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Profit squabble mars wireless Web future

Geoworks' decision to charge steep licensing fees for use of its technology is a sign the wireless Net industry's quick growth could be slowed, analysts say.

A honeymoon is over in the wireless Web world.

Over the last several years, a group of companies led by Nokia, Motorola, Ericsson and Phone.com have convinced much of the world it has the best plan for turning wireless phones into mini Web browsing devices. The group's members have pooled their technology, and even gained enough power to pull a reluctant Microsoft into their camp.

But on Wednesday, one of these companies--wireless Net software developer Geoworks--broke ranks with the announcement it would begin charging steep licensing fees for use of its technology, a move to latch on to the Net's fast-growing profit potential.

It's the first time that one of the members has publicly sought profit from the others--but unlikely the last. Analysts say it is a disastrous sign and the industry's quick growth could be slowed, with other companies that own pieces of the technology also seeking to boost their own share in the wireless Net's profits.

"I think this is a terrible sign for the market at large," said Eddie Hold, senior wireless analyst for research firm Current Analysis. "As soon as you start putting fees on top, it's going to cut out a lot of innovation from the smaller players."

The move comes as Net access over mobile phones is on the verge of breaking into the mass market in the United States, after already taking off in cell phone-friendly Scandinavian and East Asian countries.

The market potential--and thus the allure to companies seeking royalties--is enormous. Industry analysts estimate that more than 100 million mobile phones will be able to tap the Net by 2002, and say that by 2003 close to a billion mobile phones will be in use worldwide.

Much of this momentum is due to the work of the WAP Forum, the group backing the Net-access technology called Wireless Application Protocol. The organization has successfully persuaded most of the major mobile phone carriers and manufacturers to support their joint technology, has attracted close to 30,000 developers, and has won the endorsement of Europe's top standard-making regulatory body.

The companies in this group have pledged to exchange technology as a condition of membership, and jointly push use of the WAP standard. But unlike many of the standards underlying the existing World Wide Web, the technology remains the property of the companies--and the group's rules say they can ultimately charge for it.

On Wednesday, Geoworks said it would charge royalty fees of up to 10 percent of some companies' per-user revenues--a potentially lucrative stream targeting companies from Phone.com to Microsoft. The WAP Forum members say Geoworks is playing by the rules, however.

"The whole point of the WAP Forum is for everybody to work together and provide their intellectual property to each other at reasonable rates," said Cherie Gary, a Nokia spokeswoman. "What Geoworks did that was surprising was to make that public."

But privately, some members are grumbling, and many--including Nokia and Phone.com--say they are consulting their lawyers to see if they genuinely have to pay the fees.

Geoworks recognizes that its action has ruffled feathers in the community, but says it won't charge any company that makes less than $1 million, in an attempt to continue encouraging innovation.

"What we don't want to do is create some onerous fee for two guys in a garage trying to create a new WAP start-up," said Geoworks chief executive Dave Grannan.

But some analysts and software companies say the move could start putting the brakes on WAP development.

"This undermines some of the momentum that WAP has with developers," said David Hayden, a former Mobile Insights wireless data analyst who now heads an as-yet-unnamed WAP-focused start-up. "This could potentially stifle the (technology's) development, and be bad for (Geoworks)."

Others expect that the other companies owning WAP technology will naturally want to benefit from their own patents, following Geoworks' lead. Once others start charging royalties, WAP technology will likely become much more expensive to develop for outsiders, analysts say.

"They've called this an open standard," Jane Zweig, executive vice president of wireless consulting and research firm Herschel Shosteck Associates, said. "But does that mean that they should simply share their intellectual property for the betterment of the world?...That goes against the way these companies have always worked."

The Forum members say royalties and technology licensing will be a reality of the WAP world, and that the process has already privately begun. But they say the group is too dedicated to the success of their standard to let the sum of everybody's royalty payments undermine the entire group's success.

"I think if that were to happen, it would represent something we'd have to deal with," WAP Forum chief Scott Goldman said. "But nobody's saying it's going to happen. If one company were to put up a significant hurdle, it would be to everybody's detriment."

Most analysts expect the financial issues to be worked out.

"It's unfortunate that this blip had to appear on the radar screen at this time," said Larry Swasey, vice president of research at Allied Business Intelligence, a wireless consulting and research firm. "But it should be worked out, because the momentum is too great for this to hinder (the technology's) growth."

News.com's Corey Grice contributed to this report.