Wildcatters, who have come to Iraq amid reconstruction in search of paying cellular subscribers, face worse hazards than this. Saad Al Barrak, CEO of MTC Group, a Kuwaiti company that runs MTC Atheer, Iraq’s third-largest cellular network, says his company has spent close to $20 million on network and staff security. The remark echoes a point made last year by Phil Moyse, CTO of Asiacell, Iraq’s second-largest wireless service run by Kuwait-based Wataniya—that the risk of bombings and kidnappings are part and parcel of running a wireless network in the country.

That’s on top of the usual political instability, disorganized regulatory frameworks, and rampant corruption. But for all the headaches, the market has grown to around 3.5 million to 4 million subscribers (top end, that’s 14 percent of Iraq’s 28.1 million people) in a little over two years. The figures suggest the cellular business could be spectacular if Iraq managed to achieve stability.

With that kind of potential, telecom companies aren’t sitting around. Asiacell, Atheer, and Iraqna received cellular licenses in late 2003 from the United States-led Coalition Provisional Authority and have each spent hundreds of millions of dollars building networks from scratch. Most of them seem to be making real money.

The cellular licenses awarded by the CPA in 2003 were originally set to expire last month, when they were supposed to be re-licensed by the new Iraqi-led National Communications and Media Commission. Delays have pushed deadlines back, as the NCMC grapples with various issues, including awarding licenses for Wireless Local Loop—technology designed to replace local phone lines. If all goes to plan, the NCMC could end up overseeing one of the first countrywide wireless deployments of this type in the world.

When all this will happen is unclear. In its fledgling state, the NCMC is struggling to determine the country’s telecom future with little experience and few resources. It also has the shadow of the old CPA licensing process to contend with, a system criticized for a lack of transparency.

Wireless War Zone

Many remember Nick Berg, the 26-year-old freelance telecommunications worker beheaded on camera by Islamic militants. The cellular networks, with large base stations dotting the landscape, are easy targets for groups looking to do harm to the country’s rebuilding process and to those doing the rebuilding.

Danger reaches beyond site engineers. Mr. Moyse, for instance, wouldn’t have business cards in case they fell into the wrong hands; he also avoided being photographed lest he became a recognizable target.

Besides the usual risks associated with the war, there have been accusations of assorted backroom deals over licenses and other things between operators and U.S. officials. Then standards came up for debate: San Diego-based Qualcomm was rumored to have lobbied hard for its CDMA technology—though the networks ended up with GSM, the prevailing standard in the Middle East.

Despite huge challenges, plenty of companies are fighting for a piece of the cellular market. For starters, Iraq is one of the larger countries in the booming Middle East telecom market. Together the Middle East and Africa are projected to generate $76.1 billion in revenue from telecom services this year, according to the Telecommunications Industry Association—$27 billion of that wireless.

Iraq, with 14 percent of the population on cellular at best, also has lots of growing to do—compared to Jordan with 30 percent, and Saudi Arabia with 44 percent, according to TIA.

That said, Iraqi subscribers deliver nice yields—thanks to war wiping out most of the country’s fixed-line infrastructure. According to top local provider Iraqna, owned by Egypt’s Orascom, the company brought in an average of almost $20 per person for its 2.17 million users in 2006—as against Orascom’s Egyptian network, which took in less than $11 from each of its 2.18 million subscribers. Its slightly larger Pakistani network took in $6 per subscriber over the same period.

Rogue Operators

The three already-licensed companies hope to expand their networks across the country, provided they receive new licenses. But they aren’t the only ones with that aim. Kurdish operators Korek Telecom (with subscribers estimated in the hundreds of thousands) and Sanatel—considered rogue companies despite substantial user bases—could also bid for licenses. The government’s fixed-line operator Iraq Telecommunications and Postal Commission, ITPC, could also bid for a license. Other companies like Turkey’s Turkcell and Russia’s Sistema Telecom are also rumored to be interested. That’s a lot of competition for a rocky country with fewer than 30 million potential subscribers.

More than three licenses would be a threat to the three incumbents, and they haven’t been shy about saying so. Iraqna and MTC Atheer have posted comments on NCMC’s web site that urged the agency to keep the re-bidding process relatively closed.

But John Everington, an analyst at Informa Telecoms and Media, says re-bidding on licenses is an important process that “to a large extent will determine the future of telecommunications for the country.” And he commends the NCMC for its efforts to make the exercise transparent. Yet he wonders if current plans are practical, given the unstable situation.

“A telecom franchise in a post-conflict economy can be a license to print money,” says Ken Zita, founder of consultancy Network Dynamics Associates. Mr. Zita knows of what he speaks, having played a role in shaping Afghanistan’s telecom and Internet environment. (After spending over $180 million building its network, Afghan operator Roshan claims 1 million customers, occasioning the firm’s CEO Karim Khoja to claim in April that his company is doing no less than “building the middle class in Afghanistan.”)

Mr. Zita, in fact, turned down opportunities to help the U.S. government on Iraq’s telecom reconstruction because he opposes the Iraq war. But he says Iraq’s new regulatory agency needs a firm road map to transition between the CPA and Iraqi organizations like the NCMC. And beyond the upside of entering emerging markets, Mr. Zita warns investments in these high-risk areas can vanish in a flash if the political, regulatory, or security situation changes dramatically. He compares Iraq’s regulatory uncertainty to China’s in the mid-1990s, when several companies made investments in the emerging cellular market and lost millions.

Certainly, Iraq’s three cellular operators aren’t afraid to invest. MTC Atheer has spent $430 million on its Iraq network since March 2004 and plans to spend more as demand grows for services across the country. A year after Asiacell launched its network in October 2003, the company had spent $135 million (more recent figures aren’t available); and Iraqna spent $29 million on capital expenditures in this year’s first quarter alone.

Global wireless infrastructure companies like Motorola and Lucent are also getting a piece of the business, working with the carriers to build the networks. Motorola could not be reached on the subject of Iraq for this story, but MTC Group says its contract with Motorola in Iraq is worth $170 million. Asiacell has stated it has contracts with China’s Huawei and Germany’s Siemens for its telecom infrastructure.

