

The Internet will get cheaper, more ubiquitous and, maybe, more useful. "It's a different demographic, and you have to price your services accordingly," says Enrique Narciso, general manager for StarMedia Mobile. "The penetration of PCs is not as high as cellular phones, and that's going to be a determinant. In the United States, some people have broadband access in their homes, and in Latin America that's just beginning to happen."

PC penetration--once forecast to somehow touch nearly everyone in a few years time--has stalled at 5% in Latin America. But the Internet faithful have gulped a second wind of optimism, this time with wireless. All they have to do now is execute.

COPYRIGHT 2001 Freedom Magazines, Inc.
COPYRIGHT 2001 Gale Group