Smartphones vs. Networks: Who Wins?

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BARCELONA (Reuters) – Google must not be allowed to dominate and block cash from flowing more widely through the mobile telecoms system or else the network operators will not be able to invest to cope with the growing demand for data traffic, Vodafone said on Tuesday.

Vittorio Colao, chief executive of the world’s largest cellphone networks operator, told the Mobile World Congress trade fair in Barcelona that instead new business models needed to be created to cope with the demand for data services.

The comments added to the impression at the annual gathering that while handset makers, chipmakers and service providers are all flourishing from the rapid growth of smartphones such as Apple’s iPhone, operators are being left to worry about how they are going to profit when they must also fund the related improvements needed in network capabilities.

However, BlackBerry-maker Research in Motion Ltd said it was well aware of the problem, saying that smartphone manufacturers must start developing less bandwidth-guzzling products or risk choking already congested airwaves.

As users abandon traditional cellphones for netbooks, wireless modems and feature-rich smartphones, like Apple’s iPhone, wireless data traffic has exploded and is threatening to saturate network capacity, co-CEO Mike Lazaridis told Reuters in Vancouver before setting off for the trade fair in Barcelona.

“Manufacturers had better start building more efficient applications and more efficient services. There is no real way to get around this,” Lazaridis said.

“If we don’t start conserving that bandwidth, in the next few years we are going to run into a capacity crunch. You are already experiencing the capacity crunch in the United States.”

Colao said the industry was at a key point in its development, as it adapts to the new economic realities of the smartphone and the ever-increasing amounts of data that consumers wish to consume.

In order to succeed the industry needs to allow operators, content owners, application developers, search and operating system owners to develop new business models, to enable the operators to continue to invest in new and faster networks.

Colao picked out two areas of concern.

Within the search and advertising market, he said one player, Google, dominated the industry and held around 70 to 80 percent of the market, which he said was something that should be “looked at.”

He said there was a also not enough competition in certain fixed line markets in Europe, which could affect the supply of higher data speeds.

Colao said the industry needed to look to alternative business models and urged regulators to give them the opportunity to experiment.

Examples he gave included allowing operators to charge customers more for higher or guaranteed bandwidth and content providers to guarantee the delivery of their content. He also said applications should be transferable between devices.

“Let us work together to deliver truly competitive, truly open and truly sustainable technology,” he said.

DRASTIC MEASURES

Spain’s Telefonica said last week it was considering charging search engines and a source at the Spanish firm told Reuters they had previously discussed the proposal with other European operators.

Vodafone’s call for a different approach stands in contrast to the makers of operating systems and those involved in the production of the handsets.

Samsung Electronics and Sony Ericsson unveiled new high-end smartphone models on Sunday aimed at improving their positions in the more lucrative part of the phone market.

On Monday Nokia, Intel and Microsoft unveiled new operating software for the top end smartphones and Texas Instruments told Reuters at the fair on Tuesday it was enjoying strong demand for its wireless chips due to the continuing rise of smartphones.

“Smartphones are absolutely, positively the hotspot,” Greg Delagi, the head of TI’s mobile operations said. “That’s what’s driving the industry, it’s the place where there’s opportunities for differentiation, there’s ability to win new customers.”

And he also gave an indication that things may only get tougher for the operators, explaining that TI was working on new capabilities such as filming and sharing three-dimensional video on smartphones which are even more data intensive.