Every company dreams of making it big in a virgin market. If Iraq’s cellular operators can get around the bombings, the politics, the backroom deals, and the chaos, it’s conceivable they could win big. And if they succeed in rolling out extensive networks, the Iraqi people could end up the biggest winners. High time they won something.

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Crying Poor?

How do you prepare the ground for a high-growth wireless market? Get the United States to bomb the country’s landline network to smithereens first, goes one theory.

Certainly, wireless investments in Iraq look like they are starting to pay off—within just two years of going up. Egyptian telecom Orascom attributes 13 percent of its first-quarter 2006 revenue to its Iraqi wireless unit, Iraqna, which brought in $125.23 million during the period—up 100 percent from the first quarter of 2005. Iraqna’s EBITDA came to $67 million for Q1 2006, 79 percent up on Q1 2005.

Kuwait-based MTC Group reports its Iraqi mobile subsidiary MTC Atheer brought in $69 million in revenue, or roughly 9 percent of group revenue, for the first quarter of 2006—up 240 percent from a year earlier. This year’s Q1 EBITDA was $26 million.

Publicly traded, Kuwait-based Wataniya, which owns 40 percent of Asiacell, reported its Iraq investment reaped $37.3 million in revenue and $7.6 million in profit for the first quarter of 2005.

But incumbent cellular operators say earnings are not as high as they appear, and neither MTC nor Orascom reveal net income in their earnings releases for their Iraqi cellular subsidiaries—and MTC CEO Saad Al Barrak says, “For the time being it is impossible to make a profit in Iraq” because of capital outlays and security costs.

Iraq’s regulator disagrees. Siyamend Zaid Othman, CEO of the National Communications and Media Commission (NCMC), was quoted in RCR Wireless, a trade publication, as saying the incumbents were crying poor to stall upcoming licensing hearings and to keep competition out. “Ask any of these mobile operators, ‘Have you recouped all of your investments and made huge profits in just under two years?’ Now this is phenomenal,” he told the publication. “I don’t think this has happened elsewhere.”

MTC dismisses the claim. “We have been extremely cooperative with NCMC,” Mr. Barrak counters. “No company can stall the government in a vibrant sector such as telecoms.”

In the industry’s less vibrant days, state and private monopolies did exactly that for years, of course.

Contact the writer:editorial@RedHerring.com

The fund, managed by four partners, will invest in up to six early-stage mobile deals, of perhaps $1 million to $3 million each, by year-end. Compared to Sprint’s $34-billion yearly revenues, that’s not a big pile, but Mr. Ford hopes the investment will lead to important innovation.

The mobile work force, commerce, advertising, and entertainment are a few of the areas Mr. Ford says he’s eying, though he probably won’t be alone. Sprint may be new to venture but it’s hardly a pace-setter—Vodafone, Intel, Cisco, and Qualcomm all have investment units patrolling some of the same ground.

Corporate venture funds have to balance near-term return on investment with longer-term tech innovation, of course. Unlike a pure venture firm, corporate VCs need to both bring innovation into the mother ship and make some money. “We’re going to avoid the key measurements of ROI,” says Mr. Ford. “We’re not just focused on 10X returns.”

If Mr. Ford can do both, he should be in good shape. Gary Dushnitsky, assistant professor of management at the University of Pennsylvania’s WhartonSchool, says Sprint will have to sort out what kind of startups it’s after. “Are they looking for potential acquisition targets? Or complementing technologies?” Mr. Dushnitsky wonders.

On top of defining the search, corporate venture firms sometimes struggle with early-stage startups. Young startups with valuable IP worry over how much proprietary information to divulge to the corporate firm, Mr. Dushnitsky wrote in a research note. That could be a problem, and push the promising young companies toward non-corporate partners.

Mr. Ford is pretty quiet on the direction of the new fund. “Our hope is that Sprint’s venture focus will help the local area,” he says. But if ideas don’t start jumping out of the corn fields, he’s prepared to make regular visits to Silicon Valley. “We are very well networked in the Valley,” he says.

Contact the writer: KFehrenbacher@RedHerring.com

A half-decade later, though, a maturing online travel industry is facing new challenges from startups and airline suppliers. While Expedia, Travelocity, and Orbitz control 77 percent of the online travel agency market in the United States, ferocious competition is chipping away at their market share. According to a report from travel research firm PhoCusWright, released June 6, Expedia, the largest site in the U.S. and the United Kingdom, lost 5 percent market share in the first quarter, compared to the same period a year ago. Even worse, Expedia announced a 51 percent drop in first-quarter net income, which sent its shares plummeting 26 percent.

That’s not to say consumers are moving off the Internet for their vacation plans. Far from it. According to a comScore report, also released June 6, annual online travel revenues exceeded $60 billion in the U.S. in 2005, a 20 percent increase from the prior year. It’s just that consumers are slowly shifting their travel dollars away from the Big 3 sites to supplier sites run by companies like Southwest Airlines and Marriott Hotels. According to comScore, Southwest’s site landed in fifth place among the most visited travel sites in April.

Then there’s the bevy of new online travel startups that venture firms have been pumping full of cash. In the second week of June, Gusto said it raised $4 million mostly from investor William Darr for its personalized travel site, and Viator brought in $4 million from Carlyle Venture Partners and Technology Venture Partners. Other online travel startups like Kayak and Mobissimo do searches of Expedia, Travelocity, and Orbitz for consumers. Some sites concentrate on niche travel markets, like luxury travel or Caribbean travel.

Suddenly, the online travel industry is getting as crowded as Daytona during Spring Break. Or at least that’s what venture firms have decided. But that also means the dominant players will have to be that much more nimble to defend their turf. If the Expedias of the world don’t keep up, they’ll be the ones that need a vacation.

The company hopes to raise its profile in a more positive way next week when the much-anticipated Sidekick 3 goes on sale, the company said on Tuesday.

