Nokia Barges into Mobile Services

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Help for Operators

So where do Europe's mobile-phone surfers spend their time? Surveys show they visit the same sites popular on the Internet: Rather than flocking to offerings created by mobile operators for news, finance, or search, they go to trusted brands such as Google (GOOG) or Yahoo! (YHOO), says Mark Newman, chief research officer at Informa Telecoms & Media (INF.L), a London technology consultancy. And they rarely download music over the airwaves, as operators had hoped. Most prefer to "sideload" music to their phones from their computers.

Britain-based Vodafone Group (VOD), the world's largest global service provider, provides a cautionary example. The company has sunk a total of $37.91 billion into third-generation mobile licenses, hoping to spur customers to use data services such as mobile music. But as of spring 2007, only 32.3 million of its 206.4 million subscribers used its Vodafone Live! portal. That leaves Vodafone and other mobile operators in danger of becoming "dumb pipes," or providers of generic wireless data access, unable to differentiate themselves from competitors or to profit by selling content.

Nokia says there are several ways it can help operators generate more revenues from mobile data. One is a location-based service it launched earlier this year, Nokia Maps, which comes preloaded on the high-end Nokia N95 phone sold by many of the world's operators. Users choose nearby points of interest on their screens, such as a coffeehouse, and the service gives back the address or a map. Operators have the option of handling the billing for this service in exchange for a cut of Nokia's content revenues. Nokia's new music, photo, and game services likely will be handled the same way.

Controlling the Screen

While mobile operators have every incentive to sign on to Nokia's services offerings, analysts still expect some resistance. Some of the bigger operators, like Vodafone and Orange (FTE), for example, are expected to balk at the idea of replacing their own music service with Nokia's. And although Nokia claims it has had "very positive discussions" with most operators, few are willing to comment on the new initiative.

Nokia's service push also puts it into more direct competition with Google and Yahoo. But while the Internet companies have strong brands, they don't have control over the phone's screen. Nokia, on the other hand, can bundle great services with specially tailored, user-friendly hardware. With close to a billion customers and its established relationships with hundreds of mobile operators around the world, Nokia looks to have a head start on marrying the Web world with the wireless world.

With Cliff Edwards in San Mateo, Calif.

Schenker is a BusinessWeek correspondent in Paris.