Within a sprawling office park surrounded by the dry, dusky flatlands of California’s SacramentoValley, All Phase Security watches its workers through the cell phones they carry. South Region Vice President Herb Schwieger stands in the training room of the company, which employs over 200 guards at various high-security buildings across the state.

Mr. Schwieger turns on an electronic white board to illuminate 30 or so dots plotted across an illustrated map of California. “See this guard?” he says, pointing to a black dot hovering near a series of lines representing roads. “Say he walks over to that Taco Bell down the road. I just pick up the cell phone,” he continues, miming how he would whip out one of the company’s Nextel-supplied mobiles to give the guard a quick reminder that the watchmen themselves are being watched.

Though All Phase’s guards might not always enjoy the company’s all-seeing corporate eye chastising their fast food fixes, the wireless service—which can aid in monitoring productivity and enforcing safety—represents a new and largely untapped revenue source for U.S. cellular carriers.

People across the globe already use location-based cellular services—applications that pinpoint a cell phone through an embedded GPS chip or by the phone’s distance from cell towers. The service can track employees, locate children, get turn-by-turn driving directions, or be used for location-based social networking.Carriers in Japan and South Korea, for instance, have millions of subscribers paying monthly fees for services like KDDI’s “EZ Navi Walk,” which uses GPS-embedded handsets to get real-time audio directions for wandering pedestrians.

That kind of popular service and added revenue boost is exactly what European and U.S. service providers are after. ABI Research estimates that the global location-based market will grow to $8 billion in 2010, up from $981 million in 2005.The Asia-Pacific region currently accounts for 55 percent of the world’s subscribers, compared to North America’s 5 percent.

The successful deployment of location-based services could add millions to the top lines of U.S. carriers, if they’re willing to lay out the necessary cash to implement the technology—and then, only if they time it right.

In Europe, location-based services were introduced in the late 1990s with lots of hype, only to fall by the wayside as customers failed to subscribe. U.S. carriers are walking a fine line, trying to emulate the success of their Asian counterparts while avoiding the mistakes of European carriers—and making sure their offerings will appeal to a culturally different U.S. market. Getting the right mix could be a crucial play in the wireless market as the top three companies—Cingular, Verizon, and Sprint Nextel—jockey for market share.

“Not successfully getting into the location industry will shut the door on a lot of potentially attractive revenue streams,” says Allyn Hall, director of the wireless research group at research firm In-Stat MDR.

No matter how precise the offerings are, some critics say the adoption of location-based services in the United States—and Europe, for that matter—won’t be as aggressive as in the densely packed areas of Tokyo or Seoul, where cellular subscribers depend on location in their daily lives.

The buzzing U.S. industry says its consumers just need more education on the benefits of location, and—of course—a little more time before they’ll start paying for the services.

The Asian Experience

In Japan, KDDI already has an estimated 6 million paying subscribers to its more than 130 different location-based services. Though KDDI’s EZ Navi Walk service only costs around $3 per month, the pedestrian navigation application has been so popular that the company credits it in part for a boost in market share in the first year the service was launched.

KDDI says it saw a substantial gain in net new subscribers between 2003 and 2004, which was substantially larger than the amount of subscribers the company attracted the prior year, though it won’t give a specific number.

The addition of the service helped KDDI to best its biggest rival NTT DoCoMo in subscriber acquisition for the first time ever.Other firms soon launched their own location services to keep up with the competition. Now, analysts like ABI Research’s Kenneth Hyers say that location-based services are a mandatory offering on Japanese cell phones.

In South Korea, SK Telecom is estimated to have 12 million to 15 million GPS phones with 150 location-based services. Applications like the company’s child-tracking service, called i-Kids, proved so popular that the company recently began selling the service overseas. In May, the Netherlands’ SF-Alert bought the service for 390 million KRW ($380,000), and SK Telecom decided to take a 20 percent stake in the company. Analysts, including Mr. Hyers, say that SK Telecom will likely push location-based services in the U.S. when it launches cellular services in the spring of 2006.

But analysts like InStat’s Mr. Hall say that SK Telecom will be lucky to see the same level of adoption of its services in the U.S. as it has in South Korea. “Japan and South Korea are pretty unusual markets with a willingness to pay for services like that,” he says, pointing out that several U.S. companies have struggled with child-tracking services in the U.S. “But then again, the technology in the U.S. has not worked great without GPS—without GPS you don’t have effective location-based services.”

Cell phones with an embedded GPS chip can be located within tens of meters of accuracy, while cell phones using the three closest cell towers (a method called triangulation) to locate the phone can only achieve within hundreds of meters of accuracy. The greater the accuracy, the better the service—and the more likely it is that people will pay for it.

Europe’s Missteps

In Europe, it has been the same story, with inaccurate technologies and few subscribers signing up. When location-based services were first hyped in Europe in 1998, the theory was that mobile phone users would willingly pay premium rates for data services that would pinpoint their location and help guide them to the nearest restaurant, theater, or store. Analysts predicted that the European market for such services would be worth anywhere from $13 billion to $33 billion by 2005.