T-Mobile will start selling the device to its customers on June 28 and to the general public on July 10. The device is priced at $299 with a two-year contract, $349 with a one-year contract, and $399 with a prepaid service plan. The service pricing will also include the cost of any of T-Mobile’s voice plans, plus an additional $20 per month for an unlimited data plan.

Palo Alto, California-based Danger also sells its communications service under the brand Hiptop through other wireless carriers, but the Sidekick brand sold through T-Mobile makes up much of the company’s sales. Danger works with manufacturers like Sharp that make the device.

Filling a Niche

Mobile email and IM lovers bought up the Sidekick and Sidekick 2 in droves, and the devices filled a niche for young data-hungry users who wanted to stay connected. Marketing plans helped by giving the Sidekick to a slew of young celebrities like Paris Hilton who endorsed the product.

Companies like Research In Motion, Good Technologies, Visto, Nokia, and even Microsoft, have been battling each other over business-targeted email customers, while young consumers have been less sought after.

“The whole concept of the Sidekick 3 was to stay true to form and stick with messaging,” said Danger spokesperson Matthew Flegal. The target audience is once again the 18- to 34-year-old, young adult, mass-market consumer, said Mr. Flegal.

The device will also include significant upgrades. The Sidekick III will have enhanced multimedia uses, including an MP3 player and more photo functions. In addition the device gets a new track-ball scroller, a higher-speed wireless connection using EDGE broadband, and integrated Bluetooth.

Analyst John Jackson with Yankee Group said, “There’s every reason to expect that the Sidekick 3 will be as popular as the Sidekick 2.”

Dangerous Business?

Danger does not disclose its sales or number of devices sold, but in an interview with Red Herring last November, CEO Hank Nothhaft said the company was not yet profitable, but expects to be so by the end of 2006.

Over the past few years the company raised $110 million in venture funding from companies like Mobius Venture Capital, Redpoint Ventures, T-Ventures, Softbank Capital, Motorola Ventures, and Orange Ventures, among others.

Mr. Jackson said given the price at which the company is selling the device, “it is not likely the margins on their hardware are particularly high.”

Likely the company hopes strong sales of the newest device will boost the company into the black.

And as far as added security goes? Mr. Nothhaft said in November that the company “spends a lot of time making the system secure.”

That’s good news for celebrities who no doubt already have their Sidekick 3’s in tow. At a launch party in Los Angeles on Tuesday, there’ll likely be enough incriminating photos on the devices to entice any interested hacker.

Contact the writer: KFehrenbacher@RedHerring.com

The move reflects Netscape’s attempt to bring visitors back to the AOL-run site, which saw its number of unique visitors drop by 25 percent over the past year, according to comScore Media Matrix.

Netscape’s social news approach follows the success of startups like Digg and Newsvine, which are building businesses by aggregating news.

Digg already has 9 million page views per day and is profitable, according to CEO Jay Adelson. It’s growing with the help of a community of users who actively submit and rank news stories.

Like Digg, the retooled Netscape site will only feature stories that readers have submitted, and the stories will rise and fall on the page according to a combination of statistics like number of votes, comments, page views, links, and length of time viewed.

Unlike Digg and Newsvine, Netscape will also rely on several editorial staff members called “anchors” who will play key roles in ranking, monitoring, and guiding content that comes to the site.

The decision to retain some level of editorial control over the site is a way for a large corporation like AOL to use social media tools without risking some of the pitfalls of crowd-driven news. AOL and, importantly its parent, Time Warner, have good reason to fear missteps.

AOL bought Netscape for $4.2 billion in 1999, the year before the bubble burst, and within months merged with Time Warner in a deal originally valued at $165 billion. Together AOL and Time Warner had a combined market cap of $350 billion when the deal was struck, but Time Warner’s value today is only about $71 billion.

News Filter

AOL exec Jason Calacanis, whose two-year-old company Weblogs Inc. was acquired by AOL last year in a deal reportedly worth $25 million, was tasked with retooling Netscape (see AOL Nabs Weblogs Inc.). He said the anchors will help keep salacious or inaccurate news from reaching the top of Netscape site.

While Digg has a flagging system that enables users to report inaccurate or questionable stories, Mr. Calacanis dismissed Digg’s approach as “one dimensional.” AOL needs a more sophisticated tool, he said.

Digg founder Kevin Rose joked that Netscape’s editorial team might be there more to stop anti-AOL stories from hitting the top of the charts.

Mr. Calacanis said the anchors will act more as moderators than filters. None of AOL’s editorial content will be given preference over any other content that comes into the site, he promised.

Mssrs. Rose and Adelson said their site isn’t interested in adding an editorial layer. Newsvine CEO Mike Davidson concurred, saying: “Newsvine is philosophically opposed to editorial control.”

More than anything, Newsvine and Digg execs seemed eager to see Netscape’s launch. They said Netscape’s plans validate the markets for social news sites.

Mainstream MediaWhile the startups have the luxury of being able to let the crowd control the space, Netscape has to please both its 11 million unique visitors per month and Time Warner’s famously unhappy shareholders, who largely blame the acquisition of AOL for their stock’s long slumber. Keeping some level of control is a no-brainer.

And Netscape’s readers are very mainstream, compared to readers on sites like Digg, meaning they actively read all types of news across topics.

Digg readers pretty much stick to geeky tech stories, and are a select community of readers. For example, on Wednesday night the top story on Digg was leaked screenshots of Digg’s own third generation of its web site, which the company plans to release next week.

Digg execs said the upgraded version could help the site branch into the mainstream and could emphasize broader news categories, but would not specify details.

The leaked screenshots published by ValleyWag.com show new categories like “Business” and “World News,” suggesting Digg’s new version will try to target the mainstream reader.

Mr. Calacanis isn’t quiet about his admiration and praise of startups like Digg. He even said he tried to invest in the company several years ago. Digg’s Mr. Rose said the discussion was “more on the lines of he wanted to buy us.”Both he and Mr. Adelson said there’ve been many discussions with many media companies.

