Cell phones with MP3 downloading capabilities have become hot commodities within the last year. Anywhere you go, you can see people wearing earplugs connected to their phones – some listening to music, others watching sports, movies or music videos.
But to what extent are these newfangled phones driving the wireless market?
According to Verizon Communications Inc., revenue from data products in the third quarter of last year represented 14 percent, or $1.2 billion, of the company’s total revenue. That’s almost double the product category’s revenue share in the third quarter of 2005.
Data products include music and 3D video game downloads, e-mail, text messaging, ring tones and video broadcasts, said Mike Murphy, New England spokesman for Verizon Wireless.
“Probably one of the biggest trends is growth in data,” Murphy said. “What we find is, customers are looking for more convergence in their phones. The customers are driving it.”
At the same time, according to a 2006 report commissioned by Pyramid Research, which focuses on convergence issues for the communications market, U.S. wireless communications operators are “trying to change mobile consumers from a mostly price-sensitive subscriber to a gadget-freak/marathon-talker and music-junkie.”
The result is a convergence of both consumer desires and company goals. For example, Verizon launched V CAST Music in the first quarter of 2006. It is a music store with about 1.5 million songs. The wireless operator also launched its LG Chocolate cell phone last year.
The LG Chocolate, with a 2-gigabyte memory card, can hold up to 1,000 songs, Murphy said. The songs can be downloaded over the air or through a USB cord. Verizon now offers 12 types of music-capable phones.
Sprint PCS launched its first music phone in 2003, but didn’t launch its music store until 2005, said Mark Elliot, Sprint’s communications manager for the Northeast region.
“Almost every single phone we offer has a data capability,” he said. “There are about eight phones that have the ability to download music over the air.”
Elliot would not comment on the extent to which music phones are driving Sprint’s sales. But he did say he thinks that, in general, it’s a combination of data and voice services that are driving sales in the cell-phone market.
Cingular Wireless spokeswoman Kate MacKinnon, on the other hand, said she thinks the MP3-playing phones are what’s driving the market. Though Cingular is new to the music phone market, she said, she expects the new phones will cause sales to increase.
In a few years, MacKinnon said, the MP3 capability will be like the digital camera capability. Consumers will be hard-pressed to find a cell phone without it.
In September 2005, Cingular launched the Motorola ROKR, the first phone compatible with Apple’s iTunes. A year later, the wireless operator launched Cingular Music.
But unlike other operators, MacKinnon noted, Cingular did not create its own music store. Instead, it decided to cooperate with existing services such as Yahoo! Music and Napster, to give customers broader access to the music and services they are familiar with. “It’s your music, your way,” she said.
The difference between fee scales for music services, according to the Pyramid Research report, is that with Cingular, consumers pay a flat monthly fee of $15, in addition to whatever they pay to subscribe to outside music-downloading Web sites. The Cingular fee includes music video downloads. Access to XM Satellite radio channels costs an additional $8.99 per month.
Subscription to Sprint’s music store costs $15 to $25 per month, but includes other services – for instance, streaming live cable from TV channels such as Fox Sports and ABC News. But consumers pay an additional $2.50 per download for songs.
Verizon’s V CAST, which includes access to music, 3D games and video broadcasts, costs $15 per month, in addition to individual downloading fees, which range from 99 cents to $1.99 per download.
Or course, increased functionality means higher prices for the phones, as well. The basic cell-phone handset today could carry a list price of $20 or less, while high-functioning phones can retail for $200 and higher – although promotions, which may include Bluetooth earpieces or rebates, can result in phones that cost consumers little or nothing.
Verizon, Cingular and Sprint also offer phones with GPS navigation capabilities, which could be the next hot trend, if consumers start expecting their cell phones to have it.
“The phones are increasingly gaining more functionality,” Verizon’s Murphy said. “As we go forward it’s up to anyone’s imagination … what will be available.”
