A small deception is being practiced in Los Angeles and Washington, D.C. In those cities, 300 people who might look like typical headphone-wearing commuters are listening to the radio while stuck in traffic or holding on as their overcrowded train chugs along in the morning rush hour. But they carry a secret.
They aren't listening to music on their portable radios, nor playing podcasts of homebrewed radio programs on their iPods. They're grooving to the radio, all right, but it's flowing from an unexpected source: their cell phones.
This small army of testers is checking out Motorola's (MOT) iRadio service, expected to launch by yearend. And these listeners won't be on their lonesome for long. Scores of handset makers, wireless carriers, Web portals, and even satellite radio companies are starting up services that offer radio over cell phones -- betting that the market for such services could be as big as camera phones and ringtones.
"VERY INTUITIVE." Chances are radio services will be a hit with the 2 billion wireless subscribers worldwide. "Mobile phones are always with you," explains Nancy Beaton, a general manager at telco Sprint (FON), which became the first carrier with a commercial cell-phone radio service in December. "Because customers are familiar with how the phone works, adding radio can be very intuitive," says Beaton.
And many users want that addition. According to surveys conducted by America Online, a unit of Time Warner (TWX), more than half the respondents say they would listen to the radio on their phones. AOL is in talks with wireless service providers to offer its online radio stations on mobile phones within months.
Cell-phone radio might have greater appeal than mobile video. Handset maker Nokia (NOK) is currently testing cell-phone video over a new network, but it has discovered that many consumers end up using the video broadcasts as radio. They listen to them most of the time, instead of squinting at the phones' two-inch screens, says Kari Lehtinen, a manager at Nokia. "Radio seems to be surprisingly popular," he says. So, Nokia expects the new network, when launched sometime in 2006, to also offer numerous audio channels.
RIPPLE EFFECT. Just how big is the revenue opportunity? So far, it's small because wireless networks, as well as cell-phones microprocessors and memory, have only recently become robust enough to support the service. Cell-phone radio should generate a little over $70 million in sales in 2005, estimates market researcher IDC. But those sales will mushroom as companies like major wireless network operator Crown Castle (CCI) and other providers launch a dozen radio services in the next year. Crown Castle is expected to build the new Nokia video network.
Radio service also could spark sales of other wireless content. "Since radio is how people discover new music, I'd look at radio as the trigger that would create follow-through sales of [popular content like] ringtones, ringbacks, and music downloads," says Lewis Ward, an analyst at IDC. If users hear a song they like on their cell-phone radio, they'll be able to immediately buy a related ringtone via their cell. That should accelerate the growth of the $500 million ringtone market, as well as sales of ringbacks and music downloads.
However, companies have yet to agree on the best way to deliver radio broadcasts to mobiles: Simply installing an FM/AM radio receiver onto a cell phone makes it bulkier and rapidly drains its battery. So many outfits are trying other, more battery-saving approaches.
SNIPPETS OF NEWS. One possibility is adding satellite radio receivers to cell phones. Both industry heavyweights, XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI), say they're in discussions with wireless carriers. And on June 14, Sirius signed an agreement with Sprint to offer programming for cell phones.
Most cell-phone radiocasters, though, plan to use existing wireless networks, but to varying extents. Motorola's iRadio, expected to cost $5 a month, will let customers download hours of radio programming via a PC. New radio-ready Motorola phones are expected to be unveiled this fall. Motorola plans to insert snippets of breaking news into these broadcasts as they're downloaded over its wireless network.
Sprint is using its wireless network to deliver an entire radio broadcast. Costing $5.95 a month, the service is supported by programming partners like Mspot. The startup adapts radio content to the cell-phone format, offers music news, a selection of music stations, and customizable content. For instance, if you're a fan of rock band Green Day, you might receive special interviews and concert audio.
PEER-TO-PEER TUNES. Other companies, like a startup called Mercora, hope to make cell-phone radio drastically different from traditional radio. At the heart of the $3.99-a-month service, which debuted on June 7, is special downloadable software that turns every cell phone into a radio station. Each phone then broadcasts its owner's songs to other users over the wireless network. A user can then stream, say, a Gwen Stefani radio station. That station broadcasts of all of the singer's songs that are available on the network.
The beauty of this radio peer-to-peer approach is that users can choose from more than 25,000 radio stations, offering everything from German pop to American jazz, says CEO Srivats Sampath, who previously co-founded antivirus giant McAfee (MFE). Unlike many Internet-based peer-to-peer sharing sites, Mercora also pays royalties to the corresponding record labels each time a song is played. Thus, users can enjoy the piece of mind knowing that their pleasure is legal.
Streaming radio over a wireless network has downsides, however: If the service becomes popular, the network could become overloaded. What's more, wireless dead spots will cut off radio transmission.
A CHEAPER WAY? That's why Nokia and chipmaker Qualcomm (QCOM), are both pushing for an alternative approach: Building a special network that would broadcast video and audio content -- perhaps from existing radio stations like those owned by Clear Channel (CCU) or Infinity Broadcasting -- onto cell phones. That would be cheaper than beefing up existing wireless networks to handle audio and video, says Lehtinen. Nokia is now testing in the U.S. and Europe. These networks should become operational in 2006.
Whatever path it takes, listening to the radio on a cell phone might be commonplace very soon. By Olga Kharif in Portland, Ore.