Interestingly, Digg received funding from Netscape’s original founder Marc Andreesen, an entrepreneur who has started several media businesses.  

Contact the writer:KFehrenbacher@RedHerring.com

The service is the most conservative of the child-tracking services that are being offered by major wireless companies, which are hoping to use GPS-embedded phones to sell location-based applications.

Sprint’s Family Finder service became available in April, and Disney’s mobile service will include child-tracking capabilities when it launches this month (see Sprint Starts Tracking Kids and Mickey Goes Mobile).

Verizon Wireless said its Chaperone application will sell for $9.99 a month for a basic plan and $19.99 for a plan with more features. It will only be available with the Migo, the LG-manufactured kids phone.

Chaperone is also only available through the Family Shared Plan, which the company said will “help restrict unauthorized use of the service.” And it won’t be sold over the Internet, in order to avoid “deliberate misuse,” the company said in a statement.

Verizon Wireless is moving carefully, looking to avoid any potential security or privacy concerns.

Industry execs said the Chaperone service was ready for months as Verizon deliberated over legal concerns, eventually opting for a highly restricted plan.

Verizon Wireless’s precautions could pay off by convincing parents to pay for the service. Parents are likely just as concerned as the carrier to ensure the service is not liable to security lapses.

LBS

While Sprint, now combined with Nextel, is the carrier that has embraced location-based mobile services most aggressively, Verizon has been following up with a strategic move of its own.

All the U.S. carriers have been looking to offer more and more consumer-targeted location-based services recently, following an earlier play for business-based LBS applications.

Beyond Chaperone, Verizon also offers a Navigation service that offers turn-by-turn driving directions over select cell phones.

In the United States, Cingular has been quiet on any plans to offer location-based services, and analysts speculate the carrier will have to start playing catch-up soon.

Sprint also offers a navigation service, powered by TeleNav, the Santa Clara, California-based startup.

Telenav recently raised $30 million in venture funding from Menlo Ventures, Lehman Brothers Venture Partners, iGlobe partners, and Sycamore Ventures.

Contact the writer:KFehrenbacher@RedHerring.com

Serial entrepreneur Rodger Desai swears he’ll be a do-gooder again. He once helped launch a micro loan company program for women in developing countries, and another time helped forge a cellular service that monitored disease data in Iraq. The 34-year-old entrepreneur’s current mission might be less lofty, but it could change the social and academic lives of American college kids.

Mr. Desai’s New York City-based startup Rave Wireless is using cell phones to help students do things like find campus keggers, locate local restaurants, write mobile blogs, and keep connected with university programs. The startup creates and runs wireless applications accessible from college students’ cell phones.

Rave is a blend of some of the fastest-growing and most generously funded tech trends in the Valley. Combine the ubiquity of cell phones with GPS and Internet-based social networks, and you can see why Mr. Desai has already raised $17 million from investors like Bain Capital. He’s also chosen a valuable market—universities—and so far has managed to convince 35 of them to sign up.

He’s launched services with SprintNextel, and he plans to follow suit with other major carriers in the coming months. He’s even piqued the interest of Microsoft, which wants to slip its mobile software onto every Rave handset.

Dorm Phone RIP

Rave has been on a rapid roll since it was founded 18 months ago “to help organize a student’s life socially and academically based on the in-the-moment lifestyle of today’s kids,” says Mr. Desai. The company creates mobile software for both social and academic applications, and students can access information through both text messages and mobile Internet browsing.

Its GPS-enabled “mood” applications enable students to locate each other through moods like “bored”, “hungry”, “scared”, or “studying”. Like the “presence” function on IM, students can set their phones to match a certain mood and find friends who are feeling the same.

Mr. Desai has positioned Rave between a trifecta of deep-pocketed players—the carriers, universities, and Microsoft—and has chosen a valuable vertical, college kids. He may have a winning formula; the dorm phone is slowly going extinct, cell phone users are increasingly using data services, GPS-enabled location-based technologies are finally hitting the market, and kids are flocking to social networks.

The carriers want to attract college student customers, as well as raise the number of data users in their subscriber bases. In turn, the carriers are willing to upgrade the campus wireless network so that students can get calls even in dorm rooms and students calling 911 can be located by emergency officials. Craig Carroll, Sprint’s national director for education, says the cost of building networks around campuses for Rave could cost between $30,000 to as high as $1 million per campus in some cases.

Microsoft also sees the potential to get its mobile software onto cell phones used by millions of college kids. Bill Hagen, Microsoft’s mobile solutions specialist, says Rave’s services are aligned with Microsoft’s “MSN Windows Live at EDU” strategy, which includes specialized email and IM applications targeted at students. Mr. Hagen refuses to divulge too many details of how the integration will work. But it’s likely that Rave-enabled phones could work in conjunction with Microsoft’s Windows Mobile, or could help Microsoft expand its Internet-based IM service onto cell phones.

Universities and parents are also looking for a way to stay connected with kids, and Rave helps school administrators send messages and campus alerts. In fact, one in five universities using Rave’s service requires students to carry phones with Rave’s embedded software. That could irritate incoming students who have to give up existing cell phone plans, but many colleges are thinking cell phones should be mandated like laptops.

Students are hardly big spenders, however. Rave gets around that problem by targeting universities as its customers. The Rave service is passed to parents on the university bill. It’s the sugary cereal approach—sell to parents, market to students.

Bob Davoli, a partner at Rave investor Sigma Partners, crows about how big he thinks the company can grow. “There are only a few companies that can be verbs like Google: Have you Raved yet?” he says awkwardly, and optimistically sets the subscriber number at a modest 10 million.

MoSoSo

With growth targets like that, other startups and established Internet brands are also rushing to Rave’s space, which the industry calls “mobile social software.” The market is so trendy it’s even got its own cutesy moniker—MoSoSo. Venture capitalists are funneling money into startups like WaveMarket, Intercasting, and flipt that use location-enabled phones to run social networks and community-based wireless services. Tasso Roumeliotis, the CEO of Rave competitor WaveMarket, calls all the attention to the sector a “VC frenzy.” And everyone knows how VC frenzies end—with badly misplaced investments.

