By allowing consumers to negotiate a separate roaming contract to use mobile services while abroad in the EU from the one they have for mobile services at home – while keeping the same number – the EC has freed consumers to seek the best available deal in the market.

And by granting this freedom from their home network operators the EC will, if the proposals become law, create a whole new market for operators offering EU-only service packages, thereby injecting a whole new impetus of competition in the area of roaming. By effectively broadening the market for mobile services in Europe from one country to all 27 the EC has made Europe a much more attractive market for new types of companies to sell mobile services accessible when visiting any member state.

The steps announced today are the logical culmination of the EC’s long held goal of narrowing the gap between how much it costs to use mobile services at home and while travelling the European Union. As such, they should come as no surprise to the European mobile industry, which, despite some exceptions, have been unwilling to reduce EU roaming rates in line with the Commission’s expectations.

Impact:

The impact of these proposals, if they are put into effect, will be felt most by the large European mobile operators. This is because they generate more revenue from roaming than smaller operators as they have more contracts with large corporations to provide mobile services for employees travelling in the EU.

European operators have been reluctant to stimulate the market for consumer roaming in the EU largely to protect the rates they charge their corporate customers, which, unlike the consumer, are much less price sensitive as they have a much greater need to stay connected when they travel abroad.

With the new proposals to allow consumers to negotiate a separate contract from the one with their home operator European operators will be forced not just to offer roaming rates at or slightly below the new regulated retail prices, but to compete in the new market for EU roaming services that the EC wants to create. As such, European operators’ roaming revenues will come under increasing pressure.

Outlook:

It remains to be seen how much more the regular consumer will use his or her mobile when they travel in the EU. The mobile industry remains unclear about how price elastic mobile roaming services are and still doesn’t have a clear view on how much additional usage is created when lower prices are in place. This is because the vast majority of European operators have resisted lowering their roaming rates with significant reductions until 2009-2010, and which is the very reason for the heavy regulation from the EC.

The coming years will provide a much clearer view on how much increased usage the lower prices bring about. The burden is now on mobile operators to aggressively market competitively priced roaming services to try and sign up the highest number of mobile users who use their mobile the most while travelling in the EU.

Put simply, a CDMA iPhone would be the best thing that could happen to Verizon Wireless. The operator has suffered through not being able to offer the iPhone, especially among its most valuable subscribers who have either left to join AT&T or grumbled at not being able to own the most sought-after consumer electronics device around.

At the same time, AT&T has benefitted in so many ways from being the sole supplier of the iPhone, evidenced not least in its strong churn figures. Despite not having the best network, AT&T has the lowest customer churn among US operators, at 1.30% at end-March, according to Informa Telecoms & Media.

So, Verizon Wireless would be able to stem the flow of high-end subscribers to AT&T and it could gradually get back the ones it’s already lost by being able to offer the iPhone.

And what would Apple gain from offering a CDMA iPhone?

Manufacturing a 3G CDMA iPhone would not only allow Verizon’s 92.8 million subscriptions to buy the device without changing network operator: globally, there are around 120 CDMA operators, with 466 million CDMA subscriptions between them. This means that subscribers to these CDMA operators would be able to buy the iPhone without changing operator.

But the picture isn’t as simple as that. The global market for a CDMA iPhone is not as healthy as the top-line figures suggest. The majority of CDMA operators are in emerging markets where demand for the iPhone is already being met by the WCDMA version.

How many CDMA subscribers in say, Venezuela, aren’t buying an iPhone just because it’s not CDMA?  I’d say, very few: the vast majority of global CDMA subscribers just don’t want, or can’t afford, an iPhone. Verizon Wireless is in a unique position in the US, because the perception that its network is much better than rivals doesn’t arise in other markets, where network quality is less differentiated from operator to operator.

And on top of this, many of the top ten CDMA operators, which between them account for 77.5% of total CDMA subscriptions, are looking at next generation network futures that don’t include CDMA.

CDMA iPhone complexities

Commentators who write about the supposedly imminent CDMA iPhone, and Verizon customers who will it into existence, overlook the complexities involved for Apple in manufacturing a CDMA iPhone.

Apple would essentially need to redesign the current iPhone to incorporate CDMA technology. It would need a separate new team to do this. A CDMA iPhone would require dedicated supply and production lines. Apple would need to strike a completely new set of agreements for CDMA intellectual property, and with a new set of rights holders. It would also require new solutions to enable certain iPhone features, such as Visual Voicemail.

