Sector Spotlight: Down to the Wireless

Imagine five healthy adults in a potato sack race. This is about where nationwide mobile telephone companies are in the competition to develop wireless Internet services. One may jump faster than the rest, but they're all confined by the same circumstances.

Sprint PCS(PCS Quote) launched its wireless Internet service last September -- seven months ahead of the competition -- and, seemingly, has been the most aggressive in advertising and promoting the product. But Jane Zwieg, a telecom consultant with Herschel Shosteck Associates, calls today's wireless Internet services "a limited proposition" and notes that no one mobile phone carrier has a true technical edge over competitors when it comes to offering unique access to the Web.

Sprint PCS's apparent lead could be both positive and negative for the company, Zwieg says. On one hand, its marketing moxie may help it grab the lion's share of subscribers looking for Web-enabled mobile phones, but "the reality is the advertisements could create false expectations among end-users," she says.

"It'll be at least another 18 months until we're truly able to experience the Web [on mobile phones]," agrees Elliott Hamilton, a telecom consultant with The Strategis Group. But while there's no way of knowing who the long-term winners will be, the race among telephone carriers to provide fast, comprehensive wireless access to the Internet has most definitely begun. For now, their advantages and handicaps involve pricing, service plans, national reach and network quality.

Last week, Sprint PCS announced a deal with AOL(AOL Quote) that offers mobile phone access to the country's largest Internet service provider. Sprint also gives customers more Web-enabled phone choices than other operators. AT&T Wireless (AWE Quote) was third to market with its wireless Internet service (after Nextel Communications(NXTL Quote)) and gives only customers two Web-enabled phone choices. AT&T Wireless, however, has more preprogrammed Web sites than any other carrier.

AT&T customers have access to its 40 preprogrammed sites for $14 a month, while Sprint customers have free access to 20 preprogrammed Web sites if they commit to one year of service with the company. Within those packages, both companies offer customers email, voicemail and Web browser capabilities, and plan to continue adding more preprogrammed sites to their services.

Zwieg says AT&T Wireless' plan is very expensive, adding, "Ultimately, it's not a winning strategy." AT&T Wireless customers can browse the Internet for free, assuming they've bought one of the company's new Web-enabled phones, but that's minus access to email, voicemail and the preprogrammed sites. For $7 a month, they can browse the Internet and access email and voicemail, a spokesman explains. (Zwieg has not done consulting for any of the nationwide wireless operators.)

Meanwhile, Nextel Communications' wireless Internet service, which launched in April, offers consumers email, browser capabilities and comparatively few preprogrammed Web sites for $19.95 a month. Among its preprogrammed sites, the company has a deal with MSN, Microsoft's(MSFT Quote) Internet service provider. Eighty percent of the company's mobile voice and data customers choose this package, a spokesman says. Nextel has a strong customer base with businesses (as opposed to individual consumers), offering them highly customized data applications to meet the needs within each company. These data services are designed "a la carte" and are available for $39.95 and up. Nextel faces a new challenge now, Zwieg says, as it tries to go "head-to-head" with operators better established in the individual consumer market.

Regardless of who is ahead in the wireless Internet race, browsing over a mobile telephone is not what many consumers have come to expect. Officials from Sprint PCS, AT&T Wireless, Nextel Communications and Verizon, which doesn't roll out its wireless Internet service for another six weeks, are quick to note that their Web-enabled mobile phones allow customers to browse the Web. In other words, customers are in no way confined by the companies from searching for any Web site they want. But what many consumers don't realize is that few Web sites are available for mobile phone viewing.

This is because Web sites for mobile phones must be translated into a different technical languages (handheld device markup language HDML or wireless markup language WML) than the one used for computers (hypertext markup language or HTML). Phone.com, which develops software for the delivery of Internet-based services to mass-market wireless phones via HDML and WML, announced that the company had reached 100,000 registered users for its software, a 1,300% increase over year-ago figures.

There aren't any standard industry numbers for how many Web sites are currently available in HDML or WML, but it's safe to say it's a very small percentage of those available in HTML, which is where most people's understanding of the Internet comes from. Hamilton of Strategis Group guesses there are probably thousands of Web pages already designed for mobile phone viewing, but these pages represent only a fraction of what those same companies offer viewers on computers via HTML.

And then there's the issue of colors and graphics. There aren't any. None of today's U.S. wireless carriers operate at speeds that can download anything but text. Pictures are a long way off, and live video even longer. "Not in my lifetime," Zwieg quips, adding, "Everyone in the U.S. has the same look and feel. Text is text." Nextel Communications and AT&T Wireless do, however, operate the most data-ready networks by using packet data vs. circuit switching systems.

English translation: When using a Nextel or AT&T Wireless mobile phone, customers have immediate access to both voice and data services as soon as the phone is turned on. Circuit switch networks, on the other hand, do not provide immediate or "always on" access to data. When using a Sprint PCS mobile phone, customers have immediate access to voice transmissions, but must wait a few seconds every time they want access to data.

AT&T Wireless' data services are available in 47 of the top 50 U.S. markets, according to the company, while Nextel's data services will be available in all of its markets by next month. The company's affiliate, Nextel Partners(NXTP Quote), operates in rural areas and hasn't launched wireless Internet services yet, a spokesman says. Sprint PCS's wireless Internet service can be found everywhere the company has mobile phone reach, and Verizon will launch its service this summer in all of its markets, also using a circuit switch network. Both Sprint PCS and Verizon will upgrade their networks to packet data systems in the future, Zwieg notes.

VoiceStream Wireless(VSTR Quote) doesn't sell Web-enabled mobile phones yet, but is the only wireless phone carrier to offer a two-way mobile messaging service, according to a company spokeswoman. VoiceStream phones can call up only prepackaged items such as stock quotes, news headlines, sports scores and weather, she says, but will soon offer e-commerce and eventually full Internet access.

In the fourth quarter, VoiceStream will begin to roll out Web-enabled phones that use a data packet network capable of supporting HDML, WML and HTML, giving customers access to any text on the Internet they are used to finding on their computers, the spokeswoman says.

For all of the efforts underway and promises made to offer wireless Internet services, it has yet to be determined exactly how much the average person will actually want to do over a mobile phone.

At the very least, mobile phone carriers are striving to create "stickier" customer relationships -- attracting and retaining the largest possible number of loyal users -- by perpetually upgrading and customizing their services, says Raymond James wireless telecom analyst Art Poole. Those loyal customers will be vital in the future when mobile phone companies will have caught up with one another technically and will be back to competing on the familiar grounds of customer service and pricing plans.