It’s no surprise that financiers are drawn in. Mobile data usage is the fastest-growing and most lucrative sector for wireless operators looking to expand beyond voice calls. Wireless location-based services have finally started to hit the U.S. market over the past few months, with recent launches by Sprint Nextel and Verizon Wireless. Researchers at ABI predict the global market will grow from $981 million in 2005 to $8 billion by 2010.

Then there are the legions of kids who have signed onto social networking sites like MySpace (76 million users), Bebo (24 million), Facebook (9 million), and Tagged (2.5 million). Extending those users onto cell phones is a no-brainer. “It’s a natural extension of the service, which gives users an instant access to the community,” says Colin Digiaro, MySpace’s senior vice president of sales. While MySpace mobile can only be found on niche carrier Helio, the service will likely land on the major carriers next year.

Rave’s biggest competitor could be Facebook, which has launched a text-message mobile service with major carriers and universities in the United States. Facebook has been wildly successful targeting college kids online, and extending that brand onto cell phones is a snap. Facebook spokesperson Melanie Deitch says the company started evaluating mobile services early this year and will soon roll out a wireless application protocol (WAP) feature that will recreate the Internet browsing experience on the cell phone. Ms. Deitch admits, however, that Rave’s university-partnered service goes far beyond Facebook’s immediate plans.

So far, the reaction has been mixed at the company’s first test bed campus, Montclair, New Jersey-based MontclairStateUniversity. One student, 19-year-old Patrick McGrory, says he thinks only around 20 percent of the students on his campus are active users, Mr. McGrory immediately started using the service last fall to launch a mobile blog dubbed “Bored in the Dorms.” Mr. McGrory blogs daily and uses the service often for its GPS-enabled “mood” applications—the “bored” setting helps him find nearby friends, and “hungry” helps him discover local restaurants.

Going Viral

Mr. Desai needs students like Mr. McGrory—early-adopter, avid users who are willing to create content. That’s how the service will go viral and hopefully draw in the same number of users similar to the millions of inhabitants of Facebook. It’s also the way students will start flocking to the service, and see it less as a mandatory top-down service from the school, and more as an entity they created. Right now, Mr. McGrory, as well as 19-year-old student Kalim Sheikh, say students and parents were slightly unnerved when the service and the phones were forced on students at the beginning of the year. But nine months later, both are big fans.

Neither student uses Facebook Mobile yet, even though they are ardent users of both MySpace and Facebook. That could be Rave’s best indicator of success. If the company can keep its first-mover advantage, and leverage its wireless expertise over online-based competitors, it could become the de facto mobile service for college students.

That’s definitely Mr. Desai’s plan. He says the company will be profitable by the third quarter of next year, and has started signing up universities outside of its East Coast base, including the CalStateUniversity group. Cal State Monterey Bay CSO Gil Gonzalez says his university will implement the service next fall not only for students, but also for the administration.

Despite Yahoo and eBay’s recent alliance to defend against Google in the United States, Yahoo has been aggressively competing with eBay in Asian countries such as China, Taiwan, and Japan (see Yahoo, eBay Ally on Ads).

Those moves have caused fierce competition between Yahoo and eBay in Asian markets. Now the rivalry will extend to South Korea, one of the most wired nations in the world.

Yahoo shares climbed $0.34 to $31.04 in recent trading, while eBay shares rose $0.86 to $32.45.

On Tuesday Seoul-based Gmarket filed documents with the U.S. Securities and Exchange Commission signaling that it soon plans to go public and trade American depository shares on the Nasdaq under the symbol GMKT. Gmarket’s IPO could raise as much as $100 million.

According to filings, Gmarket made $72.4 million in revenue and $5.24 million in net income for the year ended December 31, 2005, mostly from transaction fees as well as advertising.

According to the web site tracker Alexa, Gmarket ranks 415, making it a very well-visited site in Korea.

But that ranking also puts Gmarket behind eBay’s Korean auction site Internet Auction Co., or “auction.co.kr,” which received a better ranking of 392.

In January 2001 eBay acquired a majority stake in the publicly traded Internet Auction Co. Ltd., for $120 million.

In Gmarket’s public filings, the company cites the extremely competitive environment of the South Korean e-commerce market as a major risk factor.

The filings point not only to eBay’s Korean Internet auction company, but also Daum’s Onket.com, and the company’s own shareholder Interpark.com, which runs other competing e-commerce sites.

Wired Nation

South Korea is an important battleground for the two U.S. Internet giants, as it’s one of the most advanced countries in the world in terms of broadband penetration.

According to the South Korean government’s statistics on e-commerce, the Korean business-to-consumer Internet commerce market turned over more than $7 billion in 2004, an increase of 30 percent over the previous year.

Revenues from the entire e-commerce market, including business-to-business sales and auction sites, were even higher in 2004, at over $100 billion.

Attempting to keep the nation’s position as one of the most wired countries on the globe, the South Korean government injects billions of dollars into maintaining its broadband infrastructure and fostering its industries.

The influx of money means eBay and Yahoo are fighting for a highly lucrative market that can also be used as a test bed for advanced trial services.

Asian Auction Battle

Yahoo’s investment in Gmarket is the company’s first move into an auction site in Korea, though the company has made some minimal moves into the Korean e-commerce market.

Meanwhile, Yahoo has been battling eBay in China (see Yahoo-eBay War Rages in China) and winning.

Yahoo spent an estimated $4 billion in August to take a 40 percent stake in Alibaba, which owns the auction site Taobao (see Yahoo’s $4B Alibaba Move).

A study released earlier this month by the China Internet Network Information Center (CNNIC) confirms estimates that Taobao has reached a market share of 67.3 percent, compared with eBay’s 29.1 percent.

In Japan, the story is similar, with Yahoo successfully beating eBay at its own auction game.