The bottom line is that a CDMA iPhone would have a higher bill of materials than the WCDMA version, meaning that CDMA iPhone margins would be much lower. And unlike with the WCDMA version, margins wouldn’t significantly improve down the line because CDMA operators, especially in developed markets, are turning their backs on the technology in favour of LTE, or in some cases, WiMAX.

The approach required to launch a CDMA iPhone would go against Apple’s phenomenally successful strategy of producing high-margin, high volume products that differentiate on design, software, usability and the unique application of existing technology.

Some forecasters have estimated that a CDMA iPhone would bring in an extra US$7 billion in revenues for Apple, based in part on Verizon signing up eight-nine million iPhone subscribers a year. This forecast rests on the assumption that there are eight-nine million potential Verizon iPhone customers not churning to AT&T because of allegiance to Verizon. That seems like a very high number to me.

I think that the only way Apple would produce a CDMA iPhone would be if Verizon invested heavily in the manufacture of it, assuming much of the financial responsibility for developing and setting up production of it. This could make sense for Apple because it would be able to leverage Verizon’s help to roll the CDMA iPhone out in other markets. Although I argue that pent-up demand for a CDMA iPhone outside the US is small, globally, a CDMA iPhone could provide a boost to global iPhone sales.

But this potential upside doesn’t take into account the potential downsides for Apple. A CDMA iPhone would massively increase Apple’s exposure to potential product failings and shortcomings. Even for the high volume WCDMA iPhone these have been more frequent than Apple would like, although as yet they have done nothing to blunt consumer appetite for it.

Perhaps a CDMA iPhone isn’t in the cards, and the iPhone Verizon is rumored to begin selling in January is the LTE version. This makes sense, but not in the near term. It’s highly unlikely Apple would make an LTE iPhone until LTE networks are mass-market and other handset manufacturers have ironed-out the inevitable problems the technology will have. Remember, Apple didn’t launch a 3G version of the iPhone until mid-2008, long after the first 3G networks were launched. Apple will surely wait for others to make the first expensive mistakes with LTE.

All this means that Verizon could have to wait until 2012-2013 to offer an LTE version of the iPhone.

But Apple is used to breaking new ground, including its own, and is perfectly capable of making a CDMA iPhone if it considers that it makes enough business sense to do so. The CDMA iPhone depends on Verizon’s ability to persuade Apple to do just that – break new ground and enter into an extremely close partnership that goes far beyond being just a buyer of Apple products.

If Verizon fails to do this, and convince Apple it will be a better close partner than accident prone AT&T, it will have to continue suffering when the latter’s iPhone exclusivity ends, and more US operators start selling the device – but still not it.

Flash Player 10.1 is supported on devices based on Android, BlackBerry, webOS, future versions of Windows Phone, LiMo, MeeGo and Symbian OS

US software vendor Adobe has released the latest version of its mobile platform, Flash Player 10.1, in a move that draws clear battle-lines between different approaches to creating and selling smartphone content.

Apple has prevented Adobe software from running on its iOS platform, which powers iPhones, iPads and iPod Touch devices, and Adobe will be hoping that momentum gathers behind its latest Flash release to undermine Apple’s walled-garden approach to content and also its favor among developers.

Flash is popular among developers, but Apple says the software slows down its operating systems and is a drain on battery life. Because Apple doesn’t support Flash, any website that features Flash content can’t be accessed on iOS-based devices.

Flash Player 10.1 will be available as a final production release for smart phones and tablets once users are able to upgrade to Android 2.2 “Froyo.” Flash Player 10.1 was also released to mobile platform partners to be supported on devices based on Android, BlackBerry, webOS, future versions of Windows Phone, LiMo, MeeGo and Symbian OS, and is expected to be made available via over-the-air downloads and to be pre-installed on smart phones, tablets and other devices in the coming months.

Adobe will be hoping that support for Flash 10.1 will be strong enough to undermine Apple’s dominance in the smartphone application space.

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The catalyst is new license awards, which are set to radically change the competitive dynamics in some markets, and for different reasons than they did in the past.

Whereas 3G-spectrum auctions changed the competitive landscape by bringing in new entrants and thus expanding the number of players, 4G-spectrum auctions are likely to see a contraction in the number of networks built, and in some instances the number of operators, especially in developed markets.

And in markets that don’t see a decrease in the number of players, many will see fewer 4G networks built as a result of close cooperation between operators.

