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Openwave success hints at turned corner for wireless Web

The success of the wireless software infrastructure player may portend that the wireless Web is reaching a new milestone.

Wireless software infrastructure player Openwave Systems is in an industry bogged down by a half-dozen different standards, technology long promised that doesn't yet exist, and a heavy dose of hype.

But Openwave made a profit this quarter. And it wasn't just a profit--it blew the Street away.

First Call analysts expected a loss of 3 cents a share. What the company reported was a gain of 9 cents a share and revenue for 2001 that will be $60 million more than expected.

"This is definitely marking a progression onto a new milestone," said Matt Finnick, analyst with Thomas Weisel Partners. "Openwave's results show that the wireless Web is very similar to where the Internet was five years ago."

Now the same industry that has been a victim of its own unreasonable expectations is starting to gush, just a little, because Openwave's way of making cash depends in part on the total number of wireless subscribers accessing the Net using phones. That makes Openwave's success a good barometer for the wireless industry.

The company's most valuable product is its micro-browser software for cell phones, which it provides free to cell phone makers to embed in their products. The browser is based on WAP (Wireless Application Protocol) but also operates on any of the five other standards wireless players still cling to, according to the company. Executives estimate the browser is embedded in 70 million cell phones worldwide.

Openwave's WAP browser lets a cell phone customer reach wireless servers run by companies like Sprint, Verizon Communications or British Telecom. Customers are charged for Internet access and any other of the trappings of the Web, such as e-mail services or synching services for handheld devices. The carriers then give Openwave a percentage of every dollar that a wireless Web customer pays the carriers.

"When we came up with this three years ago, people thought we were crazy," said Openwave Chief Financial Officer Alan Black.

Openwave was created from the merger of Phone.com and Software.com.

see Special Report: A high-wireless act Jupiter analyst Joe Laszlo said that not only does Openwave "sort of highlight this trend toward more and more deployment of data-enabled phones," but it also may be responsible for companies like America Online exploring a wireless presence.

Last week, AOL continued its push into the wireless market, announcing it was licensing Nokia's browser technology. Laszlo thinks Openwave's dominant market position could be threatened if AOL does as it says--add enhancements like instant messaging to the Nokia browser.

"Other carriers might go in that direction," he said.

Openwave's success is tied directly to how much control carriers want to give up, and carriers historically have had a white-knuckle grip on their customers and what they get, said Ron Gerber, chief executive of wireless consulting company Angelbeat.

"How much control do carriers want to give?" he asks. "Right now they clearly want to work with Openwave. But they could have some longer-term concerns about competitive issues."