Mobile Innovation

Vodafone became a prominent beneficiary of the pound’s recent decline on Tuesday after saying profits this year would be higher than previously thought once overseas earnings were translated back into the weak UK currency.

Vittorio Colao, chief executive of the mobile phone operator, said he was on track to achieve the strategy outlined in November, despite a slight fall in underlying revenue in the final three months of last year.

Mr Colao said trends in the third quarter were similar to those in the second, with the recession making trading conditions challenging. Emerging market growth continued to be offset by “modestly declining revenue in Europe,” he said.

The group was on track to achieve cost savings of £500m by the end of the 2010 financial year and a £1bn by the end of the 2011. Mr Colao said the cost savings would include job cuts but he did not put a figure on the likely total.

Vodafone said its underlying guidance for the year remained unchanged, but added £500m to its estimate of adjusted operating profits, moving the range up to £11.5bn to £12bn. It added £1.8bn to its revenue forecasts, lifting the range to £40.6bn to £41.5bn.

Group revenue rose 14.3 per cent to £10.5bn in the third quarter. The vast majority of the increase came from exchange rate translation, with recent acquisitions also providing a boost.

The shares responded strongly, rising 9p or 7 per cent to close at 137.15p.

In the face of tougher competition in many markets, Vodafone was reducing prices to increase volumes which had helped increase minutes of usage by 10.3 per cent. It was also allowing customers to upgrade their packages without buying new handsets.

Mr Colao said equipment revenues had fallen by 17-18 per cent as there had been particularly weak sales at Christmas. Sales were polarising between expensive handsets with extra functions, and low-priced handsets, with mid-range models less popular.

In Europe underlying revenues fell 2.8 per cent but were up 13.5 per cent to £7.55bn thanks to currency translation. Spain continued to be particularly weak, Mr Colao said, but Germany improved.

Vodafone’s Africa and central Europe division increased revenues by 6.9 per cent to £1.39bn, an underlying increase of 3.5 per cent. A strong performance from the South African business Vodacom, where Vodafone is planning to increase its stake by 15 per cent to 65 per cent, was partly offset by a weak performance in Turkey. Mr Colao said service revenues in that country fell 13.5 per cent in an “intensely competitive” market, but he had changed the chief executive of the subsidiary.

In the Asia, Pacific and Middle East region revenues rose 26.9 per cent to £1.51bn, with 8 percentage points of the increase due to the inclusion of Vodafone’s acquired business in India. Underlying revenues rose 9.2 per cent.

In the US Verizon Wireless, Vodafone’s joint venture, increased service revenues in local currencies by 12.2 per cent. Since the end of the third quarter Verizon’s acquisition of Alltel has been completed, at a cost of $22.2bn (£14.6bn).

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Posted by Mobile Innovation at February 03, 2009 | Permalink | Comments (0) | TrackBacks (0)

Nokia, the world’s largest maker of mobile phones, said profits dropped sharply in 2008 and predicted the tough times would continue this year.

The Finnish company said operating profit for the year dropped from €7.98bn in 2007 to €4.96bn ($6.4bn) last year, while its closely watched operating margin fell from 15.6 per cent in 2007 to 9.8 per cent last year.

Nokia controls around 40 per cent of the world’s market for mobile phones and is regarded as a bellwether for the state of global consumer sentiment.

“In recent weeks the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry,” said Olli-Pekka Kallasvuo, Nokia chief executive.

One particular area of weakness was China, which had previously been an engine of growth as its economy boomed, but where sales of its phones dropped 36.1 per cent in the fourth quarter of last year compared with a year earlier.

Mr Kallasvuo admitted emerging markets were being “hit hard” as consumers delayed upgrading to better phones.

But he insisted that the company was better placed than its competitors to ride over the rough ground.

“Companies in a relatively weak position in given markets are withdrawing and focusing on their so-called strongholds,” he said, mentioning large emerging markets as an example.

Rival handset manufacturers such as Sony Ericsson, Motorola and Samsung are all suffering amid the downturn, but Mr Kallasvuo said he believed Nokia’s economies of scale put it in a relatively stronger position.

He added that the phone maker hoped to gain market share during the crisis.

Nevertheless, Nokia said fourth-quarter operating profit fell 80 per cent to €492m compared with €2.5bn in the fourth quarter of 2007, underlining the accelerating impact of the financial crisis towards the end of last year.

Net sales dropped in the quarter 19 per cent year on year to €12.7bn, while its closely monitored average selling price was €71, down from €83 in the fourth quarter of 2007.