In the US, for example, T-Mobile is talking to cable companies and WiMAX provider Clearwire about a possible joint venture to enhance its spectrum position. T-Mobile USA is the smallest of the large nationwide US operators – it controlled just 11.63 per cent of the market at end-2009, according to Informa Telecoms & Media research – and lacks the scale of its big rivals.

Unlike bigger rivals AT&T and Verizon, T-Mobile USA does not have 700MHz licenses for building an LTE network, and it is not counting on the FCC’s national broadband plan to fulfill its spectrum needs.

Germany offers a similar story of small players banding together to offer 4G to better compete with large rivals. Many expect that the country’s two small players, Telefonica-owned O2 and KPN-owned E-Plus, will either merge or combine their network assets into a joint venture because they don’t have the resources to build their own LTE networks.

But whether or not they merge, the market won’t see any new entrants come into play. T-Mobile, Vodafone, O2 and E-Plus are the only four applicants in the country’s forthcoming auction of licenses in the 800MHz, 1800MHz, 2000MHz and 2600MHz bands.

Other crowded markets where small players battle against much larger rivals are also almost certain to see consolidation around spectrum awards for LTE. The UK is one of these markets, where 3G new entrant 3 is likely to be acquired by Vodafone or, less likely, Telefonica.

In countries where LTE spectrum has already been awarded, there has been scant interest from new entrants, and governments have reaped meager amounts from awarding new licenses. Finland saw no new entrants after it awarded LTE licenses; Norway (Craig Wireless) and Sweden (Intel) saw one each.

And pointing the way forward for operators in other countries, Telenor and Tele2 have struck a deal to construct a joint LTE network in Sweden, with plans to launch services based on the technology toward the end of 2010.

Although it makes sense financially for operators to combine their efforts to roll out LTE networks, from a competitive standpoint sharing core networks remains an untested proposition. It remains unclear how much differentiation operators can pursue at the service level when they have little room for differentiation at the network level. Moreover, no matter the level of cooperation, network-sharing agreements are notoriously complex and could foreclose on future strategic options, such as M&A. It also remains unclear what effect having fewer competitors offering services will have on the price end-users pay for mobile services.

Regardless of the potentially negative consequences of having fewer LTE networks being built, smaller players in highly competitive markets will be swallowed up by stronger rivals because they are unable to bid on their own for new spectrum. This promises to create an entirely new dynamic in markets where consolidation around LTE spectrum awards takes place.

Before expanding on this claim, let’s look at what the operators said in a little detail.

Both Telefonica CEO Cesar Alierta and Vodafone CEO Vittorio Colao – earlier this month and at Mobile World Congress in Barcelona, respectively – have said that they are thinking about charging Google and other search engines to use their networks.

Alierta implied that it was unfair that search engines were using mobile bandwidth for free while Telefonica’s operations provided the network, product sales, customer care, installation and maintenance for them.

Alierta said that he was sure this situation would change and that search-engine companies would need to start paying for some of the infrastructure, possibly through the introduction of monthly fees in accordance with the amount of data generated by each site.

Colao used his keynote speech at Mobile World Congress to say that search engines such as Google and Yahoo should pay for preferential access to the company’s networks. I’m unsure exactly what Colao meant by this statement, in particular the idea of “preferential access,” but I assume he was considering charging Google et al. a fee based on the amount of traffic they generate, perhaps in return for a prominent placing on Vodafone’s portal.

I don’t think the details are of overriding importance at this stage: The key thing is that Colao wants his firm to get more money from Google than it does at the moment, in a way that corresponds to how much traffic Google generates. According to some estimates, Google generates about 6 per cent of all fixed-Internet traffic. It’s unlikely to be this high in the mobile sphere, but it’s fair to say that Google-owned YouTube would generate much more than 6 per cent of all mobile Internet traffic.

In a further broadside to Google and Yahoo, Colao alerted regulators to the lack of competition among search engines. He said that search engines such as Google and Yahoo, which control 80 per cent of the market, are damaging for users because of the lack of competition, and he asked public authorities and regulators to take a look into the issue.

If Telefonica and Vodafone did start charging search engines for using their networks, it would be a bold new step in the operators’ attempts to profit from data traffic. The question is: Would this ever work?

