Wireless data gamble

As chief marketing officer of U.K. cell phone giant O2, Kent Thexton had no problem convincing subscribers to gobble up wireless data. It was an easy sell in a country, as well as a continent, that believes cell phones, not computers, are the gateway to the Internet.

But Thexton's now left the land of wireless download riches to become co-CEO of Seven, an influential wireless data company used by top-tier U.S. carriers. He's crossed the Atlantic to a continent where the computer is the data downloading vehicle of choice and cell phones are used primarily just for conversing.

U.S. cell phone service providers, including Seven customers Cingular Wireless and Sprint, are counting on wireless data services like downloading games and movies to succeed in order to offset steep declines in the price of phone calls, their core product. That makes Thexton's mission most critical.

Thexton recently talked with CNET News.com about kick-starting mobile data use in the United States, whether Wi-Fi phones are the answer and other topics.

Q: 3G services are hitting the United States. But how much value is there in paying $80 a month for what, on its best day, amounts to a very slow DSL connection?
A: If you're just really a heavy-file power junky looking for speed, I agree--it won't meet my needs. But if you're using it with a PDA or phone, and pulling down simpler e-mails and photos instead of PowerPoints, I think it'll be a pretty good service.

But it's not really fast enough for video, which carriers seem to be banking on quite heavily?
That's where codecs can help. I sit on the board of a company creating better ways to download music onto cell phones. What they and others are doing is making it much easier to run these sorts of music applications. The same thing is happening to video.

What are carriers doing wrong in their approach now to wireless data?
In the early days, people got ahead of themselves. Now we have color screens and as a result you're seeing more browsing traffic on phones. Camera phones are definitely helping. Now you're seeing 2-megapixel camera phones, which is a lot more data to push across a network. That forces manufactures to have faster processors, better quality screens and more memory.

What's the wireless data landscape look like a couple of years down the road?

If you're a business person now, and you don't have a cell phone, then people look at you crazy. That will be the same for wireless data on cell phones. It'll be very easy to use, and pervasive. There will be lots more and much higher quality camera phones. In the business environment, instead of bringing a laptop, you can do most of your work on your handset.

Is that a long way to go in two years, considering how low wireless data use is now?
I got into the business in 1990 and shortly afterward, everybody was saying this is going to be the year of mobile data. But in Europe, it's really happening. O2, which I came from, gets 23 percent of its revenue from wireless data every year. That's over a billion pounds ($1.8 billion). That's a pretty good number in my book. In my view, we're already there.

But revenue from wireless data is in the single-digit percentages in the United States.
While the U.S. market has been behind, there are lots of signs it's moving quite healthily. In the U.S., text messaging is growing very rapidly now, even faster than at the same point in time as in Europe.

Just how much revenue is there for U.S. carriers to grab?
In Europe, 15 (percent) to 16 percent of a carrier's revenues come from data. In Japan, it's more like 15 (percent) to 20 percent. In the United States it's about 2 percent. Human behavior is not that different across the globe, so it'll happen.

Verizon Wireless customers send about 400 million text messages a month. How much higher can that number go?
I see them getting to between 1 billion and 2 billion a month in the next two or so years. I say that because at O2, we had about 70 percent of our customer base using SMS (Short Message Service) every month and the average customer was sending 100 messages a month. If you do the math, that's 700 million text messages a month. We were doing more with less customers.

What's going to make it happen?
In the U.S., everybody knows somebody who has a cell phone. That's the first step. Next you need interconnection agreements so anybody can message anybody else, regardless of their carrier. We're not there yet. But once we are, it's a viral application. Most people have an e-mail account, so there are hundreds of millions of e-mails out there. BlackBerry has proven that you can mobilize e-mail.

What's the future you see for Wi-Fi phones, which appear in the U.S. this Christmas?
They make a ton of sense. But because Wi-Fi's services are usually free it could end up cannibalizing some data services that cell phone operators offer. And the Wi-Fi hot-spot business model isn't too clear yet. If you're a hot-spot provider offering service for free, how do you pay for the backhaul? There's also not nearly enough hot spots in general.