March 22, 2004 9:40 AM PST

Setting the tone for vending machines

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March 17, 2004
ATLANTA--A cell phone ring tone vending machine introduced here Monday is the latest example of how major entertainment companies are selling versions of their products directly to America's 156 million cell phone subscribers, rather than partnering with service providers.

The vending machines, which dispense ring tones that work with most cell phones, will debut at Best Buy, RadioShack and convenience stores in the next three months, said Robert Pons, chief executive of SmartServ, a wireless e-mail specialist that's teaming with touch screen maker Merit Industries to introduce the vending machines. They use touch screens to guide users through the purchase process.

The vending machines illustrate the power struggle between U.S. carriers and the entertainment industry, which in the last year has been selling ring tones, games, graphics and cell phone entertainment, based on their popular singers or movies. By using the vending machines and other new technologies, entertainment companies avoid cellular service carriers' usual profit-sharing agreements and tight control over wireless downloads.

"I'd like to involve carriers, but I'm a pragmatist," Pons said.

Typically, a carrier chooses to release only a few wireless applications from the hundreds submitted and then puts the software through extensive testing, before offering it for sale. Carriers take a cut of the profits for their role, which also includes charging a customer's wireless bill directly.

Carriers defend what's described as "walled garden approach" to cell phone entertainment, because it keeps quality of the product high and eliminates bug-filled software from reaching their customers. Also, because the market for wireless entertainment is still in its infancy, carriers say they have to take much care to seed the market.

"We are thinking about our customers and the future of this industry," said a representative for Sprint PCS, one of several U.S. carriers set to introduce new cell phone entertainment at this week's CTIA Wireless 2004 show here, which began Monday.

The battle is over what some believe will grow to a multibillion-dollar market. Ovum, Strategy Analytics and other cell phone market analysts say cell phone entertainment will blossom to bring in $3.5 billion annually, sometime in the next few years. For now, though, the market remains small. Verizon Wireless sold about $60 million in ring tones in November, according to Vice Chairman Lawrence Babbio. That's a pittance to a $60 billion annual revenue generator like Verizon Communications, a part-owner of Verizon Wireless.

Enter killer app, exit logjam
But both sides concede that "killer applications" based on entertainment could help break the logjam, as carriers and major content providers head in separate distribution directions.

There will be plenty going on at this week's CTIA, including words of inspiration from hip hop impresario Russell Simmons, one of the featured speakers.

Cell phone chipmaker Qualcomm will announce that RealNetworks RealAudio and RealVideo compression technologies, or codecs, will be included in Qualcomm's ARM9 chipsets. The RealPlayer will also be added.

Sharon Goldstein, RealNetworks' director of products for mobile, said the alliance is important to the company, because it offers entrance into a new market of enhanced handheld devices. Ultimately, that means more exposure for its RealPlayer content.

Breakthroughs are expected on the infrastructure side. For example, Comverse, a wireless content specialist, will unveil the Expediter, a server that's designed to let carriers open their networks to third-party suppliers of wireless entertainment or business applications.

Also set to debut are overhauled handsets equipped with better screens and more processing power to handle the increased workload of showing a video or playing a ring tone that's a recording of a song.

Nokia, for instance, is debuting the 6255, which it hopes will appeal to the U.S. market by putting more entertainment features in hand. The phone, which Sprint will sell in the United States for an undisclosed price, is considered Nokia's most advanced phone, using CDMA (Code Division Multiple Access), a standard popular in North America and Korea.

The phone itself has a flash camera, streaming-media capabilities, an MP3 player, FM radio and a Bluetooth wireless connection. The 6255 is also among the first phones Nokia has made using its own CDMA chips, which is considered a challenge for Qualcomm, the CDMA-chipmaking leader.

"This is our most sophisticated phone yet," a Nokia representative said.

No. 2 handset maker Motorola is expected to introduce three new phones Monday, all with video capabilities. One, the A845 videophone, uses next-generation standard Universal Mobile Telecommunications System, which is capable of up to 2.4-megabit-per-second downloading. AT&T Wireless plans to begin selling it by midyear.

The other two Motorola phones are the V710, the handset maker's first-ever megapixel camera, and the A840, which has a video recorder and can use CDMA and GSM (Global System for Mobile communication) cell phone networks, the company said. Motorola has not yet released the phones' prices.

MMS acrobatics
Most of the new cell phone entertainment introduced here this week will take advantage of a new kind of wireless messaging that can shuttle combinations of text, graphics, audio and full-motion video over the air to cell phones.

Sprint, AT&T Wireless and Verizon Wireless are each expected to launch even more complex Multimedia Messaging Service (MMS) applications, including the ability to send full-motion camera phone videos, according to sources.

But despite the technical breakthroughs, to be introduced at the CTIA show, so-called mixed-media messaging is having interoperability problems. MMS still can't jump between cell phone networks based on CDMA and GSM, the world's two major cell phone standards.

Executives are meeting at CTIA Monday to work out some of the final details for an interoperability standard. But they say there is still weeks'--and possibly months'--worth of work ahead.

Comverse Assistant Vice President Steve Kenyon isn't daunted. He said text messaging suffered from similar interoperability problems. But as popularity of these 160-character wireless e-mails grew, carriers worked out the standards problems. He expects MMS to follow the same path.

"For a couple of years, carriers didn't talk to each other when it came to short text messages, but now they do, and the water level rose," he said.

 

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