Vodafone and Telefonica overplay their hand

Regardless of the details of the charging mechanism Vodafone and Telefonica are thinking of, I’m sure that Google won’t be taking these statements very seriously. For now, at least. In principle, the arguments are unsound, and in strategic terms they point to a misreading by the operators of the balance of power between Google and them.

Why? Let’s take the “wrong in principle” argument first: Why should Google pay operators to allow mobile users to access its services? And why should Google – but not the BBC, Spotify, The New York Times, Facebook, HSBC or any other content/service provider – be required to pay operators for access to networks?

Although Google, YouTube and others are more responsible for the congested networks than most, operators recoup their network investments by charging end-users to access their networks to use these services and others like them. That’s the business they’re in. Asking Google to pay to access the Vodafone network is like a TV broadcaster charging a film company to show its films over its network, or Microsoft asking Google to pay for access to Windows users.

The arguments put forward by Vodafone and Telefonica are also unsound in strategic terms. At the moment, Vodafone and Telefonica need the big search engines more than these companies need them. People expect to use Google and other popular Web sites on their mobile phones. The balance of power lies with Google and co., not any individual mobile operator. Unless Vodafone and Telefonica actually block Google and other Web sites from their networks, the majority of their customers will find a way to use them, because that’s exactly why they signed up to data plans in the first place – to use these Web sites while on the go.

I think what’s actually going on is that Vodafone and Telefonica are turning up the heat on Google and other popular content providers to prepare for negotiations down the line over the amount of money these companies pay them, especially for value-added search-generated services, such as advertising. As such, these recent arguments are the beginning of a long battle over not just which party owns the customer, but over who pays what amount to enable that customer to access popular Web sites on the go. There is also the question of who earns money from value-added search-generated services such as location-based advertising, which might use the operator’s technology.

Although Vodafone’s and Telefonica’s arguments are unlikely to worry Google et al. in the near term, it’s an open question whether they can avoid entering into some kind of close partnership with operators with a revenue-share component built in. But there’s no reason to expect that mobile operators will be able to succeed where fixed operators have failed: in getting Internet companies to pay for some of the bandwidth they use.

It’s not just that mobile operators need Internet companies much more than Internet companies need them. It’s the job of mobile operators to build the best networks they can and bill subscribers as much as they can for whatever content they use. Government policy is heading down this path in the US and Europe, and operators risk being out of step with the direction the Internet is going by publicly mulling over how to charge differential rates for certain types of content.

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In recent months handset vendors such as Palm, Motorola, HTC and Nokia have launched new handsets that compare favourably with aspects of Apple’s device. However, notwithstanding the achievements of some handset manufacturers in emulating the iPhone, the mobile industry as a whole is still leagues behind Apple in creating a truly compelling user experience of mobile internet and services.

While it’s clear for handset vendors what they have to do to close the gap on Apple in the smartphone space – produce something that’s as good as the iPhone – operators are still struggling how to replicate the level of experience Apple has created for high-spending mobile users.

Mobile operators have long been guilty of burying their collective head in the sand when it comes to assessing the success of their mobile data efforts. For five or so years, countless operator CEOs would stand up at conferences and tout the success of their closed mobile portals.

This would probably still be going on today had Apple not forced them to admit the reality: the experience they were creating was appalling. It finally became clear that the success of these portals the CEOs said for so long was just about to happen was never going to happen. No wonder data about uptake and usage of mobile portals was always so hard to come by: had this been made public investors would have taken their money from the industry in droves.

But the iPhone changed everything in the mobile industry, not least forcing executives at operators to admit that they didn’t have a clue what they were doing with advanced mobile services.

Which brings us to this month. At the FT conference held in London, I was amazed to hear almost every single speaker, including senior figures at Vodafone, France Telecom and Deutsche Telekom, state that, essentially, they were still looking for the right approach to mobile services.

Each one of these speakers cited the iPhone experience as the benchmark they were all looking to emulate. And with the exception of Vodafone and its 360 initiative, none of the speakers had much of an idea about what their response was going to be to the iPhone.

And Apple wasn’t even at the event. Come to think of it, Apple hasn’t been a speaker at any major mobile event that I can think of. What’s incredible is that Apple hasn’t needed to come and find out from the mobile industry what the latest themes and trends are. It’s created the biggest shift the industry’s ever seen itself.

And I wouldn’t like to bet against Apple or another company outside the industry creating the next major shift, because on the evidence of this week, it’s not the senior executives at the mobile companies who have the slightest idea what this is going to be. And this by their own admission.

