Battle to secure mobile net profits

Phone operators have been fighting to get tech giants help make the latest mobile technology pay

The public spat between mobile phone operators and internet content companies over who will foot the hefty bill for mobile internet infrastructure rumbles on. But yesterday, there appeared to be a breakthrough as one of the key players said the opposing sides could agree a resolution before the end of the year.

Cesar Alierta, the chief executive of mobile operator O2's parent Telefonica, has repeatedly called for internet giants such as Google to contribute to the upkeep of the networks that sends their content to mobile internet users around the world.

Speaking at Mobile World Congress (MWC) in Barcelona, he said that this year will be "very important" in terms of brokering a deal. He was noticeably more confident about a ceasefire, saying "ultimately, we will come to an agreement".

This comes despite Mr Alierta and his counterparts from Vodafone, France Telecom, Deutsche Telekom and Telecom Italia raising concerns over the issue to Neelie Kroes, the European Commission's Vice President for digital agenda, this week in a meeting at MWC.

Speaking at the same event, Eric Schmidt, Google's chief executive, held out an olive branch to the operators. He said: "The operators are pouring billions of euros into the networks so we can offer wireless services. It is a great accomplishment, and has taken a lot of hard work." He said Google was sharing revenues from search over mobile devices and called on government to make more bandwidth available.

Mr Alierta pointed out yesterday that telecoms companies in Europe currently spend €37bn (£31bn) on the mobile infrastructure and IT companies spend €3bn. Internet content providers spend €30m. "The telecoms operators have invested, but the internet service providers have hardly contributed at all. We need new business models to finance the network investments," he said.

Other operators have taken up the cudgels. This week Stéphane Richard, the chief executive of France Télécom told a domestic newspaper that "We decided to go on the offensive" and those behind the explosion of data traffic on the internet needed to contribute.

One high-level industry insider said there had been wider conversations between the two sides "behind the scenes" and he agreed with Mr Alierta that 2011 "may be a breakthrough year".

This is not the first time the Spaniard has turned his ire on the internet companies, and the row has been running publicly for more than a year. Yet relations have thawed somewhat and in September the operators met Mr Schmidt to discuss how to deal with the strain Google and its video sharing site YouTube placed on their networks.

The rise of smartphones has seen the demand for mobile data explode. Cisco Systems predicts traffic will soar 18 times over the next four years. The research group AT Kearney said telecoms operators will invest €90bn between 2010 and 2014 in wireline and mobile networks, but will need to invest an extra €150bn to handle the rise in demand.

While data is highly lucrative for the operators, it is also very expensive maintaining the infrastructure to keep up with demand. Richard Moat, the former head of T-Mobile and deputy chief executive of Everything Everywhere, said: "There is a huge amount of investment that continues to be made to support the rise in mobile data. We have to keep pace with the data wave and making sure there is capacity." He said "in an ideal world" the content providers would contribute to the infrastructure "but we're a long way from it".

The operators are being forced to look for other revenue streams. This includes new ways of selling the latest devices such as tablets. Mr Moat said: "Operators have to find a way to monetise tablets, rather than the simple hire purchase model. We are working internally on this."

There is also the rise of Near Field Communications (NFC). The technology allows for contactless payments using mobile phones, the so-called "wave and play" devices. Orange recently announced a deal with Barclaycard over contactless payment using NFC technology. The operators would make money from taking a share of the transaction fee, and Mr Moat predicts that up to 80 per cent of phones will have the technology built in the end of the year.

Vittorio Colao, the chief executive of Vodafone, attacked Google's dominance of the mobile search advertising market last year. Yesterday, he used his speech to launch a veiled attack on Apple. While he said he did not want to have a go at the electronics giant, he raised questions over changes to Apple's subscription terms which means iPad and iPhone users must subscribe to digital publishers' content through iTunes, giving Apple a share. Mr Colao said he was "concerned" over the move.

Steve Jobs, Apple's chief executive, is on medical leave from the company but commented on the change to its terms saying: "Our philosophy is simple: when Apple brings a new subscriber to the app, Apple earns a 30 per cent share. When the publisher brings an existing or new subscriber to the app, the publisher keeps 100 per cent and Apple earns nothing."

He said Apple now required that publishers who have a subscription deal outside of the app make "the same, or better, offer" inside the app "so that customers can easily subscribe with one-click right in the app".

Yet in his address, Mr Alierta said that while there were "great challenges ahead" for the mobile industry there were "great growth potential and possibilities". Now just to hammer out a deal over who foots the bill.

Facebook on the move

British smartphone users spend more than half their time on the mobile internet checking Facebook, according to one of the major operators. Now HTC has launched two smartphones aimed squarely at those who live out their lives on the social networking service.

The Taiwanese group yesterday unveiled a series of devices in Barcelona including the ChaCha and the Samba, phones that the company said were built "entirely to be social". While not officially "Facebook phones", the companies have worked closely to develop the devices.

Henri Moissinac, head of mobile business for Facebook, said after working with HTC on integrating Facebook in its phones for several years, these devices "are the next stage".

Tim Shepherd, an analyst at Canalys, said: "Facebook feeds the phones – if you are a regular user, they are pretty compelling." He added: "Facebook sees its growth in mobile. It is where a lot of their bets are placed."

The devices have a dedicated Facebook button, whose function changes depending on what the user is doing, including "checking in" to the group's location-based service Facebook Places and uploading content directly to their profiles.

Peter Chou, the chief executive of HTC Corporation, said: "With more than 500 million active users worldwide, Facebook has become synonymous with the social web and we wanted to create the ultimate socially connected phones with mass market appeal."

Nick Dillon, an analyst at Ovum, said the phones had "raised the bar in terms of mobile implementations of Facebook". He said the easy access to Facebook Messaging and Chat "could threaten the hegemony of RIM's wildly popular BlackBerry Messenger in the minds of teens".

The phones run the Google-developed Android operating system and when users dial the screen will show friends' latest status and photos. They will be released in the major European and Asian markets shortly after April.

Mr Dillon added: "It's hard to imagine Google being overly happy that HTC is using its Android platform to provide an improved experience and greater access to arguably its biggest rival."