Looking forwards, there were few signs of the pressure alleviating, the company said.

Nokia said it expected 2009 industry-wide mobile phone sales to drop by twice as much as it had first thought, down 10 per cent from 2008 levels compared with an earlier estimate of 5 per cent.

It added its profit margin would also drop compared with earlier forecasts.

Its operating margin in devices and services will now be more than 10 per cent in the first half of 2009 and in the teens for the second half of 2009, rather than in the teens for the full year 2009 as previously targeted.

Nokia’s shares fell 9.1 per cent to €9.30.

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Posted by Mobile Innovation at January 22, 2009 | Permalink | Comments (0) | TrackBacks (0)

Users are increasingly choosing dead simple SMS mobile payments for micro-transactions on social network applications and gaming sites (it fills the void while they wait for more direct options), but super-high transaction fees are limiting growth.

The problem is that legacy transactions - specifically scams that give users a “free” ring tone with the fine print mentioning a monthly charge as high as $20 - have brought in so much cash to the carriers that they’ve gotten used to taking 50% or more of the total payment in fees. For the market to grow to encompass legitimate transactions, those fees have to drop dramatically. For that to happen, the social networks need to get involved directly in carrier negotiations.

Two companies, both headquartered in Europe, are already targeting mobile payments for apps - Mobillcash http://www.mobillcash.com/ (UK) and Zong zong (Switzerland).

When you buy a virtual shotgun on Mobwars, for example (and they are selling a lot of them, up to $1 million per month) you have to pay real cash. You can choose to pay via a number of services (Facebook doesn’t offer a direct payment solution yet), including either Mobillcash or Zong.

If you choose Zong, you enter your phone number on the site, get a text message with a four digit code, enter the code on the site and you’re done. It’s by far the easiest way to charge a transaction online outside of Amazon one-click.

Zong’s fees aren’t transparent, but Mobillcash’s are. Mobillcash has a clunkier interface (you have to choose your carrier and go through extra steps), but they show what their fees are because to get, say, $1 into the Facebook app you have to pay $1.50 on most carriers. That implies a 33% transaction cost, almost all of which goes to the carrier. Many of Mobillcash’s payments are way beyond 33%. Zong says they pay an average of a 40% transaction fee to U.S. carriers.

Those transaction fees are severely limiting the size of the market. Lots of merchants and application developers would love to take mobile payments, but paying 40% or more of the transaction to the carriers is a non-starter.

Zong argues that the fees are actually much lower than they seem because conversion rates (when chance that money will change hands once a payment button is pressed) are more than 50%. If that seems low, compare it to PayPal conversion rates that are reported to be a fraction of that.

Regardless, though, any merchant selling an item with actual marginal cost (virtual items are by definition free to produce, so higher payment fees can be tolerated) aren’t going to allow mobile payments via SMS. If the carriers were to lower those fees (or if they were forced to by market forces or the government), a very rich ecosystem could blossom, and the carriers would get the majority of the value created.

What Happens If Carriers Ignore the Opportunity

Chances are the carriers won’t lower their exorbitant payment fees anytime soon. What I’m guessing will happen is that services like Zong and MobillCash, as they add valuable users who like to pay via SMS, will simply offer to move those users to credit card payments. Users still pay by just entering in their phone number and then typing in a 4 digit code they receive via SMS, but the charge would go to their credit card instead of their phone. The difference in fees is so large that customers can be offered a very large incentive to simply store their credit card and use that instead of having the charge go to their phone bill. And checking out is still much, much simpler than typing in your name, address and credit card details.

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Posted by Mobile Innovation at January 19, 2009 | Permalink | Comments (0) | TrackBacks (0)

European Myspace competitor Netlog, which has over 33 million users, has released its native iPhone app. Users can get a feed of friends updates, see pictures, upload content and add pictures. Unusually, it is also GPS-enabled, something Facebook has so far steered clear of. It’s TechCrunch’s general view that if Facebook added true, location-based mobile social networking to its iPhone app, it would probably kill off a lot of the startups in that arena fairly swiftly. But it has yet to do so, leaving the way open for sites like Netlog.

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Posted by Mobile Innovation at January 13, 2009 | Permalink | Comments (0) | TrackBacks (0)

First, Microsoft wins a mobile search and advertising deal that enables them to be the exclusive provider on Verizon Wireless’s entire mobile network, and now it is bulking up on inventory and ad-serving technologies. Quattro Wireless, a Waltham, Mass-based mobile ad network, has entered a strategic relationship with Microsoft Advertising to help advertisers and agencies plan, buy and execute mobile ads as part of their overall campaign.