But I think this admission of ignorance is hugely positive. For once, the mobile industry is saying: we’re not making the most of the technology (mobile broadband) available to us, and we need help to do so.

Aside from the iPhone, the overwhelming theme of the conference was partnerships. This was also something of a first. One after the other, the speakers stated the need to become genuine partners with Internet companies to capitalise from the mobile broadband technology opportunity. Most admitted their past failings in this.

The great advantages operators have, and it’s almost the only ones they have, is that they own the networks and they bill the people who use them. Aware of this, Michel Combes, CEO, Europe region, Vodafone Group, spoke about being a ‘smart pipe’ for other companies to sell their services through. Combes said that Vodafone was aiming to be the best operator partner to work with for companies outside the industry. Vodafone, among others, has now thoroughly embraced this stance – a massive turnaround from two to three years ago.

Operator executives should be commended for admitting that they’ve been bad partners to companies outside the mobile industry. Now they’ve gone to the other end of the spectrum, and are tripping over themselves to be the best partner to outside companies that have popular services to sell in the mobile space.

The big question now is: will this new attitude create tangible benefits to operators?

One other theme that dominated the conference was application stores. Companies are tripping over themselves to make application stores, and I question the wisdom of doing this. Each of these companies is, of course, following the path created by Apple in the hope that making a comparable store will lure users away from the iPhone

But I think this is ill-conceived and misguided. People buy the iPhone not for the Application Store. They buy it because it’s the best designed and made device on the market, the one that also offers the best mobile internet experience, the best media player and a great email service. Oh, and you can also play some of the best hand-held games and do a host of other things too. But the latter are just compelling extras to the rest.

The Application Store has been great for software developers, but whether it will be equally as positive for device vendors and operators is another question. I find it hard to see people buying a device mainly because it’s got a great application store. The application store is just one small part of the puzzle.

No doubt the day will come when a new device offers a whole new experience that makes Apple’s look old-hat. But given the vision Apple has manifested in the past, and the dearth of new ideas coming from within the mobile industry, I wouldn’t be at all surprised if this new vision didn’t come from Apple itself, or another that is similarly outside the mobile industry.

Operators won’t be completely dis-intermediated by Internet companies in the future. But they will have to accept sharing much less of the pie than they would like.

The move amounts to a fundamental investigation by the FCC into operators’ business models, in particular their right to determine which services end-users can access over their networks.

The letters also put operators’ positions on VoIP services in the spotlight. It’s not surprising that the FCC’s call for information into application stores was kick-started by a VoIP application. VoIP – that is to say the promise of free voice services – raises the question of how much control operators can exert over their networks.

The letters amount to an admission by the US government that it has little knowledge of the business models surrounding application stores.

This a positive sign, because it shows that the government has let the industry manage important elements of the value chain by itself.

The letters also reveal that the FCC probably has some idea of how the application-store business model should work, and hint that it is not happy for any element in the value chain to exert too much control.

The letter

After receiving the letter on July 31, AT&T said that it has no say over which applications are approved for use on the iPhone application store, fingering Apple as the party responsible for locking out Google Voice. The worst-case scenario for Apple and AT&T, and mobile operators in general, would be if the FCC mandated access to Google Voice and applications like it.

In the letters, the FCC has asked Apple and AT&T to explain in detail how the approval process works for iPhone applications. The FCC has asked Apple to explain why it rejected the Google Voice application for iPhone and removed related third-party applications from its App Store. It also asked which related third-party applications have been removed or rejected by Apple.

“Did Apple act alone, or in consultation with AT&T, in deciding to reject the Google Voice application and related applications?” the FCC wrote. “If the latter, please describe the communications between Apple and AT&T in connection with the decision to reject Google Voice. Are there any contractual conditions or non-contractual understandings with AT&T that affected Apple’s decision in this matter?”

“Please explain any differences between the Google Voice iPhone application and any Voice over Internet Protocol (VoIP) applications that Apple has approved for the iPhone. Are any of the approved VoIP applications allowed to operate on AT&T’s 3G network.”

IPhone users can use VoIP applications, such as Skype, only over Wi-Fi connections, not 3G.

Also in the letter to Google, the FCC asked it for information about the company’s approval process for its Android application store.

The letter asks Google to “provide a description of the standards for considering and approving applications with respect to Google’s Android platform.”

“What is the approval process for such applications (timing, reasons for rejection, appeal process, etc.)?” it states. “What is the percentage of applications that are rejected? What are the major reasons for rejecting an application?”

