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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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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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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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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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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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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“The outlook for mobile advertising spend has significantly advanced in the past 12 months,” says Phil Taylor, director of Global Wireless Practice. “The supply of advertising inventory is rapidly increasing as mobile publishers look to develop advertising as a revenue stream. Major mobile network operators like SprintNextel, Verizon Wireless and Vodafone have all accelerated plans to sell advertising within their mobile media channels and advertisers appear to be responding positively.”

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—Player X, Admob Team Up: UK-based Player X and mobile advertising company Admob to offer integrated marketing campaigns that include advertising across AdMob’s global network. The main centre will be the portal Player X runs for O2 UK, and the service will allow content partners to track conversions from their ad campaigns’ right through to download. (release)

More after the jump...

—T-Mobile Launches G1 YouTube Channel: T-Mobile has launched a YouTube channel to teach people how to use the G1, with customers able to post questions and receive written and video answers from T-Mobile’s experts and other customers. I’m not sure how much use it will get, but it’s likely cheap and the video part makes demonstrations easy. (Mobile Market Magazine)

—Kenya Bans Ringtones: Some African news sites are reporting that Kenya’s new Kenya Communications (Amendment) Act not only restricts media and gives the postal service strong powers to invade private communications searching for “obscene” content also makes it illegal to personalize a mobile phone: “Mobile phone owners are not allowed to change the facial appearance of their handsets or customise the phone features to their convenience. The law declares reprogramming of mobile phones illegal. You cannot even install fancy ringtones!” One commenter argued that the law is merely stating that “you cannot change the IMEI number or reprogam it”. I haven’t read the legislation, but wouldn’t be surprised if it was just incredibly poorly written. (The Citizen and Daily Nation)

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Meanwhile, in an interview with Mobileeurope.co.uk, Sword gave an optimistic picture of mobile advertising in 2009. He noted that customer behavior has changed, in large part to social networking going mobile, which has led to a “huge upsurge” in the use of Yahoo Mail and Messenger on mobile, which doubled in the first three quarters of 2008. Sword told Mobileeurope.co.uk that the numbers were beginning to sway a lot of agencies who had been “a little sceptical” of mobile advertising, and that Yahoo was getting a greater participation by brands, and more repeat business.

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Taptu Mobile Search with Steve Ives from Dutchcowboys on Vimeo.

The company, which has 40 employees, will face stiff competition from companies like Google and Yahoo, but also from fairly established startups like Jumptap and Medio Systems. How will Taptu differentiate itself? Bernstrom: “That was the first question I asked as well. The guys have spent a great deal of time looking at what people use their mobile phones for, and how they engage with mobile phones, and what search will be used for if it’s over the mobile phone. It’s markedly different than the desktop….For instance, 60 percent of the content people search for is entertainment related. The mobile phone is really social.” He said that means knowing that a search result will fit on the smaller screen, but also that the results should easily be shared via SMS or on a social network.

Prior to Taptu, Bernstrom was the COO at TradeDoubler, an Internet marketing company that had more than 550 employees. He was responsible for expanding TradeDoubler.

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For instance, the article says Blyk, which offers mobile-phone subscribers free calls and text messages if they agree to receive ads on their phones, has recently raised more than $50 million from private investors, while AdMob, which operates a mobile ad network, has raised $15.7 million. But there are others, too. Other mobile advertising companies that have recently announced rounds include: Transpera, the Santa Monica, Calif.-based mobile video platform company that allows for an ad-supported model, raised $8.25 million; MoVoxx, also based in Santa Monica, raised an undisclosed round to help brands integrate ads into SMS campaigns; and Chicago-based Vibes Media, a mobile marketing company, raised $15 million.

