Mobile phone devices are becoming more and more like computers. These days, you can check e-mail, manage an agenda, and access huge amounts of information with a multifunctional ‘mobile terminal’. You can also use them to make online transactions, and access the Internet.


As mobile terminals become more and more sophisticated, mobile-service providers face greater challenges safeguarding the integrity of their customers’ data. Providers must also safeguard the intellectual property rights of the suppliers of content and services, and deal with viruses – a scourge of the personal computer industry that has yet to invade the world of these mobile devices.


To address security concerns and satisfy customers’ needs, the major European mobile-service providers – including Vodafone, Telefónica Móviles, T-Mobile, Orange, TIM and O2 – along with Smart, the Asian firm – have joined forces. They are working together to create a common operating system – a universal software platform for the mobile industry.


According to José Ignacio López, director of the Internet business department at the Complutense University of Madrid, the new project demonstrates that data security is the number-one priority of mobile-service providers. “They want to maintain as much control as possible because data is so important, and because of the control that they can impose on the terminals of their customers.” Nevertheless, López adds, “It’s unreasonable to believe that viruses can be entirely eradicated. As I understand it, the goal [of the project] is to control viruses as much as possible.”


Although the project is in an embryonic stage, the mobile-service providers are already working to identify what it will take to create this software platform. Initially, development will be assigned to SavaJe Technologies, an American company whose shareholders include Vodafone and Orange.


López believes that the mobile-service providers are making the right moves. On the one hand, “there are more and more mobile phones that have an operating system. Moreover, these systems – along with their development, compatibility, stability and security – are becoming more important. To a considerable extent, customer loyalty now depends on getting these things right. On the other hand, the cost of these terminals will have to come down for them to become ‘open’ technologies.”


The mobile-service providers have committed themselves to waging a war for control of the market for mobile operating systems. Until now, the only competitors in that market have been Microsoft, the software giant, and Symbian, a consortium of mobile-terminal manufacturers.


Unity Brings Strength

When it comes to devising operating systems for mobile terminals, “external network factors and the Internet itself have a major impact,” as they do in the personal computer industry, notes López. Whenever an incompatible technology takes the lead, it overwhelms competition from other technologies if it achieves a certain critical mass. They call this natural process ‘tipping.’ “Once the market has opted for a new technology, the situation is very hard to reverse, although it is not impossible,” López adds.


When it comes to operating systems for personal computers, the market has already chosen a winner: Microsoft and its Windows platform maintain a market share of more than 92%. Regarding operating systems for mobile terminals, “we are in an earlier stage, where a critical mass has yet to be reached. [Right now] there is an intense battle to win a juicy, dominant position in the market,” says López.


“In this phase, the only way to compete is to join a major alliance, which gives you access to the critical mass in a specific market,” adds López. This sort of alliance will succeed only if it addresses the fact that “mobile-service providers have control of the value chain. It’s not just through their control of customers and through oligopolistic competition. It’s also because the service providers are the biggest buyers of mobile terminals. Remember, the best customers for the manufacturers are the service providers who buy the terminals directly from them.”


Nevertheless, Jaime García Cantero, an analyst at IDC in Madrid, is not entirely sure that the project will turn out well. “When all the partners get involved, this sort of project is hard to manage on a day-to-day basis. Companies have conflicting interests. You can’t forget that they compete with one another in some countries.”


The project will have its share of challenges, agrees López. To achieve success, “the major service providers must achieve a clear consensus regarding the strategic outlines of the technology, its specific requirements, and the platforms they choose.”


So far, the major competitors for developing mobile software have no choice but to wait and see what happens. As López says, “The power of the industry is in the hands of the service providers. They can impose their software on their customers and manufacturers.”


The Importance of Standardization

Overall, the six European mobile-service providers have about 600 million customers throughout the world. This critical mass is a key for achieving their goal. They want to make the new software a global standard for the mobile industry – including manufacturers and other developers of applications and content.


A universal software standard would have clear benefits for customers. “It would increase the availability and variety of applications, and make it easier to exchange files and applications,” notes López.


