"The fundamental question is who will use the cellular Internet and how much are they willing to pay for it. On the regular Internet, users are willing to pay for sex, gambling, and music. Downloading a song by MP3 to a cellular telephone would cost at least $75. Who would pay such a sum?"
These words of wisdom were uttered by Israel Mobile Internet Forum (IMIF) chairman Ira Cohen, who is also director of business development and manager of products and applications at Eurocom Cellular Communications, which markets Nokia (NYSE: NOK) products in Israel.
In March 2000, the IMIF held its first WAP conference, at the Tel Aviv Hilton. 1,000 people paid quite a bit of money to hear Israeli and foreign lecturers speak, and see presentations of cellular Internet applications in the lobby.
IMIF was founded with the aim of speeding up the development of the cellular Internet and related industries in Israel. Over 70 companies have joined, including Israel's four cellular operators, content providers, Internet providers, venture capital funds, start-ups, high-tech companies, equipment suppliers, banks, and organizations. The companies receive membership for two years, in exchange for a fee.
According to IMIF figures, over 250 Israeli companies are actively developing applications for cellular networks. Some of them recently announced initial sales and field tests with leading European cellular operators.
But it is now obvious that the boom-time forecasts, which predicted the cellular Internet would flood the world within a year or two, were rather unrealistic, like the rest of the predictions about the communications market. The magic word in those halcyon days was WAP, and everyone even knew what it meant. These days, it is necessary to explain that WAP is a protocol for delivering Internet content to cellular telephones and palm computers, thereby providing advanced, value-added services. Nowadays, in Israel at least, everyone knows that most cellular Internet surfers use Pele-Phone's GoNext HTML protocol.
MIRS Communications was the first provider to offer cellular Internet services in Israel using WAP technology. It was followed by Partner Communications (Nasdaq: PTNR) and Pele-Phone, with Cellcom bringing up the rear. MIRS and GoNext are focusing on the cellular Internet, while Cellcom and Partner set up content divisions, of which cellular Internet is only one component. The others are SMS and Interactive Voice Response (IVR).
Meanwhile, virtually no-one is using the available services. Partner and GoNext got into a mud-slinging-fest, revealed in a "Globes" investigative report a few months ago, and Ira Cohen casts his own aspersions on the affair: "The mud-slinging was precisely the reason why cellular Internet hasn't taken off."
"Globes": Does that mean it has failed?
Cohen: "Those who expected or promised that there would be hundreds of cellular Internet users in the first two years, were simply wrong. It raised the level of expectations beyond what the market could provide. People who are knowledgeable about the field knew it wouldn't happen automatically and there would be no immediate mass-market. I'm not disappointed. I'm more or less aware of developments, and they're roughly going according to forecasts."
Let's get back to the mud-slinging.
"The wrangling between the operators -- and I don't know whether GoNext is an operator or a SMS and WAP value-added services provider -- has given rise to a jungle in which everyone defines his territory and makes sure no-one gets close, instead of an open market for application developers, content providers, and customer needs. This is an ecosystem, an area where all kinds of creatures live in mutual dependence, so that if you damage one creature, you affect the rest, harming the overall balance. The Israeli market is an ecosystem, and everyone must make a living and profit. That is the economic law of the first order."
Let the content providers make a living
GoNext and Partner recently launched an SMS war, with Partner blocking GoNext customers' ability to access Partner's SMS messages via the cellular Internet. The Minister of Communications is expected to uphold GoNext's complaint in the affair. What do you think?
"There are several barriers to SMS in Israel that are hindering development. One problem is the multiple technologies and the need for conversions in order to send SMS messages."
Why is there no cooperation?
Everyone profits from cooperation. In every European country, the moment interconnect was introduced for SMS, the amount of SMS increased by hundreds of percent. But according to the law of the jungle, everyone wants to protect his territory. Why is there no interconnect center? Do you want to educate the cellular Internet market? Educate the market to use SMS? Educate it that the telephone isn't just a voice instrument?"
Why didn't Partner enter into an agreement with Cellcom or Pele-Phone?
"I think its billing system was incompatible. Furthermore, commercially and strategically, Partner decided it preferred to control the market alone. As I said, it was protecting its territory. The big test will come when Cellcom gets GMS. Then there won't be a technological excuse; it will only be a matter of will."
Please answer the biggest question of all: Why is there no WAP in the world?
"First of all, there are 50,000 WAP sites worldwide. Millions of WAP pages are viewed every day. There's a measurable increase. GENIE, the cellular Internet service of British Telecom (NYSE: BTY; LSE: BT.A) reaches 15 million users."
Nevertheless, why has WAP not taken off worldwide?
"How many WAP cellular telephones have been sold in Israel? Today, no telephone is sold without cellular Internet capability. I'm referring to the new models. We're also getting back to the territorial problem. If I'm a Partner customer, can I see a GoNext page? No. Why? After all, the Internet is free. Why can I enter any website in the world on the regular Internet? What's happening with cellular contradicts the fundamental principles of the Internet."
