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Face the Music, Wireless Carriers

By Steve Rosenbush There was a time, not so long ago, when making a mobile-phone call involved all sorts of "maybes." Maybe the call would go through. Maybe the connection would remain stable. Maybe the person on the other end would sound like they were enclosed in a shark tank at the bottom of the ocean.

While cell-phone service isn't perfect now, the era of the "maybes" is over. Having mastered the task of transmitting voice calls, wireless carriers have moved on to providing new services such as instant messaging, sending photos, and perhaps, one day, mobile spam.

SOUR NOTE. The most important of the new services, however, might be the delivery of music to mobile phones. Now that consumers have grown accustomed to carrying around small digital devices packed with thousands of songs, the convergence of such music players and wireless phones is an obvious next step. "The growth in music on wireless devices is really the key for growth for the wireless industry," says Rudy Baca, wireless analyst for independent researcher The Precursor Group.

Expect the mobile service providers to have some growing pains, however. Cellular carriers, particularly those in the U.S., are accustomed to building and controlling the bulk of new services. Witness Verizon Wireless's decision to disable certain Bluetooth features on Motorola's (MOT) new V710 phone. Wireless Bluetooth technology allows users to send messages, photos, music, and other kinds of data for free to printers, laptops, and devices a few feet away. Verizon disabled the features so users would have to send the data over the wireless network and pay a fee. The decision prompted a lawsuit that's just getting underway in Los Angeles.

If the U.S. wireless industry is threatened by Bluetooth, what will it make of mobile music? While service providers still could charge users who download songs, they would have to learn to partner with other businesses in a new way. It won't be easy, but it probably makes sense.

FEAR OF COMMODITIZATION. Musiwave, a startup based in Paris, provides mobile music services to such carriers as Europe's Vodafone (VOD), France Telecom's (FTE) Orange unit, and Spain's Telefonica (TEM). The privately held outfit hasn't signed up any customers in the U.S. "We find the wireless business model in the U.S. very unusual," says founder and Chairman Gilles Babinet. "Wireless carriers in the U.S. want to do everything for themselves. But they don't have the expertise to run a music business, which is why we tell them they would be better off -- and make more money -- working with a company like Musiwave."

The wireless industry's business model in Europe is similar to the pioneering road paved by DoCoMo (NTM) in Japan. The latter opens its wireless networks to thousands of entertainment and news companies, which pay a small percentage of their revenue to DoCoMo, Babinet says.

That business model is slow to take off in the U.S., especially when it comes to music. Wireless carriers fear that their brand will be overshadowed by entertainment providers, relegating cellular service to commodity status. Their fears aren't baseless, although that dire scenario isn't inevitable, Baca says.

UNCOMFORTABLE WITH MUSIC. As a general rule, mobile users can't download music directly from the Web to their phones. Motorola offers a handset that includes an MP3 player. It has external memory, which can carry content that has been downloaded or copied from a computer to a memory card, depending upon which country the carrier is based in. The download service isn't generally available in the U.S, according to Motorola.

There are signs of change. Motorola is working on a music service with Apple Computer (AAPL) that will turn cell phones into wireless iPod devices, but it won't be available for several months, according to Alberto Moriondo, worldwide director of Motorola's wireless entertainment group.

But even if Apple makes its software available to wireless users, it could be several years before the market really takes off. Wireless outfits just don't seem comfortable with the idea. Music is curiously absent from Verizon Wireless's (VZ) cutting-edge V Cast service, which is scheduled to debut next month.

NOT COOL ENOUGH? Spokesman Jeffrey Nelson said the high-speed wireless service will allow users to download an unlimited number of videos for $15 a month to new phones from LG, Samsung, and UTStarcom (UTSI). But music videos will cost extra -- and music without the video won't be available at all. "We're offering other cool things," says Nelson.

Few things are cooler than the latest popular song. But companies like Verizon know they can charge a hefty premium for content like music videos and games. Music is harder to control and won't command the same premium-per-download. But it's widely available to mobile-phone users in Europe and Asia, and the cellular sector in those regions is doing fine. Maybe the U.S. wireless industry will catch up someday. Just maybe. Rosenbush is a senior writer for BusinessWeek Online

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