Going forward, Quattro’s platform will be able to accept traffic from Microsoft Advertising’s Atlas Media Console buy-side ad serving technology. Quattro manages ad inventory for mobile sites, such as Hachette Filipacchi Media, Gawker Media, Cox Newspapers, Def Jam Music, and also gained recognition after working on Barack Obama’s presidential campaign. Now ads from Microsoft’s network will be able to be served across any publisher in Quattro’s network.

Steven Rosenblatt, Quattro’s VP of Advertising Sales: “We view our relationship with Microsoft as a watershed moment for the mobile advertising industry…We are seeing unprecedented demand for buying mobile advertising inventory and this critical solution will simplify the process for the advertisers and agencies and revolutionize how they buy, manage and measure their media campaigns.” From Microsoft’s view, Ryan Mackle, director of Display Sales Product Management for Microsoft Advertising, said: “Advertisers are eager to track and measure their digital advertising campaigns holistically, across the PC, mobile devices and other emerging technologies.”

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Posted by Mobile Innovation at January 12, 2009 | Permalink | Comments (0) | TrackBacks (0)

Microsoft has finalized a mutli-million deal with Verizon Wireless for the right to provide the country’s largest carrier with portal, local, Internet search and mobile advertising services. The announcement is expected to take place during Microsoft’s Steve Ballmer’s opening keynote at CES tonight, starting at 6:30 p.m., although Verizon spilled the beans earlier at an investor conference. The search deal was hard fought and lasted nearly two years, in which all three Internet giants Yahoo, Google and Microsoft were first involved, and then more recently, only Google and Microsoft were left. During the negotiations, the WSJ reported that the deal size ranged between $550 and $650 million, making it a significant coup for the emerging mobile search and advertising industry that is just getting off its feet.

The decision by Verizon Wireless is important for a number of reasons. First off, it gives Microsoft a foot in the door, which had been rapidly closing—the other U.S. carriers were already locked up. If the deal went to Google, it would have owned half the market between Verizon and Sprint. If it had gone to Yahoo, it would have been a landslide victory for the Sunnydale company, which already works with AT&T and T-Mobile USA. With Microsoft also in the game, the mobile search industry—especially in the U.S.—is still completely up in the air.

The second thing to point out is the vote of confidence on Microsoft’s behalf that they believe the mobile search and advertising market could be of significant value over a five year period, which is the length of their contract with Verizon. Perhaps it is just buying marketshare, but Medio Systems’ CEO Brian Lent, who provides white-label search services, and to Verizon Wireless specifically, believes differently. “I would suspect that it would be recoupable. Why would anyone would bid that amount?...I think these are not completely unreasonable numbers, given the size of the space. My industry expertise says that over a period of five-ish year period, one should be able to make those types of revenues.”

—Some more details: The deal will last for five years and the first devices are supposed to launch in the first half. Searches will integrate voice commands and location-based services, and results will include maps, directions, traffic information, local business information; movie show times, gas prices and weather. In addition, users will be able to search for full-track songs, videos and games. Microsoft’s Live Search will be available on a device’s home screen, by downloading an app. The company did not say what the financial terms of the agreement were, or whether it also included a side deal in which Verizon committed to selling more Windows Mobile devices.

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Posted by Mobile Innovation at January 09, 2009 | Permalink | Comments (0) | TrackBacks (0)

The Japanese government is looking into new guidelines on the country’s mobile phone system that could see connections fees between carriers reduced as early as next year, Reuters reports, citing local newspaper Asahi. Currently, connection fees between Japanese mobile operators, which are unregulated, are seven times those of landline carriers. At around 35 yen ($0.38) per three minutes, the connection charges have been blamed for the high cost of domestic mobile phone calls.

A communications ministry official told Reuters that the government has not yet decided to reduce connection charges, and is in fact, still gearing up to gather opinions on how to better the Japanese mobile phone system. At this stage, it’s unclear how this will impact operators and consumers. If connection fees are reduced across the board for all operators, Daiwa Institute of Research analyst Naoto Osugi told Reuters there shouldn’t be much of an impact on earnings. But if operators are obliged to pass savings on to consumers, it could be “negative” for carriers. Japan’s three main carriers include NTT Docomo, KDDI and Softbank.

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Posted by Mobile Innovation at January 08, 2009 | Permalink | Comments (0) | TrackBacks (0)