Moreover, the problems that usually show up when a market adopts a single standard would not be a major barrier, he adds. “Neither competition, variety, nor innovation would be undermined [by standardization]. Instead, all those things would be taking place in the market for mobile applications, services, content and terminals.” Unlike the current situation, “everyone involved in these markets would have to take the operating system as a given. Clearly, having to write applications for one operating system would have benefits.”


In a market with standardized products, revenues do not wind up going to one company, as they do in the personal-computer sector where Microsoft’s operating system dominates. “The logical thing would be for current shareholders of the company that develops the new software to give access [to the standardized platform] to the major providers of mobile services,” says López.


A Negotiating Weapon

Microsoft and Symbian will suffer the most damage from this new project. Microsoft is trying to duplicate its overwhelming dominance in the PC sector in the promising new world of mobile services. Symbian, owned by several manufacturers of mobile terminals, is showing weakness because of a controversy that arose when Nokia announced that it would acquire majority ownership of its shares.


“The service providers are positioning themselves so there is one additional player,” affirms Cantero. “They are worried about who will take control of software, and they don’t want to give away a piece of the pie.” Nevertheless, Cantero believes that the mobile-service providers may have entered the battle for dominance in order to acquire greater negotiating power. “These arguments will be used when they sit down and negotiate who controls the world of mobile software.”


According to López, the mobile-service providers could be using the project to demonstrate that Microsoft is not their only alternative. Having done that, “Microsoft could offer them the option to use Microsoft’s software. That way, they don’t have to develop software by themselves.” Ultimately, the operating system of mobile terminals must be compatible with PC operating systems, so customers can download Internet files with photos and so forth.


According to López, another outcome is possible. Mobile terminals continue to evolve, and they could eventually become authentic handheld computers, as many in Europe have expected for some time. If that happens, “the software developed by the mobile-service providers could wind up as an alternative to Microsoft’s operating systems,” says López.


Controlling the Chain of Value

According to López, this project is one more move in a war waged by terminal manufacturers, mobile operators, software companies, and providers of mobile content and services. The war is all about gaining control of the chain of value in the market for mobile services.


As López notes, some service providers have jumped full-force into the market for unbranded mobile terminals. Notably, Telefónica Móviles offers a range of its own ‘TSM’ terminals. For its part, Vodafone, based in the United Kingdom, has pursued a mixed strategy. “Vodafone has imposed requirements in advance on manufacturers of its terminals to get them used to its ‘Vodafone Live!’ strategy. Nevertheless, Vodafone generally maintains the brand of the [terminal] manufacturer.”


Nokia, the Finnish manufacturer of mobile terminals, is one of the most active players. Nokia has evolved from simply manufacturing terminals to developing services that do not depend on mobile-service providers. One such example is its Club Nokia. Moreover, Nokia has committed itself to strengthening its position as the largest shareholder in the Symbian consortium. This strategy has created apprehension among other manufacturers; Motorola even decided to leave the consortium.


For all that, companies have different goals. Nokia was impelled by a slowdown in its manufacturing business to diversify its revenue stream. In contrast, the mobile-service providers have two main goals. Their first goal is cost-related; unbranded terminals cost them less. Second, they want to improve the quality and security of the services they offer.


“If you specify in advance the characteristics that you want in a terminal or an operating system, you can develop higher-quality services, either in-house or by out-sourcing,” notes López. “And these services will be better matched to the specific demands in the marketplace.” There is nothing new about this strategy of vertical integration, at least in Japan. For many years, NTT DoCoMo has been spelling out its requirements in advance for manufacturers of its terminals – and it has enjoyed very positive results.


“Although it may seem quite logical, service providers and manufacturers continue to live independent lives. That leads to incompatibilities, and services launched in order to patch things up. Without doubt, customer experience suffers,” notes López.


Ultimately, says López, mobile service providers are going to become manufacturers of unbranded terminals, which will have to be adapted to a specific operating system. It remains to be seen, however, if one or more companies will dominate that market.


The race will be full of obstacles. Because the project [of the consortium] is so challenging, there could be too many delays, which would hurt innovation. “That risk can be controlled, if the companies gradually place their money on the new standard. They need to leave behind the sort of terminals that can co-exist with more than one operating system,” concludes López.