Contact the writer:KFehrenbacher@RedHerring.com

The suit is yet another black eye for the company’s poorly executed IPO. Vonage’s public debut on May 24 was supposed to be a symbol of the emerging power of the VoIP industry, and the return of reformed former CEO and major shareholder Jeffrey Citron.

Instead, the IPO, which lost 30 percent of its stock price in its first week of trading, has turned into a lesson on how not to take a company public, and has delivered a blow to both the maturing VoIP industry and Mr. Citron.

According to court documents filed late Friday, the lawsuit claims that Vonage’s filings for its IPO contained “materially false and misleading” statements and omitted important information for people considering buying Vonage stock.

The lawsuit also claims that Vonage and company executives “embarked on a scheme and illegal course of conduct, the purpose and effect of which was to load up Vonage customers with company shares and to create an artificial demand for company stock prior to and in the offering.”

The suit was filed against not only Vonage, but also Mr. Citron, along with several other company executives, as defendants. It was filed in the United States District Court in New Jersey.

The class action suit could contain hundreds or even thousands of angry customers and investors who feel they were misled into buying Vonage shares.

Bad Decisions

Part of the backlash is due to the company’s unusual decision to reserve 13.5 percent of Vonage’s pre-IPO shares for customers.

Analysts called the company’s decision to tie together the company’s customer perception and financial success a very poor move.

IDC analyst Will Stofega called the latest lawsuit against Vonage “not unexpected” and the entire IPO execution “a shame.”

“It really amazes me with the experience of the executives on Wall Street, including Jeff Citron, that things happened the way they did,” said Mr. Stofega.

The lawsuit states that Vonage’s recommendation of stock to customers violates NASD Rule 2310, which contends that companies that sell stock to customers must have reasonable grounds to sell to “suitable investors.”

Suitable investors are based on a customer’s financial status, investment objectives, and tax status, according to the lawsuit.

The other part of the backlash is the fact that the company’s stock dropped 30 percent in its first week of trading, causing customers and investors that participated to lose money.

Vonage shares went on sale at $17 per share and are trading at $12.47, up $0.49 in recent trading.

VoIP Suits

Vonage isn’t the only company facing a lawsuit in the swiftly growing VoIP industry. The other well-known VoIP firm, Skype, is facing a patent lawsuit from VoIP competitor Net2Phone.

Last Thursday Net2Phone filed a suit that said Skype is infringing on a patent for its Internet telephony business. The suit was filed in the U.S. District Court of New Jersey.

Skype was bought by eBay last September in a deal worth up to $4.1 billion, and Net2Phone is owned by IDT Corporation.

Analysts weren’t sure of the merit of the suit, but as the VoIP industry matures, companies are increasingly looking to protect technology that can differentiate their VoIP products.

Contact the writer: KFehrenbacher@RedHerring.com

Motorola, the world’s second-largest wireless phone maker, said it will pay 45 pence ($0.84) per share for the British company—more than three times TTP’s closing price on Wednesday of 13 pence.

The announcement shot the money-losing TTP’s shares up to 43 pence on the London Stock Exchange. Motorola’s shares climbed $0.21 to $21.30 on the New York Stock Exchange.

Cambridge, U.K.-based TTP Communications, formed in 1988, currently has 575 employees, and holds intellectual property for valuable third-generation, or 3G, cellular technology. The company licenses technology both for chips and customized cell phones.

Motorola has been using TTP’s “AJAR technology” to customize software for its low-end phones, and buying the company could have been cheaper than continuing to pay licensing fees.

But analysts like John Jackson from Yankee Group say that Motorola is likely most interested in TTP’s chip designs for 3G phones. And that could mean bad news for chip technology company Freescale, which sells 3G chip technology to Motorola.

“It’s a good day for TTP. But Motorola’s decision to acquire TTP puts Freescale in a tenuous spot,” explained Mr. Jackson. “Getting this 3G chip technology right is really difficult. There is a land grab going on for 3G technology. It could be really disruptive for Freescale.”

For now Wall Street doesn’t agree. Freescale’s shares were up $0.29 to $31.50, perhaps reflecting the suddenly higher value of TTP’s technology.

Losing Money

Most of TTP’s business is made up of its technology to customize cell phone software, and design and manufacture technology for wireless infrastructure. “Motorola did not buy TTP for their operations, which are cash-flow negative,” said Mr. Jackson.

That leaves TTP’s silicon designs, which Mr. Jackson predicts Motorola has found to be very valuable.

Contact the writer:KFehrenbacher@RedHerring.com

Analysts at the research firm In-Stat predicted that starting in late 2006, ultrawideband (UWB) technology will start to appear in wireless universal serial bus (USB) dongles.

These devices will fit into the USB drive of a laptop or PC and enable the wireless transfer of heavy files like photos, videos, and data between devices.

UWB technology has been lauded as “Bluetooth on steroids.” Analysts have predicted the technology will be embedded in laptops, PCs, and even cell phones over the next few years.

In-Stat’s prediction follows similar estimates made by the research firm ABI several weeks ago that forecast 300 million UWB chipsets would be sold by 2011.

Optimistic Estimates

But any estimates about UWB’s near-term market debut are optimistic given that analysts have been predicting UWB would hit the market every year for the past few years. So far, no devices with UWB chips are available.

The reality of when, and if, UWB will make a meaningful impact on consumer devices is a lot murkier than the recent cheerful predictions.

That’s because a long-running standards battle between the WiMedia Group and the UWB Forum has marred the technology’s entrance and delayed the delivery of UWB-enabled devices to consumers.

The WiMedia Group is backed by Nokia, Sony, and Texas Instruments, while the UWB Forum is backed by companies like Freescale, Motorola, and Siemens.

For more than two years, the two sides have argued over which side’s technology is better, and have fought to bring the technology to market before the other side.

Like most standards battles in the technology industry, such as HD-DVD vs. Blu-ray, the result will be that consumers lose out.

Discussions between the two groups hit a further roadblock in January when the groups abandoned an effort to create a single standard. In a recent bizarre turn, Freescale and Motorola reportedly have left the UWB Forum, which the two companies helped found.

