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Apple leads the way on mobile phone design

Apple is casting a long shadow over this year’s Mobile World Congress. The iPhone maker isn’t in attendance – it is far too cool for an annual trade fair – but its name is still on everyone’s lips. For a firm that has just 2.5 per cent of the mobile handset market, its ability to dominate the debate is impressive.

Network operators and handset makers see Apple in a strange light. It has breathed new life into the industry, but disrupted the status quo so quickly that some firms have been caught short.

Despite its relatively small market share, the iPhone has led to an explosion in smartphones. Industry association GSMA predicts that there will be 1.68bn of the sophisticated devices by 2013 – more than the number of personal computers. For the likes of Nokia and Samsung, that presents a huge opportunity to design new, high-margin products, although neither has managed to launch a compelling competitor just yet.

For Vodafone, Telfonica’s O2 and France Telecom’s Orange, smartphones offer a new chance to grow. Just as revenues for voice calls are beginning to taper off in mature markets like the US and Europe, network operators can now start charging users for using the internet on their phones or for downloading apps.

The only problem is that network operators have priced their data offering far too low. For Vodafone, data now uses two-and-a-half times more network capacity than voice, but accounts for just 11 per cent of revenues. Its network – along with virtually every other – is creaking under the strain.

Network operators will need to spend billions in the coming years to cope with the surge in data usage on smartphones. But unless they can convince consumers to pay more, there will be little return.

One company that will make a return on Vodafone’s investment of billions is Google. It has an 80 per cent share of mobile search advertising, an industry that will be worth $13.5bn (£8.6bn) by 2013, according to research firm Gartner.

Vodafone chief executive Vitorrio Colao has said he could ask Google to pay a levy for piggybacking on the network.

Google boss Eric Schmidt made his inaugural appearance at Mobile World Congress this year, and signalled a huge change in strategy. Google is no longer a firm focused on the PC, he said, but one that will put “mobile first”. The mobile phone is the new frontier for the web giant: computers are old news.

But he is gearing up for an argument similar to the one he’s been having with newspapers in recent years. Publishers have stood on the sidelines of the digital revolution, while Google has mopped up virtually all the advertising revenues. It is hoping to perform the same trick with the mobile phone, but the likes of Vodafone are not going to give up the prize without a fight.
david.crow@cityam.com