What must happen for the market to develop?
Access and distribution channels must be free to all. Not free, but completely open to surfing."
GoNext once announced that Partner customers could use their services. It didn't happen.
"There was a time when it was possible. Today, if Partner identifies a service with GoNext, they forbid it."
Is your association, IMIF, doing anything about it?
"I cannot act against the interests of the cellular companies, which are members of the association."
So what is IMIF doing to develop the market?
"IMIF exists so that all parties concerned can sit around one table to find solutions for market needs. When I wear my IMIF hat, I represent both the industry and consumers."
How can you represent consumers when the industry runs the organization?
(Cohen, who looked embarrassed, did not reply).
When the cellular operators run the show
The Israeli market behaves differently from Europe's. In Europe, access is open and there are no turf wars. In Israel, Partner and Cellcom not only want to profit from the delivery, they also want to provide content. This is most blatant in the case of Partner, which closes its network to customers of other content providers. Instead of viewing them as partners, it sees them as competitors. In marked contrast, NTT DoCoMo in Japan, for example, considers content providers to be full partners and takes care that they earn handsome profits from the service, so it can profit from the delivery.
At one point in time, the problem of open access to the cellular Internet market deeply concerned the previous Ministry of Communications director general, Daniel Rosenne, but the matter apparently was dropped long before he left the ministry. His successor, Ure Olenek, has not yet paid attention to the matter.
What's IMIF actually doing, other than talking?
"We're trying to talk as a group with application developers, content providers, and operators."
How?
"IMIF has a database of companies in the industry, and companies use us to reach others."
Are you even a factor in this process?
"There are consultancy and training committees, and we set up venture committees that meet with technology company and funds, provide legal advice, and help design business plans."
What else?
"We say that content providers should profit from their work, and profit models should therefore let them make a living. Today, they're not allowed to make a living. We hold forums of application companies to discuss profit models with operators. In many places overseas, the model is very generous in sharing profits with content providers. There's no such division in Israel and local application companies are therefore leaving the country."
"We also organize cellular Internet events for consumers. We have realized that the market hasn't fully understood what cellular Internet can do."
What does the market want?
"This year, we're conducting consumer surveys to see what the market wants. One of the problems in this market is that its leaders are engineers rather than consumers."
What's the initial market for cellular Internet?
"It's neither the Cohen family from Holon (a small city in Israel) or my son. The primary market is business enterprises and applications, and solutions are mostly being developed for this market."
What does this market need?
It needs stable networks and quality. Stable networks are needed all along the route, with nationwide coverage and applications that are designed to meet different market needs. A business survey was conducted in the US in which one third of respondents said they have tried cellular Internet, one third said they would use it within 2-3 years, and one third said it was irrelevant. And the US market is far more problematic than the Israeli market. In the US there are many technologies and no nationwide coverage."
Do business enterprises need conversions between networks?
"Yes, the enterprises work on several networks, but cellular applications have no borders."
Let's get back to a subject you declined to comment on earlier. You say you represent consumers, while in actuality you're doing nothing to break the barriers because it's the operators who sit on your board who create those barriers.
"Israeli cellular companies are doing excellent work by serving their shareholders. We cannot set their agendas for them. I don't see that as my job. I can only recommend."
What's really going on with your main job as Eurocom Cellular Communications VP? Isn't there a conflict of interest between IMIF and Eurocom, which is a shareholder in Partner and markets Nokia telephones in Israel?
"I always try to see that there isn't"
Is that possible?
"Eurocom is the representative of Nokia and benefits from the development of this market. My activities in IMIF offer us advantages and results, because we're exposed to market developments. IMIF's model is an industry association, and it therefore has to represent the interests of all the companies therein."
Is there any activity vis-a-vis the regulators on the subject of free access, which you emphasize so much?
"I don't think there's any regulatory problem here."
The Ministry of Communications once asked for the public's opinion on this and other matters.
"Yes, and we also responded."
What was your answer to the question about allowing free access and lifting the barriers the cellular companies imposed?
"If you want the market to open, there cannot be any barriers."
I cannot conclude this interview without asking about third generation.
"I think that most of the buying of third generation frequencies is actually positioning, and that the companies don't intend to use them. Most third generation material isn't currently placed over broadband. 56 Kpbs is sufficient for most business applications. I don't need 2 Mbps for these applications. I need third generation because the allocation of its frequency spectrum is much more efficient. It allows operators to provide more content at lower prices. Those using third generation today are doing so, even though lack adequate spectrum."
Does this also delay cellular Internet?
"No. Operators worldwide want to make profits from mobile data communications before investing in third generation, and this is true for Israel, too."
Published by Israel's Business Arena on 12 November 2001