But the network technology was only as close as the cellular towers could muster, and most customers didn’t seem interested in using the services for free, never mind paying for them. Market estimates diminished from billions to millions over a few years. In hindsight, say analysts, location-based services were hyped before the technology was ready.

ABI’s Mr. Hyers says that Europe’s attempts stumbled because the location technology was only accurate within a 500- to 700-meter range. But he thinks that the Europeans will launch more accurate wireless location-based services when the European Union tosses up Galileo in 2008, Europe’s version of the U.S.’ GPS.

While the tech problems are being solved, the industry is still struggling to find the right business model. Analyst surveys now show that European consumers aren’t willing to pay more than the price of a short messaging service (SMS) for data services, far less than the euro apiece that operators originally envisioned.

But that isn’t stopping European carriers from deploying services. Analyst Johan Fagerberg with research firm Berg Insight say the carriers Megafon in Russia and TeliaSonera in Sweden have seen success with a location-based cell phone game called Botfighters. In the futuristic role-playing action game, thousands of players meet online and then take the game to the streets through location-enabled mobile phones. The creator of Botfighters, the Swedish game company It’s Alive, calls the game the first location-based massive multiplayer online role-playing game, and hopes to get part of what Mr. Fagerberg estimates will be a $333-million market in Europe this year.

Slow U.S. Start

In the U.S., the slow rollout isn’t only because carriers are dragging their feet. Federal regulators have mandated location technology for cellular phones so 911 dialers can be located, but crippling capital costs—an estimated $1 billion per carrier—and technological glitches have caused endless delays.

For most carriers, the mandate’s deadline looms at the end of this year, but a vast number of mobile emergency calls still can’t be located. With carriers spending so much money on the 911 networks, more advanced revenue-generating services could be even further behind.

Beyond technical roadblocks, carriers are moving slowly for fear that U.S. consumers could shy away from location-based services’ “big-brother taint”—a real-time people locator in the wrong hands could be a company’s worst nightmare. Add that to a basic lack of familiarity with the technology in general, and most customers aren’t even aware that cell phones have GPS capabilities.

When the services do materialize, they will likely run anywhere from $2 for a onetime turn-by-turn driving service, to as high as $20 for an advanced all-you-can-eat high-speed data service, says Scott Pomerantz, CEO of global positioning firm Global Locate in San Jose, California. That’s not quite a cash cow, but if the service finds popularity, a good application could give a carrier a competitive edge.

So far, only the recently merged Sprint Nextel offers services in the U.S. beyond the basic locator necessary to locate people in the event of an emergency.

Before the recent Sprint merger, Nextel had 350,000 paying subscribers for its GPS navigation and tracking applications, says Clem Driscoll, president of research company CJ Driscoll & Associates. That’s a decent number, given that the company only counted roughly 15 million total subscribers before the merger, and was working against the grain of a nascent U.S. market. Services can cost anywhere from $10 to $60 per month and up, depending on complexity. Business customers are an even better bet, for now, than a consumer play, due to the higher fees businesses are willing to pay, says Mr. Hyers. Location sales helped Nextel lead the average revenue per user, and 90 percent of the location money comes from businesses like All Phase.

The security company is a typical customer for Nextel’s location-based services—a small- to medium-sized business with a mobile workforce and a management team that wants to use the tracking technology to cut costs and attract more customers.

All Phase CEO Keith Garrett says that with the new cellular system, the company has saved some tens of thousands of dollars that would have been spent on additional personnel. Beyond just the savings, though, “locating the guards has been critical”—the technology enabled the company to locate one security guard after he was shot and severely wounded and unable to tell emergency services of his whereabouts, says Mr. Garrett.

In the U.S., businesses like All Phase are proving to be the very first wireless location-lovers, as the technology can add productivity by tracking workers. Mr. Driscoll predicts that businesses will continue to buy into location, and forecasts that by 2009 workplaces in the U.S. will use more than 2 million GPS-equipped cell phones for tracking applications alone.

Mr. Driscoll also thinks that U.S. consumers will be interested in applications like turn-by-turn driving directions or child-tracking phones, if the companies can find the right service. ABI’s Mr. Hyers agrees that the concept of wireless location could have an attractive pull for the average U.S. consumer. “If I could have a magic ability to know where my kids are at all times, I would pay almost any amount,” he says. “Most American parents would.”  

Emergency Glitch

These types of advanced services are a ways off, considering the difficulties of getting just the basics up and running. Carriers have fought tooth and nail to delay the deployments of location-capable networks, like the one required for 911 calls, because of the high costs.

But they have no choice. The National Emergency Number Association (NENA), a nonprofit watchdog for 911 services, lists over a dozen tragic stories on its web site where 911 callers were unable to receive critical help because they couldn’t be located. As cellular subscribers in the U.S. approach 200 million, the U.S. Federal Communications Commission has been forced to respond to growing public concern. In the late 1990s, the FCC issued a mandate requiring that 95 percent of cell phones from Verizon Wireless, Sprint, and Nextel must be able to be located within 150 meters by the end of this year. Cingular and T-Mobile, which chose a different network-based location technology, will have to comply in a similar timeframe, but within a range of 300 meters.