Consequences

The worst-case scenario for operators, and to a lesser degree application-store owners, would be if the FCC mandated that networks and application stores be open to any and all applications that met basic technical requirements. Although this wouldn’t be in their best interests, the FCC could decide that it’s in the best interests of customers.

The question could boil down to whether operators and application-store owners can convince the FCC that technical considerations are at the heart of their decision-making process when it comes to deciding which applications to allow and which to ban.

Whatever the outcome, the FCC’s response will determine how much control operators have over how their networks are used.

MVNOs are defined by the relationship they strike with their host operators, and because this relationship is largely defined by the host operator, the MVNO is bound to always be in an inferior relationship to them.

MVNOs are also seldom aided by regulators, who are disinclined to mandate that network operators open up to them, so in part they are implicitly complicit in ensuring they remain in a position of weakness.

This means that the threat of MVNOs is much less than in reality. In the first years of the virtual operator, MVNOs often competed solely on price, which gave them something of a bad name to network operators, fearful that opening their networks to virtual operators would ultimately force them to lower their process.

But over time, MVNOs began targeting niche segments of the market with a clear proposition distinct from what was already available.

Aware of this, an increasing number of forward-thinking network operators have proven willing to sign-up MVNOs, mainly to tap a segment of the market their brand and proposition has been unable to tap. Indeed, MVNOs, particularly in the US, have failed when they have targeted similar areas of the market to that of the host operator.

MVNOs are likely to proliferate in the Middle East, Africa and parts of Asia Pacific over the next few years. The markets in these regions are ripe for new service providers tapping markets that have been unserved by incumbents. These incumbents have also had the time to define themselves, and the more adventurous among them will become increasingly willing to allow partners with strong brands distinct from their own to target new customers using their networks.

Saudi Arabia, Turkey, Egypt, India, Pakistan, among many others, are likely to see the entrance of MVNOs in the next 1-2 years, according to research carried out for the latest Informa Telecoms & Media report, Global MVNO Markets.

According to this report, the number of subscriptions to MVNO operators and resellers is forecast to grow 44% from 104.1 million at end-2009 to 150.3 million by end-2013 – a compound annual growth rate (CAGR) of 9.6%.

At present, there are 550 MVNOs or resellers globally as confirmed by regulatory authorities and approximately 85 million subscriptions to these MVNO and reseller operations.

This may sound like slow progress but, given that most of Europe’s MVNOs were launched in the mid-1990s, this follows a similar evolution path to the global cellular market – it took 13 years to add the first 85 million mobile subscriptions.

The success or failure of MVNOs is dependent on building a strategy that is complimentary to potential network hosts. If MVNOs in emerging markets can build a business case that enhances rather than challenges the network operator’s, then we can expect to see a plethora of new virtual operators emerging in major developing markets in the next few years.

Network operators in these markets should welcome propositions that promise to use spare network capacity to bring in new revenue by allowing virtual operators to target new or unserved segments of the market.

But regardless of the truth of these rumors, what’s actually far more interesting about the launch of the app is what it says about Vodafone’s strategy for the mobile internet.

The move is incredibly original, because it positions Vodafone as an aggregator of mobile-specific content to iPhone users, regardless of the fact that it doesn’t have any kind of formal relationship with them.

Vodafone is essentially saying to iPhone users: “We know mobile, we’ll filter content for you that’s highly relevant to you when you’re on the go, and we’ll put it in one easy-to-find place.”

The move is also highly disruptive, because it undermines the relationship that O2 – the exclusive iPhone operator in the UK – has with end-users. No longer does O2 UK have a monogamous relationship with users: It now has Vodafone to contend with.

The move is also important because iPhone users are generally early adopters of mobile services, so Vodafone’s iPhone Web app will enable it to take an early lead over rivals in the mobile application sector.

What is the Vodafone UK iPhone web app?

Vodafone beta-launched a free iPhone widget April 30 that takes users to a Vodafone portal, which carries Vodafone-aggregated content from other content providers, also accessed via web apps.

How does it work? Vodafone set up a web site that contains a link for iPhone users to download the Vodafone app to their devices, which they can then use to access the Vodafone portal.

A web app is fundamentally different than a widget, the other method of accessing web-based services via the iPhone. Unlike a widget, a Web app doesn’t install a program on the device; it contains a link to another Web site, accessed via the iPhone’s Web browser, Safari.