UWB Works

Despite the squabbles, analysts still predict UWB will be the best technology for moving large amounts of data like video and photos over a short distance.

While other wireless technologies such as Wi-Fi, Bluetooth, and Zigbee can move data over a short range, UWB is considered valuable for certain applications because of its low power consumption and high data capability.

Analysts predict that UWB will initially replace the USB cable that consumers use to transfer files between devices like digital cameras and laptops. UWB is expected to be embedded in laptops, desktop PCs, and consumer devices like digital cameras.

Ultimately UWB will end up embedded in cell phones, analysts say, so cell phone users can transfer photos and videos between phones and laptops or desktop PCs.

The Bluetooth trade group gave UWB a recent push and chose to work with the WiMedia Alliance to marry the two technologies and target home consumer electronics (see Bluetooth Takes a Bigger Byte).

Contact the writer:KFehrenbacher@RedHerring.com

For the starchiest carrier in the United States, that’s the kiss of death. It’s no wonder that despite MySpace’s 76 million users, wireless executives still whisper about a MySpace/Verizon deal that fell through several months ago.

But the herds of users stampeding into the social network sites are too powerful a lure. The carriers have started to expand a few timid partnerships with social network sites. While college-targeted Facebook has had a text message-based service for cell phones over major carriers since April, Red Herring has learned that Facebook will soon release a cell phone feature that will enable users to search and browse Facebook pages, much like the original online experience. Facebook says its developers will soon release the product, which is based on wireless application protocol, or WAP (see Facebook Adds Mobile Internet).

And while MySpace has only made an exclusive wireless deal with upstart niche carrier Helio, which is backed by Earthlink and South Korean carrier SK Telecom, MySpace told Red Herring earlier this month that the exclusive deal has a looming expiration date—likely less than a year, according to MySpace Senior Vice President of Sales Colin Digiaro. Mr. Digiaro was quiet on what carriers the company would partner with next. But if it’s true that Verizon shied away from MySpace in the past, the fact that News Corp. bought MySpace for $580 million in 2005 might make the nation’s second-largest carrier think again.

After the hurricane ravaged New Orleans, city officials quickly built a free wireless network over parts of the city in order to help residents and small businesses communicate while rebuilding.

But telcos like BellSouth felt threatened by a free wireless network that can offer Internet access and voice service.

The phone companies’ argument is backed by state laws that say that a publicly owned, wireless network that offers fast wireless service is illegal. New Orleans current wireless service was allowed because it was in a state of emergency after the hurricane.

The EarthLink partnership will likely prolong the life of the emergency network to give the residents more time to use the free wireless service, and enhance the network for wider use.

EarthLink’s president of municipal networks, Donald Berryman, said it will offer a free service for a period of time that residents need, though he said that period of time has not been determined.

Mr. Berryman called the temporarily free service “a long-term investment in rebuilding the city,” that will help the Internet service provider get a foothold once the city is back up and running.

Mr. Berryman said EarthLink will first build a 15-square-mile network that will offer both a free service without ads, and a fee-based faster service for about $21.95 per month. That first section of the network will be in the downtown and French quarter areas and will cost the company $3 million to $5 million.

The network will be owned by EarthLink, which will rent space on lampposts from the city and pay for a nonexclusive wireless franchise agreement.

CrescentCity

BellSouth has reason to be nervous. The company has been investing in communications in the area for years, and offers a proprietary wireless service to the city for a higher price.

The telcos are likely to fight back with lower prices, faster service, or other offers to bring in consumers. The fact that EarthLink has joined the race means the fight will just be on a bigger scale.

One person that’s ready for the battle is Greg Meffert, New Orleans CIO. In an interview in March Mr. Meffert said the wireless network was already helping more than 15,000 residents communicate and manage businesses, and said he was even willing to face jail time to keep the free network running (see WiFi Fight Brews in Big Easy.)

In the face of the partnership with EarthLink, he is now more hopeful. “I'm cautiously optimistic and actually hopeful that we all are OK now since we are starting to move ahead here," said Mr. Meffert in an email exchange.

Mr. Meffert would also like the city’s free service to extend as long as possible to help the city. He said the network is “not just a lifeline to these folks, but an accidental icon of defiance in a New Orleans that is being reborn again,” he said.

Mr. Berryman confirmed that the length of time that EarthLink will offer the free service will be determined by the ISP over the coming months.

EarthLink’s Muscle

Now that the city has found a major Wi-Fi player in EarthLink, the duo can fend off attacks from incumbents, and help the network bring in revenue from paying customers.

EarthLink has won bids to build and run Wi-Fi networks in other U.S. cities, including San Francisco, Philadelphia, and Anaheim (see Google, EarthLink to Unwire SF).

New Orleans needs EarthLink’s help to build and run a network. Analysts and industry executives were very skeptical that the city could build and run a wireless network on its own.

Mr. Berryman said the network coverage of the current service run by the city is “spotty.” Over the next few months, EarthLink will help to change that, though eventually residents will have to pay monthly fees for that improvement.

Contact the writer:KFehrenbacher@RedHerring.com

The Vonage IPO represents the first time a pure-play VoIP company has been tested in U.S. markets, and investors clearly showed skepticism over the company's prospects to turn a profit.

In its offering, the company sold 31.25 million shares priced at $17, the midpoint of its expected range, implying a value of almost $2.65 billion for a company that hasn’t earned a penny. The underwriters hold rights to purchase an additional 4.69 million shares at the offering price. That would raise an additional $79.7 million and bring the total proceeds to almost $611 million.

However, the stock fell $2.15 to $14.85 as investors exchanged 33.8 million shares on Wednesday, a volume slightly larger than the offering. The fall was almost twice the 6.7 percent decline that Resource Capital experienced in its market debut in February, which had been the year's weakest showing for an IPO until Wednesday.

