With their wireline business on the down slope and competition ramping up in the wireless space, U.S. carriers are seeking alternative revenue streams and engaging in mobile marketing like never before.

However, carriers are still struggling to figure out which vendors to partner with, how much data to share, which policies to impose and which monetization models and ad units to use. In addition, the explosion of smartphone adoption has been a double-edged sword: increased data revenue but also overburdened networks and the migration of traffic from on-deck to off-deck.

?One of the challenges has been, in terms of where most operators typically started, basically selling display-based ads in their portal, banner ads at the top, midway through the screen and below,? said Nitesh Patel, Milton Keynes, England-based senior analyst at Strategy Analytics. ?Due to increasing smartphone sales and data plans, a lot of the mobile Internet traffic is being driven not by carrier decks but off-portal.

?With that in mind, some carriers have set up internal agencies to sell their own inventory, and the next frontier for carriers is looking at channels they control such as SMS or MMS,? he said. ?If you are a content provider and want to send text messages or multimedia messages, say, news, sports or weather, you might consider putting advertising into your messages, but you have to pay to send those messages.

?If the carrier owns it and can zero-rate it on behalf of the advertiser, that message is basically free to subscribers, which is one area where we expect to see more activity.?

Due to their deathly fear of churn, call-center costs and law suits, carriers are extremely careful with how they deploy or enable mobile marketing initiatives, and whether they decide to put the kibosh on them altogether.

It is clear that the carriers? biggest asset is consumer data that can be used for targeting. How best to monetize that data without turning off subscribers is an ongoing question.

?Because of the information carriers have about users?what device they have, what times of day they connect, what type of content they download?all of that info can be used to create a profile on their users,? Mr. Patel said. ?The biggest challenges for carriers is whether they can coordinate to provide information to advertisers and marketers to improve response rates.

?If so, then operators will obviously take a piece of the pie,? he said. ?The other challenge: Is that information able to provide that level of insight onto their users without infringing on any type of privacy legislation?"

For carriers, their big opportunity is taking a small part of a potentially large pie, leveraging what they have in terms of data about their subscribers to build user profiles and sell that data to advertisers who can use that to better target mobile ads.

?Most are still dabbling?it?s something that I think some operators are doing on a small scale, but we haven?t seen an operator really take this on in a big way at all,? Mr. Patel said.

?That seems to be where the end game is, now operators need to figure out how they could position themselves for the opportunity," he said.

?As more traffic goes off portal, it?s difficult to see how they will get a big portion of mobile advertising spend.?

AT&T Mobility goes local
According to Kelsey Group, mobile advertising is projected to reach over $3 billion in annual revenues over the next several years and mobile local advertising will assume more than one-third of the pie.

?Local advertising?including mobile local advertising?is a valued part of our mobile ecosystem and we will participate in the value chain in multiple ways,? said Will Hsu, Glendale, CA-based chief product officer at AT&T Interactive. ?The interactive advertising business is a big opportunity for AT&T.

?In 2009, we contributed nearly $1 billion in Internet revenues, according to AT&T?s 2009 Annual Report, and brought on hundreds of employees to support the opportunity across online, mobile and beyond,? he said.

Last year, AT&T Interactive launched an updated version of its Yellowpages.com iPhone application YPmobile that features video profiles and pay-per-call advertising.

YPmobile for iPhone and iPod touch builds on an integrated mobile search experience focused on discovering, planning and sharing local businesses and events, while increasing the opportunity for consumers to discover relevant advertisers through new features such as video profiles and pay-per-call ads (see story).

Recently, AT&T gave the YellowPages.com site a facelift and started preloading the Ypmobile application on many of its smartphones.

?While AT&T Interactive has been heavily associated with our online local search presence?YP.com, the new YellowPages.com?mobile is already a key part of our usage pattern,? Mr. Hsu said. ?Of the millions of monthly searches across our local ad network, a significant percentage comes from within our mobile ad network.

?Our scale and efforts beyond Web are notable, largely due to our AT&T mobile assets and network approach,? he said. ?Today, our mobile local app?YPmobile?is preloaded across most Internet-enabled AT&T devices and we power mobile local search for a number of well-known search players.

?This means our advertisers have the opportunity to reach not only YP.com users but other consumers searching for local information across a number of online and mobile properties.?

There is a natural fit between mobile and local search, which is helping driving growth in local advertising on the mobile platform.

?The aggressive investment across mobile players?both Internet giants and start-ups?to be more local or have local features available demonstrates how much interest there is in local advertising,? Mr. Hsu said. ?There is certainly still a huge opportunity for local advertising online, but mobile is going to be where we see the fastest growth.

?Within mobile, we know traffic is making a shift from on-deck to off-deck, very similar to a transition we saw online,? he said. ?Mobile Web and apps will both be valuable in the mobile ecosystem and both growing just as fast.?

Mobile monetization
In terms of monetization of mobile content and media, various models are competing to gain the most traction, from free and ad-supported to pay-per-download, subscription and micropayments.

?The future is in monetization supported by third parties such as an ad-supported model,? Mr. Hsu said. ?The traditional display and banner ad approach is limited, so I anticipate that we will see new monetization methodologies emerge in the next year.?

Verizon Wireless believes that the mobile Internet and applications with both continue to grow, and the carrier sees various monetization opportunities in each channel.

?Mobile Web and mobile apps are likely to grow, especially as they have both reach and usage models,? said Debra Lewis, spokeswoman for Verizon Wireless, Basking Ridge, NJ. ?Once you figure out how to serve the interests of the consumer and the advertiser, the growth should happen.

?If mobile follows the trend of traditional media, there's likely to be a mix [of monetization models],? he said. ?Ad-supported doesn't always replace subscriptions, but the model may become a hybrid where the subscription price is influenced by the additional monetization opportunities for publishers or developers.?

Analysts agree that currently mobile monetization involves blending various models.

?Typically it splits 50-50 between ad-supported and premium, and there are almost certainly going to be hybrid models,? Mr. Patel said. ?Advertising and subscription-based models are tolerated by consumers.

?Apple is opening up in-app payments, which definitely adds to the mix and increases flexibility for consumers,? he said. ?That can lower the barrier to entry.?

All about consumer engagement
Brands and agencies need to get creative in order to engage wireless subscribers in new ways, and carriers are trying to position themselves to take advantage of increased interest in mobile advertising from advertisers.

?We are increasingly seeing that monetization is not just about creating an ad?it's about providing an integrated experience that creates a connection between a brand and consumers,? Mr. Hsu said.

?It will become increasingly important for brands to provide more value as they interact with mobile consumers such as utility and useful features outside the core branding opportunity,? he said. ?Again, local on mobile is a huge opportunity and growing trend that we will continue to see evolve over the next year.

?The natural connection between a mobile lifestyle and finding what you need locally can?t be ignored.?

Brands and agencies do not care what channel or mechanism they use?they only care about getting results and meeting their campaign objectives.

?Brands and marketers are getting smarter and realizing that it's not just about having a short code or an app,? Ms. Lewis said. ?It's about creating a full strategy that takes in all the opportunities holistically.?