Carriers will likely concentrate on meeting the mandate before rolling out more advanced services. In the meantime, they’re eyeing the sales from location-based services in the Japanese market, as well as Nextel’s growing subscriber base in the U.S., as a way to recoup the cost of location-based networks.

In-Stat’s Mr. Hall says that the next few months will be filled with crucial choices that will likely determine each carrier’s move, and whether or not U.S. consumers and businesses will substantially adopt location services. “Now is the time when companies are making some pretty serious decisions, and if they are right, they’ll do well,” he says. “If they’re wrong, they may yield some market share to competitors in a long-term, painful way.”

The Battle Begins

By 2010, ABI expects North America to account for 12 percent of global location-based subscribers. By that time, companies will have a lot more to gain—or lose—from their competitors.

For now, Sprint Nextel clearly leads the pack as the only carrier in the U.S. running location-based services of any kind. Nextel, determined to create differentiated services as a smaller carrier, launched such services in 2002. “We took the [911] regulation and turned it into a competitive advantage,” says Mary Foltz, Nextel’s director of location-based services. Sprint launched its own service for the enterprise last May. The combined entity could maintain its initial lofty foothold by combining Nextel’s main base of business customers with Sprint’s roughly 20 million consumer subscribers.

But the new company will have to battle the two bigger carriers. If Cingular and Verizon Wireless launch services that prove popular in the coming months, their combined almost 100 million subscribers could dwarf Nextel’s small 350,000 LBS subscribers. Ms. Foltz says the company will do everything it can to avoid that scenario. “The company really wants to keep the lead, and we are committed to doing so,” she says.

Verizon Wireless will be lurking in the wings ready to eat away at Sprint Nextel’s LBS subscriber base. Sources close to Verizon Wireless say that the carrier will launch location-based services within the next four to eight months, though the company’s official word from spokesperson Jeffrey Nelson is decidedly less specific. “We do not currently offer location-based services, but we believe they will provide strong added-value to businesses and potentially consumers,” says Mr. Nelson.

That said, the companies that are planning to hawk cell phones and services for Verizon Wireless’ location network are already bullish about its upcoming location launch. “I think Verizon is going to be the leader by the end of the year,” says Michael Bordelon, director of location services for Motorola. “They will get at consumers faster than the other guys will and quickly establish a large footprint.” Motorola already supplies location-enabled handsets to Nextel.

As the largest wireless carrier in the U.S., Cingular has the potential to dominate the location space. But industry executives say the carrier has made a series of technical choices that could potentially limit its ability to run targeted location-based services. Several years ago, Sprint, Nextel, and Verizon Wireless all chose to attempt to meet the federal mandate by adding GPS into their cell phones. At the same time, Cingular bet on a technology that the company was forced to ditch at the last minute after it failed 11th-hour tests.

That’s a familiar tale to industry executives who watched Cingular’s missteps. “It’s very hard on a carrier to spend over a year on a solution and then all of a sudden realize it won’t work,” says Tom Wrappe, senior vice president of marketing for wireless location company Polaris Wireless inSanta Clara, California. Now, the company says it is using an enhanced version of the cellular tower solution that can only track phones in a range of hundreds of meters.

However, analysts say that range will not allow a carrier to offer customers precise services. “Assuming that [Cingular] can meet the constraints of E-911—and there is a debate on that—they clearly cannot drive location-based services for applications like turn-by-turn driving directions,” says Global Locate’s Mr. Pomerantz. However, some analysts like ABI’s Mr. Hyers think that the pressure to offer services will force Cingular to start offering a GPS cell phone solution in the coming months.

Privacy Concerns

Even if carriers get the technology figured out, they might face the biggest hurdles from the consumers themselves. Industry executives say that U.S. cell phone subscribers are largely unaware of the benefits that location can provide. And when they have heard of a location service, privacy concerns are a major roadblock.

The carriers need to tread slowly, on the one hand widely advertising the benefits of location services, but at the same time making sure the companies understand and address consumers’ privacy concerns. “Imagine a carrier’s database for a child-tracking service somehow accessed by a child molester, or disgruntled spouses abusing the system to track one another. A company could lose millions of customers overnight,” says Mr. Hyers.  

To alleviate consumer fears and security concerns, Sprint Nextel offers consumers three different levels of privacy. One setting always provides the location, another setting provides the cell phone’s location on request only, and a third turns the location setting off. Choices might ease some worries, but carriers are still holding back consumer services in order to make sure security systems don’t fail. That’s one reason that Nextel offers 90 percent of its location-based services to businesses—employees like those at All Phase really have little choice while being tracked on the clock.

Roughly 100 miles from All Phase’s Sacramento office, a 25- by 50-foot bright-yellow sign frames the entrance to San Francisco’s BayBridge, hawking Nextel’s GPS-embedded Blackberry. The company will commit millions in advertising over the coming months, convincing subscribers to upgrade phones to location-enabled handsets and marketing services for which the company thinks businesses and consumers will pay. All of the buzz will raise the profile of wireless location-based services, as other carriers make moves into the industry. But whether location-based services will raise the profits of American carriers is still an open question.