Skype and Sling Hitch a Ride

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And yet, 3, Orange, and Vodafone are undeterred. And Orb's Costello believes these applications will make it into the U.S. within one to two years. Why?

Wireless service providers have to find ways to pay for their billions of dollars in costly network upgrades. They are also grasping for ways to differentiate themselves from a growing band of competitors, such as citywide Wi-Fi and WiMAX wireless broadband services (see BusinessWeek.com, 11/17/06, "Microsoft's Municipal Wi-Fi Push").

Unhappy Mobile Customers

And carriers have discovered that users particularly want mobile access to their PC and TV content. "Before, operators could drive the market" by introducing mobile-only offerings such as ringtones, says Krishna Kanagarayer, an analyst with consultancy Pyramid Research. "Going forward, that will change. Ringtones will not make enough money to pay expenses. Customers are demanding different applications, so now you see this changing mentality."

And while higher-margin data services have been growing at a rapid pace in recent years, the rate will slacken in coming years, analysts say. This year, mobile-data services sales will increase by 47%, to $11.9 billion from 2005, but they will only grow at a compound annual rate of 23% through 2011, according to Pyramid.

In part, that's because nonvoice data account for an increasingly large percentage of overall sales. But it's also because users are still unhappy with the data offerings out there. A recent University of Southern California study found that mobile customers still perceive data services as difficult to use. One example of an inconvenience: To use SlingPlayer Mobile, customers have to download the software onto their mobile devices. The service offered by Britain's 3 will do away with the challenge by preloading much of the X-Serve-related software onto its phones.

Turning the Industry on Its Head

One way to boost data services revenues is to give customers easier access to the services they want most. Today, while subscribers might be able to use Skype or Sling on mobile phones, such use is explicitly prohibited by most operators' terms and conditions of user agreements. And 3 believes its X-Serve, whose pricing hasn't yet been announced, will lead to higher revenues per subscriber. The approach could also help 3, which only enjoys 5.1% market share in Britain, gain share, says Kanagarayer. And these subscribers might stick around longer, now that they can access more services from their phone.

Should U.S. carriers embrace this approach in a year or two, it could turn the U.S. wireless industry on its head. The advent of mobile access to full-blown home PC and TV applications could lead to a revamp in pricing of wireless service providers' data plans, possibly to tiered pricing. And as applications such as mobile Skype take hold, data and voice use will become indistinguishable, predicts Kanagarayer.

Today, most of the 126.3 million mobile data users in the U.S. pay a flat monthly data usage fee (at Cingular, the largest U.S. service provider, an unlimited plan starts at $19.99). That means a user of services such as short-text messaging (SMS) pays as much as a user of bandwidth-thirsty applications such as Sling (alas, many carriers' term and conditions prohibit use of applications like Sling, but carriers are only starting to implement tools designed to catch offenders). For a carrier, that's not a good deal. So U.S. carriers might eventually opt for 3's approach of tiered flat pricing: A user might pay one amount for unlimited data usage, providing access to SMS and e-mail, and extra for use of applications such as Sling and Skype.

Kharif is a reporter for BusinessWeek.com in Portland, Ore.