TELECOM Digest OnLine - Sorted: Not Much Interest in Cell Phone Gadgets

Not Much Interest in Cell Phone Gadgets

Chicago Tribune News Wire (
Tue, 01 Aug 2006 23:26:27 -0500

CHICAGO _ These days, mobile phones have all sorts of bells and
whistles, including models that play videos and download music. Yet so
far, customers appear happier using their phones to do old-fashioned
things, like making a call.

Heralded as the next big technological conversion, phones that
download music and play videos aren't as popular as some in the
industry had hoped they would be at this point. And that is forcing
some wireless companies to rethink their strategies.

Verizon Wireless, the nation's second-largest carrier, said it will
stop charging customers $15 a month to subscribe to a music service
few customers were using.

That shift came this week even as Verizon introduced a new music
phone, dubbed Chocolate, that is eerily similar in style to the
popular iPod, the runaway leader in music-playing gadgets.

Downloading rates for music are less than what industry experts had

A study released Monday from Forrester Research shows only 6 percent
of mobile phone subscribers download or stream music files once a week
while only 3 percent of customers do the same with video
services. That compares to 38 percent of customers who say they send a
text or picture message.

Some of the problems for carriers lie in the popularity of other

Music remains the domain for Apple Computer Inc., even as competitors
ranging from mobile phonemakers to Microsoft Corp. revamp their
strategies for selling music online.

Now Verizon is "acknowledging that the monthly fee is a barrier to
experimentation," holding back the adoption of music services on
mobile phones, said Charles Golvin, an analyst with Forrester. "Phones
continue to be communication devices."

Verizon still will charge customers $15 a month to access its video
services, but customers interested in music will only pay to download
the songs.

"It is hard to say goodbye to $15 a month per customer, but by
eliminating the fee, a lot of people will start" downloading music,
said Jeffrey Nelson, Verizon's executive director of corporate
communications. "Two bucks might entice people to start doing this
more than $15 plus two bucks."

Verizon charges $1.99 to have a song downloaded directly to a phone
with another copy sent to the computer. Or, users can pay 99 cents to
download a song to a computer and then manually transfer it to a

Nelson said more downloads have come "over the air" to a consumer's
phone, even though it costs $1 more. "That surprises us," he said.

It doesn't surprise Julie Ask, an analyst with Jupiter Research. "The
price disparity reflects that people are experimenting," she
said. They want to see how the service works.

"The reality is that most of the music I want to put on my phone is
what I already own," Ask said. "A small portion of that music is
bought from a carrier."

That also applies to the iPod. In a survey Jupiter conducted earlier
this year, it found that only 8 percent of the music people have on
their iPods comes from Apple's iTunes online music store.

Those figures come despite the fact that Apple has sold more than 1
billion songs from its iTunes music store, launched in 2003.

By comparison, Nelson said Verizon has sold more than 1 million songs
online since launching its music service in January, but he did not
provide further details.

Nor did Verizon provide details about song downloads or customer usage
in Tuesday's second-quarter earnings report. It did report that
revenue for data services, including text messaging and e-mails,
topped $1 billion for the quarter, a record for the carrier.

Music sales are better for Sprint, where more than 4 million songs
have been downloaded since October 2005, said spokesman Mark
Elliot. He added that Sprint has no plans to separate music downloads
from its Power Vision service, which starts at $15 a month and
includes video. But of the 51 million subscribers Sprint has, only
750,000 customers were paying for Power Vision at the end of the first

Cingular Wireless has taken a different path. It does not have a store
for people to download songs, but it launched a relationship in
October with Motorola Inc. and Apple to put the iTunes software on the
Rokr phone. It is now available on one other Cingular phone, but Apple
capped the number of songs a user could put on a phone at 100, which
limited the popularity of those models.

Video, too, has been problematic for carriers.

For one, people don't have large video collections they tote around,
Ask said. Plus, most people so far don't see the value in watching
video clips on a 2-inch screen. According to Jupiter's research, Ask
said only 1 percent of mobile customers watch video on their phones,
and that figure is expected to rise to only 5 percent by 2010.

"Prices have to start to come down to attract more users," she said.
"They are not interested right now."

The debate on the merits of mobile video has become so intense lately
that an analyst report from Merrill Lynch last month called for ESPN
to dump its phone service, which highlights clips from fans' favorite
sports teams and ESPN shows.

The Merrill analysts previously said ESPN should attract 240,000
subscribers this year. Now, they say it will only attract 30,000. "It
is time ... to pull the plug on Mobile ESPN," they wrote.

A spokeswoman for Mobile ESPN acknowledged slower sales than
anticipated, but the company has made several changes to pricing,
added new handsets. The service now also is sold at Sprint stores.

"Mobile ESPN is not for everybody," she said. "We've said that from
the beginning. We're only five and a half months into this."

Verizon hopes its new strategy will help jump-start what so far has
been low adoption rates for music downloads.

Some of that hope rests on the shoulders of LG Electronics' Chocolate
phone, which will be in stores next week.

With a 2-megabyte storage card _ sold separately _ the Chocolate can
store roughly 1,000 songs. The phone features a scroll wheel in front,
similar to the iPod, to move quickly through a user's song library.

"We think it will draw music lovers to Verizon from other carriers,"
Nelson said. "And for our existing customer base, for real music
lovers, this is something they will upgrade to."

Golvin said Verizon might be on the right track.

In order for mobile music to succeed, the complexity of the service
needs to be removed, he said. "All the carriers need to provide some
sort of freebie period to get people hooked."

(c) 2006, Chicago Tribune.

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