In the face of rabid competition from phone and cable companies, as well as other VoIP startups, Vonage has been spending massive amounts of money on marketing, looking to bring in customers quickly. The company plans to use the IPO’s proceeds for more marketing and more customer acquisitions.

Since ex-CEO Jeffrey Citron incorporated the company in 2000, the plan has been to spend money fast to beat out an anticipated VoIP onslaught from traditional phone and cable companies.

If Mr. Citron could grow the company enough with the help of expensive prime time TV ads, he believed that millions of subscribers would deliver profits. So far, that has not been the case.

The Holmdel, New Jersey-based company has seen success bringing in 1.6 million subscribers, but at the expense of a whopping $200+ per person for marketing expenses.

In fiscal year 2005 the company lost $261 million on sales of $269 million, and spent $88.3 million on marketing in the first three months of 2006, according to regulatory filings.

Now, considering that Vonage has already raised $658 million in convertible debt funding, the IPO could raise its total funds to over $1.2 billion—a lot of cash for a company with no profits.

Public Plans

The company first indicated its public plans in regulatory filings in February (see Vonage Plans $250M IPO). Then the company doubled the size of its planned public offering, saying it would price its stock at $16 to $18 per share (see Vonage Thinks It’s Worth $2.8B, IPO Watch: Cheap Talk).

Analysts say the money-losing VoIP startup might never break even or turn a profit, given cable VoIP offerings such as Time Warner Cable’s, which have already brought in over 1 million users.

At the end of 2005, there was growing speculation the company was searching for an exit, including a sale or an IPO. Vonage was reportedly in acquisition discussions with Sprint last year (see Vonage Plans $600M IPO).

At that time IDC analyst Will Stofega said Vonage likely “didn’t get the price they wanted” for an acquisition and was forced to do an IPO.

In a previous interview, Mr. Citron said, “The company has been approached several times in the past” about an acquisition.

Citron Cloud

Mr. Citron, who recently stepped down, owns 41 percent of the company. His share, valued at nearly $1.09 billion in the offering, represents an unusually large portion for a startup founder (see Vonage Founder’s Windfall.) But while he made a killing, he has a past that would have raised a red flag as the chief executive of a public company.

Mr. Citron financed much of his investment in Vonage with his profit from Datek Online, a day-trading service he started. In 1999, Mr. Citron resigned from Datek as chief executive and later faced charges related to securities fraud.

The U.S. Securities and Exchange Commission alleged he had used a Nasdaq system intended for small investors to make millions of proprietary trades, employing fictitious accounts, and then covered it up. Mr. Citron eventually paid a $22.5-million fine and was permanently barred from working in the securities industry.

The company sold 31.25 million shares at $17, the midpoint of its offering range, reflecting a modicum of caution as Wall Street welcomed its first pure-play VoIP company. Still, the price implied a value of almost $2.65 billion for a company that hasn’t earned a penny.

Shares of the loss-laden Internet telephony company are expected to start trading Wednesday on the New York Stock Exchange under the ticker VG.

The underwriters hold rights to purchase an additional 4.69 million shares at the offering price, which would raise an additional $79.7 million and bring the total proceeds to almost $611 million.

The IPO represents the largest Net-related offering since Google raised nearly $2 billion in its August 2004 market debut.

The offering was led by Citigroup, Deutsche Bank Securities, and UBS Investment Bank. Bear Stearns, Piper Jaffray, and Thomas Weisel Partners acted as co-managers.

In the face of rabid competition from phone and cable companies, as well as other VoIP startups, Vonage has been spending massive amounts of money on marketing, looking to bring in customers quickly.

The company has said it will use the IPO’s proceeds for more marketing and more customer acquisition.

Since ex-CEO Jeffrey Citron incorporated the company in 2000, the plan has been to spend money fast to beat out the coming VoIP onslaught from the traditional phone and cable companies.

If Mr. Citron could make the company big enough with the help of expensive prime time TV ads, he figured that millions of subscribers would deliver profits. So far, that’s not the case.

The Holmdel, New Jersey-based company has had success bringing in 1.6 million subscribers, but at the expense of a whopping $200+ per person for marketing expenses.

In fiscal year 2005 the company lost $261 million on sales of $269 million, and spent $88.3 million on marketing in the first three months of 2006, according to regulatory filings.

Now, considering that Vonage has already raised $658 million in convertible debt funding, the IPO could raise its total funds to over $1.2 billion—a lot of cash for a company with no profits.

Public Plans

The company first indicated its public plans in regulatory filings in February (see Vonage Plans $250M IPO). Then the company doubled the size of its planned public offering, saying it would price them at $16 to $18 per share (see Vonage Thinks Its Worth $2.8B, IPO Watch: Cheap Talk).

Analysts say the money-losing VoIP startup might never break even or turn a profit, given cable VoIP offerings like those from Time Warner Cable that have already brought in over 1 million users.

At the end of 2005, there was growing speculation the company was searching for an exit, including a sale or an IPO. There was talk Vonage was in acquisition discussions with Sprint last year (see Vonage Plans $600M IPO).

At that time analysts like Will Stofega with IDC said Vonage likely “didn’t get the price they wanted,” for an acquisition and was forced to do an IPO.

In a previous interview, Mr. Citron said “the company has been approached several times in the past,” for an acquisition.

Citron Cloud

Mr. Citron, who recently stepped down, owns 41 percent of the company. His share, valued at nearly $1.09 billion in the offering, represents an unusually large portion for a startup founder (see Vonage Founder’s Windfall.) But while he made a killing, he has a past that would have raised a red flag as the chief executive of a public company.

Mr. Citron financed much of his investment in Vonage with his profit from Datek Online, a day-trading service he started. In 1999, Mr. Citron resigned from Datek as chief executive, and later faced charges related to securities fraud.

The U.S. Securities and Exchange Commission alleged he had used a Nasdaq system intended for small investors to make millions of proprietary trades, using fictitious accounts, and then covering it up. Mr. Citron eventually paid a $22.5-million fine and was permanently barred from working in the securities industry.

Contact the Writer:KFehrenbacher@RedHerring.com