Still, there’s a lot to be proven, and now more than ever it may be difficult with advertisers and agencies cutting budgets. Investor’s Business Daily reported hat research firm eMarketer likely will soon lower its mobile ad forecast. eMarketer’s spokesman Samson Adepoju said: “(Our) projections will almost certainly be trimmed,” he said. “How much remains to be seen.” The firm’s most recent forecast dates back to March, when it said U.S. revenue from mobile display ads would rise to $541 million in 2012 from $85 million in 2008, and search ads would rise to $1.48 billion from just $107 million.

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TouchType, a program that allows iPhone users to type emails in landscape mode,allowed for an easier to use keyboard than the default touch keyboard. The $1 app made the developer 70-cents a sale. A week later Firemail was introduced, which did exactly what TouchType did but was available to download for free. It turned out TouchType was under Apple review for two months while it took Firemail less than a week to get approved. Apple didn’t respond to questions regarding this or similar cases.

Copyright is difficult to enforce for determing whose application is first in Apple’s store. In previous cases, people relied on getting out there first and establishing intellectual property rights. But in Apple’s case, this is hard to do. Maybe we’ll see law schools develop a concentration for iPhone App Store rights soon.

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A tribute page shows a mini icon for every application. And it also gives some interesting data. About 24% of apps are free; 35% cost $.99. The average cost is $3.12, including free apps. About 34% are games or entertainment, and there are 49 weather related apps for the iPhone despite the fact that a weather app is built in.

If you’re an iPhone user, tell us the apps you can’t live without in the comments. The ones I use every day: Aqua Hoops, Recorder, SearchMe, iGolf, Google, Zombie (its cathartic), iThread (CrunchBase on the iPhone), and the social networks (Loopt, Facebook, MySpace).

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If the scope of this success was not really foreseeable, Apple purposely managed every element that could lead to it.

Let's first briefly explain the iPhone App Store. Software developers are invited to develop applications that iPhone owners can download via iTunes. The developer sets the price for its application, which can even be free.

The business model is quite simple. Developers, after paying Apple a sign-up fee, receive 70% of the revenue generated by their applications. iPhone owners pay for each download (buy and download).

How does Apple protect this business? First, the developer signs a legal agreement. This is not just a confidentiality agreement: by signing it, he releases the Cupertino firm from any liability related to the service provided, he accepts cancellation at will and without motive, and finally gives away the right to develop and exploit competing applications. On top of the legal protection lays the technology: from the developer's kit to the iPhone, everything is proprietary! Finally, and more subtly, Apple controls the relevance of applications with the $99 sign-up fee. This prevents the emergence of sterile applications like the ones proliferating on Facebook. And if this not enough, there is always censorship.

Let's try to isolate the key success factors. Firstly, it did not come out of the blue. Apple reused the iPod + iTunes model and adapted it to the iPhone: instead of buying songs, the user buys applications. In addition, it backed it up with a VC firm which invested one hundred million dollars.

Moreover, Apple remarkably identified stakeholders' needs and created a network of shared interests. It leverages the iPhone owners' passion for their multipurpose handset, as well as the programmers longing to be widely distributed, paid and recognized.

These ties are then cleverly reinforced. This is where the firm's mastery of ergonomics plays a key role. The iPhone owner has many ways to access an application for which the purchase is just a click away. Its price, mostly between 0.99 and a few dollars, promotes spur-of-the-moment purchase. On the other hand, the developer focuses solely on the product development, for which a kit is available, as well as resources and a test bench, and its price: Apple takes care of the two other elements of the marketing mix, promotion and distribution. Ease of use builds up usage.

The other element is the smart business model. The purpose of free (as for the MP3s with the iPod) is well defined: develop turnout and usage, for both the store and the iPhone. This gives meaning, on the developers' side, to the brand policy. Attempts to work around this policy are sanctioned by a $299 sign-up fee for those refusing to be distributed in the App Store.

Obviously there are dark shadows such as the opaque selection and « exclusion » policies, the lack of consistency of applications' ergonomy or the recent security issues. These, however, do not seem to slow down the business success.