Crucially, by using a web app, Vodafone doesn’t have to gain approval from Apple for the service, as all providers of widgets do.

Once users are in the Vodafone portal, they can access content from media outlets such as Lonely Planet, CNN, BBC World and BBC News. There’s also a search function powered by Google. The portal has the look and feel of Vodafone, which will obviously build and augment its online identity.

Also on the portal is a “get widgets” link, which takes users to a Vodafone-hosted home page, offering content from big media brands, organized by category.

Where to next for the app?

It’s important to remember that the Vodafone iPhone Web app is still in the beta-testing phase. So what is available at the moment is without question just a taste of things to come. We can expect more mobile-specific services, particularly ones that take advantage of the iPhone’s location-based technology.

What’s clear is that Vodafone is using the iPhone Web app to try to become a big player in the mobile application sector. As such, Vodafone can be expected to launch proprietary applications via the Web app.

Although Vodafone won’t sideline its own portal for the iPhone app in the UK, the two can be expected to run side-by-side, with one shaping development of the other.

It’s ironic that the portal concept has been reborn with the iPhone. The portal was the first idea that mobile operators had to make money from 3G, but it failed because they were never highly relevant to mobile users, and, of course, they were painfully slow.

But with the iPhone, that’s all changed. The iPhone usually provides a fast and reliable 3G connection, and the screen is big enough and easy enough to navigate that browsing the Internet on the go is an enjoyable experience that users want to repeat.

The move is bold, though more in concept than in execution. It’s not the first time 3 has led the market with innovate and disruptive products, for which it must be applauded, but the question is: For how long can it operate as a small, niche player, hovering around the sidelines?

It could be argued that the move is an effort by the operator to force another operator to buy it for an attractive sum, enabling its owner, Hong Kong businessman Li Ka-shing, to recoup some of his investment by selling out of the firm.

Why? Because the 3 group continues to lose money. Although the company’s performance is improving, it is far from operating on a firm financial foundation. The group’s revenue rose only 1% year-on-year in 2008, to HK$60.37 billion (US$7.79 billion), though its losses before interest and tax fell 39% year-on-year, to HK$10.8 billion.

Details of free-voice offer

3 UK announced Apr. 23 that it will give all customers with a Skype-enabled handset unlimited free Skype-to-Skype calls and instant messages, starting May 1, with no data charges or top-up fees for either prepaid or postpaid customers. The operator plans to expand its offering this summer to include anyone with a 3 SIM and unlocked 3G handset, regardless of whether 3 supplied the device.

Although 3 UK’s free-voice offer will probably be taken up by only a minority of users – albeit a growing one – it undermines the concept of paying for voice calls, and that makes the proposition highly potent, because it means that users are implicitly choosing to pay for voice calls. If they wanted to, they could call other people free.

This could be especially disruptive to 3′s rivals because it means their networks will be open to 3′s free-voice-call service.

The operator says its existing Skype community uses 1.5 million minutes of Skype-to-Skype calls a day.

3′s disruptive history

Offering free voice calls is just the latest disruptive move by 3. The operator has led in offering cut-price mobile broadband services, for just £10 (US$15) a month in the UK, for instance, and €9 (US$11.95) in Austria.

So cheap are these offers that they raise the question of whether the operator can earn enough money from mobile broadband to be able to invest enough in its networks to maintain quality. “How can 3 make money from these offers?” is a question that many people in the industry have put to me over the past six months. But it is one that nobody has an answer to.

The operator also did away with voice- and SMS- roaming charges for users traveling in any of the seven European countries where it has a presence.

Who could buy 3?

The question of who would buy the operator has long been batted round the industry. Pick the name of an operator that has enough cash, and it could be the one to stop the punishment that 3 is meting out to incumbents in the markets in which it operates. China Mobile, Deutsche Telekom, Zain, Etisalat and Vodafone have long been named as possible buyers.

Although eliminating 3 as a competitor would bring some relief to rivals, the big question is: Would that relief compensate for the amount it would cost a competitor to acquire it? Similarly, would a new entrant to markets to the countries where 3 operates, such as China Mobile, be able to make a return on investment?

3′s viability has been called into question for a long time – since before it even launched services – but it just keeps going. It would be a shame to see such an innovative firm subsumed by a rival or an established major global player, but there will surely come a time when someone knocks on Li Ka-shing’s door with an offer he can’t say no to.