If more than 150 million Americans already have a cell phone, how do you sell them more? The wireless industry's answer: Be everything to everybody. In the past few months, handset maker Nokia (NOK) has launched the N-Gage, a GameBoy-meets-cell-phone gadget; the 3300, an MP3 player-meets-cell-phone model; and the 7700, a TV-meets-cell-phone device.
These new gizmos come with huge promise. According to Scottsdale (Ariz.) research firm InStat-MDR, the compound annual growth rate in sales of so-called smart phones will be 94.5% through 2007. In Japan, which has the highest take-up rate of such devices, one-thirteenth of the digital-TV transmission band has been set aside for broadcasting to mobile devices.
NETWORK TRICKS. The many features that Nokia, Ericsson (ERICY), and wireless carriers such as Verizon (VZ), and Vodafone (VOD) want to add to the previously humble mobile phone are keeping researchers busy in the labs. Two main areas of development are hardware -- beefing up processing and power management -- and the much-talked-about customer experience, which focuses on how to make features more compelling and easier to use. In short, researchers are scrambling to find ways to give new features better functionality and, more important, to make them so appealing that customers won't think twice about paying for them.
Until this new generation of feature-packed phones, the hardware problem had been largely solved through clever network management. The GSM telecom standard, which is used almost exclusively overseas and by some networks in the U.S., is designed so that most of the heavy-duty voice processing is done on the cellular network, not the phone. During a three-minute conversation, a phone sends and receives digital packets for only a total of 30 seconds.
Less demand for power means the battery lasts longer. The result: Over the past 10 years, battery performance has improved more than three-fold. The Nokia 2110, released in 1994, had standby time between recharges of 20 hours and talk time of up to 1 hour 50 minutes. Today, those figures for Nokia phones are 60 hours and 5 hours 20 minutes.
POWER HOG. Watching TV on your phone is an entirely different demand, however. The network can help minimize power usage when the video is downloaded from the carrier's server to the phone. But once the download is done, the phone itself has to process and display the information.
"The new generation of devices with cameras, video playback, games, color screens, and high-quality sound chew up battery life in a way that simple voice transmission does not," says Martin Dunsby, vice-president for operations at San Diego-based wireless research outfit inCode Telecom. "That puts power back on the agenda."
To solve the power problem, researchers are working on a new generation of chips, dubbed application processors, that aim to support fancy features like video playback without zapping the battery. The best way to do this, though, still isn't clear.
FINDING THE "SWEET SPOT." One approach monitors the energy flow through the battery, then makes choices about how the power that remains will be allocated, says Dunsby. For example, a video phone might show a lower-resolution picture when power is waning. At ST Microelectronics (STM) in Geneva, engineers have developed a distributed processing system. Each 25-million-transistor chip is divided into several sections, one dedicated to processing video, another for audio, still another for voice.
The result, ST claims, is a 10-fold power savings because each chip segment focuses on what it does best. "The goal is to find the sweet spot between super-low power [operation] and powerful processing capability," says Richard Chesson, director of marketing for ST's multimedia platform. "Whatever the functionality of these new all-seeing, all-dancing handsets, they still need to be used as a phone, and consumers expect them to last all day."
Getting the phones to work is one thing, getting consumers to use them is another. That's why handset makers and wireless carriers are asking researchers to study how to entice consumers to accept the new features -- and pay for them. "It's not so much technology anymore," says Alexander Grunsteidl, a researcher at design firm IDEO in London. "The constraints are people and the business model."
ACCIDENTAL SUCCESSES. Consequently, Grunsteidl and others have been asked to help develop pricing models that make consumers feel that they're getting value from the features and services available. IDEO and others run focus groups to better understand how consumers think and to devise streamlined pricing plans designed to acquire and retain customers.
Just in time, too. For too long, handset makers and carriers have believed that if they build it, customers will come. But as cell-phone use reaches saturation point, their strategy needs to be refined. Outside of voice service, most of the biggest wireless successes have been accidental.
Take SMS, or text messaging, which now accounts for 10% of European carrier revenues, according to research firm Frost & Sullivan. SMS was never intended as a mass-communication tool. Instead, it was set up to allow carriers to reconfigure devices or update directory information over the air.
However, because the capability was built into every phone and it costs far less to send a text message than make a call, the technology took off. Even better for carriers, SMS messages are sent over channels dedicated to administration. So as text messaging continues to grow -- Frost & Sullivan estimates that usage will skyrocket from 186 billion messages per year in 2003 to 365 billion in 2006 -- voice channels won't be overtaxed.
UNEXPECTED USES. Compare that to what could be an impending debacle with camera phones. Wireless operators heavily subsidize camera phones because they imagine that once people start taking pictures, they'll begin paying to send the shots over the network to friends and family. Early data suggests this isn't the case, says Grunsteidl. Though 1 in 10 cell phones sold now includes a camera, according to InStat-MDR, consumers seem happy to snap pictures, then take them home to e-mail them or just save them to show later.
That means no additional revenue to the operators. "The challenge is always that people won't use phones in the way you expect them to," says inCode's Dunsby. "If it's too difficult to send, pick out an address, or costs too much, consumers simply won't use it. And that's going to hurt operators' bottom lines."
Avoiding this is worth no end of research and testing. After all, propping up falling prices by selling more expensive phones and services is what cell-phone R&D is all about. By Jane Black in London