January 10, 2007 3:07 PM PST

Apple's iPhone a threat to mobile operators?

Apple's new iPhone could challenge the hopes of Verizon Wireless and Sprint Nextel to grow their own mobile music stores.

While it's obvious that mobile handset makers such as Sony Ericsson, Samsung, Motorola or LG, which all make music-playing handsets, will see the new iPhone as a threat, wireless operators and Verizon Wireless and Sprint Nextel, which have built their own virtual stores for downloading music, might also be threatened by the new product.

Mobile operators see multimedia applications, such as music and video downloads, as a major money maker. And for more than a year, the largest players, including Cingular, Verizon Wireless and Sprint Nextel, have been building services that allow customers to download music and video and take it with them on the go.

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Sprint launched its music service more than a year ago, and it claims to have sold more than 11 million music downloads over its wireless network. Verizon, which launched its V Cast service last year, claims to be selling more than 1 million downloads per month. And Cingular has even launched its own music service through a partnership with Napster, Yahoo Music, XM Satellite Radio and eMusic.

But experts say the popularity and pervasiveness of Apple's iTunes store could hurt future sales for these carriers. While Motorola's Rokr, introduced in 2005, turned out to be a major flop, the new iPhone will store far more songs, which will likely make the device much more appealing to an established iPod fanbase, experts say.

"Apple's iTunes service is in direct opposition to Verizon's V Cast model," said Albert Lin, an analyst with American Technology Research. "And I just don't see Verizon striking a deal with Apple that would allow Apple to sell music through iTunes rather than V Cast."

But one big differentiator between the iPhone and devices offered by Verizon and Sprint is the fact that the iPhone does not allow music or video to be downloaded over the wireless network directly to the handset. Verizon's and Sprint's handsets, which cost much less than the iPhone, do allow over-the-air downloads, and they claim that is a major difference.

"Sprint offers a full universe of music content that can be streamed directly to handsets," said Aaron Radelet, a spokesman for Sprint. "It's a convenience that many subscribers want."

By contrast, the iPhone will operate just like an iPod in that it must be synched to a computer. A Cingular spokesman said that the vast majority of users side-load or load their music from their computers anyway. So he doesn't see the lack of over-the-air downloading as a major issue. Still, Cingular is planning in the future to allow subscribers to download music onto its other music-enabled handsets using its 3G wireless network. The iPhone uses Cingular's EDGE network, which supports slower data rates.

While Cingular will likely attract some new subscribers with the iPhone, ultimately it and other mobile operators could make more money from multimedia-enabled handsets if subscribers use their networks to download songs and videos.

In fact, Verizon and Sprint, the only two carriers offering this functionality, charge a premium for over-the-air downloads. While iTunes charges 99 cents per song for downloading a song onto a computer, Sprint charges $2.50 per song and Verizon charges $1.99 per song for downloads onto cell phones.

What's more, Sprint customers are also required to pay additional fees to access the network. The company recommends that customers subscribe to one of three data plans, which guarantee them the $2.50 fee per song. The plans are priced at $15, $20 and $25 per month. The $20 plan allows people to get one free download per month. The $25 plan allows for four free music downloads per month. Beyond that, customers pay the $2.50 per song.

Verizon has revamped its pricing and subscribers are only charged $1.99 per song plus the minutes it takes to download the song, which is anywhere from 30 seconds to 1 minute.

Right now, it seems like Sprint and Verizon are trying to downplay the threat.

"We need to see what the iPhone can really do," said Jeffrey Nelson, a spokesman for Verizon Wireless. "Like, can it even really make a phone call?"

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Sprint Nextel, mobile operator, Verizon V-Cast, Cingular Wireless, handset

 

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