The Cell Phone As Handheld Miracle

A new software standard will bring startling capabilities

The London-Paris train emerges from the Chunnel into daylight. As if on cue, scores of executives reach for their cellular phones and get back to work. Although Europe lags behind the U.S. in much of the digital realm, it's far ahead in digital cellular telephony. Practically all Europeans are hooked to the same digital system, known as GSM, which sounds clearer and travels better than old-style analog technology. It also can shuttle data to and from the rest of the digital world, including the Internet. Betting on this common technology early this decade was what pushed Sweden's L.M. Ericsson and Finland's Nokia Corp. to fabulous growth in mobile phones. Meanwhile, Motorola Inc.'s gamble on analog cell phones led the U.S. standard-bearer into its late-1990s slump.

On June 24 in London, history seemed about to repeat itself. Nokia and Ericsson were preparing to announce a common standard for the imminent Third Generation of mobile phones--gadgets that incorporate live video and Web-surfing in a handset. Motorola was nowhere in sight. But at the last minute, Motorola Chairman David Brown pledged to pitch in. The three rivals, representing in nearly equal shares 80% of the world's mobile phone business, will use a common software platform developed by British pocket-computer maker Psion. They'll work together within a new British-based consortium, including Psion, known as Symbian.

Motorola's decision to adopt the standard could prove crucial for U.S. hopes to stay in step with the rest of the world when the Internet revolution goes wireless. A single operating system would go a long way toward bringing American consumers onto the next digital cellular bandwagon as wholeheartedly as Europeans are likely to join it. The agreement drove Psion's stock up by 300% in just a week. It also delivered a black eye to Microsoft Corp., which had hoped to unite the phonemakers behind its own Windows CE system.

The deal bodes well for consumers. By agreeing to use the same operating system, the companies make it likely that when the Third Generation phones arrive--as early as 2001 in Japan--they'll be able to understand each other. The common system should allow people to swap data, software, movie clips, and music, regardless of what phone models are being used. "By 2002, we expect 15% of the 600 million mobile phones in the world to be dealing with data," says Psion CEO David Potter.

The Europeans already have demonstrated how common standards can enlarge a market. The allure of buying cellular phones that work from Lisbon to Helsinki has proved irresistible to Europeans. The industry has grown an average of 40% a year over the past three years--faster than the 25%-to-30% growth of the splintered U.S. market, with three digital standards and 70 million cellular subscribers.

The hope is that customers will like Third Generation digital cellular technology even better. In this system, transmission speeds may eventually reach two megabits per second--40 times faster than even the fastest traditional modems. Even if mobile phones won't have full multimedia capabilities, users should be able to surf the Net or join in a videoconference from anywhere.

STINGY? The Third Generation isn't an automatic home run for the phonemakers. Customers may not want to pay a premium for mobile phones that perform all these tricks. And competition is sure to come from computer makers, most of which can add a telephone chip to their notebook or palmtop models. Also, while Third Generation infrastructure investments are on track in Japan and a bit slower in Europe, the U.S. industry is making little progress in deciding on a single digital cellular standard for Third Generation phones.

That's why Motorola needs to participate in Symbian to stay in the cellular game. The consortium is the phonemakers' best chance to come up with the kinds of killer applications that will lead mobile phones into the world of data.

There's no guarantee, of course, that the Psion system will monopolize the drive to roll out such whiz-bang offerings. Microsoft and others could very well push their way back into the market. But by adopting a common standard, the Symbian partners have given themselves a big headstart.

Before it's here, it's on the Bloomberg Terminal.