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A Media Center in Your Pocket?

By Olga Kharif Today, it's a no-brainer: Most of us watch TV on a set at home. We listen to music via our MP3 players. When we go to weddings, we snap pictures with digital cameras or camcorders. We play games on -- what else? -- gaming consoles. But everywhere we go, we also carry a cellular phone for calls and text messaging.

That little cell phone is about to become a viable alternative to some of those other gadgets. This year, the U.S. will see a flood of phones with music, gaming, and video capabilities usually found only in stand-alone electronics devices. For the first time, camera phones' resolution and zoom will become as good as that of low-end digital cameras.

And today's sprinkle of phones that double as MP3 players will turn into a flood. The world's largest cell-phone maker, Nokia (NOK), will double the number of handsets with MP3 capabilities in 2005. Of the 40 phones the company will introduce this year, 50% will feature built-in MP3 players.

Right now, an average camera phone sells for about $150. But by the end of the year, the price will plummet as volumes build, says Neil Strother, an analyst with tech consultancy In-Stat in Kirkland, Wash. Plus, more mass-market phones will feature advanced capabilities, including MP3 players. Take the Nokia 3220, which should hit the market next month with an improved camera, the ability to play video clips, and an MP3 player -- all for less than $100.

ZOOMING IN. While it's too early to junk all the other consumer gadgets, this trend has huge implications. As new and improved capabilities are added to cell phones, they'll become competitive threats to a host of products, from MP3 players to laptop computers. And as the cell phone takes on a more central role, the consumer-electronics and PC markets could find that demand for their stand-alone products slackens. "We'll see a transfer of money from consumer-electronics manufacturers to cell-phone manufacturers," says Martin Reynolds, an analyst with market consultancy Gartner.

And the wireless capabilities of a cell phone could give them a leg up on what's already out there. A cell phone with a built-in MP3 player could, for example, download music right from a wireless network at a moment's notice. It will be able to synchronize with a PC. And with special memory features, such as Nokia's so-called removable memory, they will be able to store as many songs as regular MP3 players.

Ditto for camcorders and cameras. Until now, cell-phone cameras have offered dismal resolution and limited ability to zoom in on an image. But on Jan. 4, Samsung unveiled its SCH-a890 camera phone with a 1.3 megapixel resolution, way up from the under-1 megapixel camera phones available from manufacturers last year. As a rule of thumb, more pixels means a better image. Samsung is already selling a 5 megapixel phone in South Korea, and such high resolution models are bound to come to the U.S. in the next few years.

CELL CONVERGENCE. Later this year, Nokia plans to offer its first 2 megapixel phones in the U.S. Some mobiles coming onto the market will also feature optical zoom: Essentially, they will snap photos that are as good as those taken with your average, stand-alone digital camera. Only with a cell phone, you will be able to e-mail a photo over a wireless connection instantly, without going through the hassle of hooking up to a computer.

That's just the start. As cell phones improve over the next two years, they'll also start playing a major role in the home. Soon, they'll act as a remote-control devices, orchestrating the use of other home electronics, believes Andrew Cole, a vice-president at business consultancy AT Kearney. Consumers might one day use their cell phones to download a movie over their wireless connection and show it on their TV sets. At work they might use cell phones to remotely program their home set-top boxes to record, say, an episode of The Apprentice.

Some of these capabilities are already available, but navigating takes considerable skill. Customers of AT&T Wireless, which is part of Cingular, can already order songs over their phones, to be downloaded from the Web later onto their home PCs.

IN THE PICTURE. As interfaces improve, navigating such a service will become a lot easier. "This year, you'll see the picture come together of what [digital convergence around the cell phone] would look like," says Jim Ryan, vice-president for consumer data services at Cingular, a joint effort of telcos BellSouth (BLS) and SBC (SBC), in Atlanta.

To deal with the cell-phone onslaught, consumer-electronics makers have to partner with cell-phone makers or wireless-service providers. Last year, Apple (AAPL) teamed up with Motorola (MOT), and the two are expected to introduce a cell phone with an integrated iPod music player later this year. The player will carry up to 25 songs and feature Apple's signature, easy-to-navigate interface, says Jim Wicks, director of consumer design for Motorola.

Eventually, cell phones could become the weapon that wireless providers use to threaten cable and satellite companies. Sprint PCS, a unit of telco Sprint (FON), is starting to dabble in video services, and others are following suit. Eventually, this trend could allow users to download movies wirelessly onto their cell phones -- and TVs and other home devices. The cell phone would then work as a sort of a megaremote, shifting all this content to devices around the home.

CABLE OUTFITS, BEWARE. TV service providers are certainly taking this threat seriously, and AT Kearney's Cole, wouldn't be surprised if a cable operators' consortium buys a wireless outfit in the next year or so. "There's certainly a sense of urgency to understand consumer demand and to meet it," says Mimi Thigpen, vice-president of strategy at cable company Cox (COX) in Atlanta.

As phones pull in more of the other devices' functions, wireless companies are bound to grab more power. And for everyone from consumer-electronics companies to cable service providers, that spells trouble. Kharif is a reporter for BusinessWeek Online in Portland, Ore.

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