(Part 2 of this Telephony special report. Click here for the other parts.)

The wireless industry is at an important crossroads. Location-based services are simultaneously opening doors to both new revenue streams and an influx of customer privacy concerns. Every major North American operator now has some form of LBS in its application suite, whether in the form of GPS maps, child-tracking services or a mobile social-networking presence. With so much opportunity at hand, these operators are charged with the responsibility of maintaining the fragile balance between profit and privacy.

Within every handset in the U.S. is the potential to achieve what several analysts have called the “Holy Grail” of mobility — location-based advertisement revenue. Based on the Wireless Communications and Public Safety Act of 1999, all mobile phones are required to be equipped with E911 so that a phone call can be tracked in emergency situations. While E911 can be used only under strict conditions, the presence of GPS receivers means potentially lucrative new services are possible.

However, most consumers don't even realize they have a GPS-enabled phone or understand its privacy implications. According to Brent Iadarola, research director for Frost & Sullivan, fewer than 2% of total mobile phone owners use their GPS receivers for any location-based services. If they wanted to, however, it would simply be a matter of turning on the service.

“Just by going into a store and signing up for location-based service or getting LBS onto your phone, it's not like all of a sudden the carrier has information they wouldn't have already,” Iadarola said. “Since they were mandated to have E911 services in place, they could always get that information if they really wanted to for some reason.”

Yet carriers say there is no reason they would access this information today. While AT&T, Sprint and Verizon declined to comment on their privacy provisions, all have similar privacy policies outlined on their Web sites. Their respective customers have the right to be informed of any personally identifiable wireless location and transactional information the company is collecting. All also state that this information will not be stored beyond its “normal useful life” — typically seven days or less.

Angela Rittgers, staff manager of voice services for Alltel, said the telco currently doesn't use location data for any reason. While the search capabilities of Alltel's Axcess Family Finder application are not yet tied to GPS, she said it is something they are looking into. The company is still exploring the security and legal ramifications behind enacting a service like this.

“It is interesting, but the customer has to be aware of the fact that you do know their location based on serving up that information,” Rittgers said. “They've got to opt in for that. So trying to figure out how we can make that happen is the hurdle we are going through at the moment.”

Getting over that hurdle may be an important first step. Going forward, simply having access to this type of information could prove to be an extremely important benefit for the carrier as it considers advertising tied to where the consumer is at certain times of the day, said Dominque Bonte, principal analyst for ABI Research.

“It is certainly a big asset they have because they own the relationship with the customer,” Bonte said. “They own the billing relationship. On top of knowing who the customer is calling and how often he's calling — which was already very interesting for carriers to know — they will know where the customer is. That is an asset they will be happy to sell off to other companies, but this will have to be transparent to the end user.”

The biggest issues are not with a carrier's use of information, but with the customer's perception of it. Tracking children or elderly family members has become a widely accepted practice, but are the rest of consumers willing to trade their location for a potential value-added service? Both Bonte and Iadorola think the answer is yes. Bonte said that as ads become much more targeted with the additional parameter of location, they will become — in theory — much more personalized and personally relevant to the consumer.
“A lot of research is showing that people are quite happy to accept that type of targeted advertising that takes into account their location, especially if it allows them to have free location-based services,” Bonte said. “I think, and this is something that comes up in research, as long as the customer knows what's happening, he can live with it.”

(continued on next page)