Upward Mobility

Ultrafast networks and whizzy features are about to turn your cellphone intowell, your right arm

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Park Hyun-A is someone you might want to watch. A 21-year-old student at Korea University in Seoul, she'd like to be a marketing executive for a telecom or fashion company someday and enjoys playing matchmaker for friends looking for the perfect mate.

But what's really intriguing is the way Park uses her Samsung mobile phone. Each day she waves it over a reader at a turnstile in the train station to pay her fare. Then, during the long ride to school, she flips open the screen and rotates it 90 degrees to watch satellite TV. On the same screen, Park pages through an e-book version of Joachim de Posada's Don't Eat the Marshmallow...Yet!: The Secret to Sweet Success in Work and Life. She sends an average of 66 text messages a day, snaps pictures of cute guys and sends them to friends, and plays an online game in which she runs a virtual fruit store. "I can hardly think of my life without my handset," Park says.

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A lot of us in the U.S. already feel the same way. Whole industries are now reconfiguring themselves to keep feeding the addiction. In the past year, cellular-service providers and phonemakers have begun moving to faster networks, including something new called WiMAX, which is like Wi-Fi writ large. The transition will accelerate in 2007, beginning in January with two giant industry trade shows. These will unleash a flood of innovative mobile gadgets and services, like those enjoyed by Park Hyun-a and her friends, that will stretch the definition of wireless as we know it.

The term "cell phone" certainly doesn't do justice to Park's polymorphous handset. Two of the networks this phone may soon run on--Wi-Fi and WiMAX--don't even use cell towers. That's why Motorola (MOT ) Chief Executive Ed Zander refers to such gizmos, his own phones included, as "the device formerly known as the cell phone."

This latest phase of the mobile revolution is intimately tied to the abrupt rise of media-rich social networks such as Google Inc.'s (GOOG ) YouTube and News Corp.'s (NWS ) MySpace.com. Groups of friends crave connectedness, and they achieve it by swapping photos, music, and video clips, immersing themselves in a shared, sensual chronicle of daily life.

To participate, you used to have to sit in front of a computer screen. But a host of advances, including faster network speeds, exotic new batteries, and bright, energy-efficient screens for mobile gadgets, could cut some of the last tethers to the PC. The handset, stuffed with content you purchase or create, will become your personal television network, your music studio, and your wallet for dispensing digital money. It could also become your personal location service. Today, cars with satellite-mapping software can tell you how to get to your destination. Phonemakers are now building the same kind of technology into their handsets, which, among other things, can send out an emergency beacon that summons your friends to rescue you from a bad date.

It's not just gadget makers that need to wrestle with the implications of mobility. Advertisers will have to recalibrate their business models to safeguard privacy, and users will have to be able to opt out of solicitations aimed at their mobile devices.

Startup computer services with names like ipsh! and Mobo are laying the foundations for this, creating a framework for you, the consumer, to form covenants with your trusted vendors. As you walk down the street, the services might let you know that those Juicy Couture (LIZ ) jeans you wanted are on sale a few blocks south, or that Chez Panisse has two seats available at 7 p.m. Stores will know you're in the vicinity because you have sent a text message to a computer that notifies the vendors you trust--or maybe you'll allow them, at certain moments, to "sniff" the chips in your phone that uniquely identify it as yours.

If some of this sounds familiar, it's because the ideas go back to the early days of the dot-com boom. PocketTV and location-based marketing were two recurring themes of the telecom bubble that culminated about five years ago in frothy European auctions of "third-generation" wireless spectrum. Carriers dropped tens of billions of dollars at these auctions, expecting mobile commerce to explode. But neither the hardware nor the clever applications were ready for prime time.

Much has changed in five short years. For starters, wireless carriers and handset makers have made progress on hardware and software standards. That makes it easier to roll out applications involving text, voice, music, and video and have them work seamlessly with any device, whether it's the slim Motorola Razr or Samsung's Q1 Ultra Mobile PC.

South Korea and Japan have emerged as oracles of mobility. More than 3 million Koreans regularly use their mobile phones to log on to the giant Cyworld social networking site. Both Japan and Korea are starting to roll out speedy WiMAX data networks that can deliver wireless broadband access to entire cities. The two countries were among the first to initiate walletless payments like Park Hyun-a's graceful phone swipe at the turnstile. That's being tested now on the New York City subway and on San Francisco's Bay Area Rapid Transit network, as well as at McDonald's (MCD ) and in some grocery stores. Watching Korea and Japan "is like looking into a crystal ball" to see where the U.S. is headed, says David Meredith, senior vice-president of security company VeriSign Inc. (VRSN ), whose technology helps protect such payments.

Much of the credit for these shifts goes to the "Thumb Generation," the twenty- and thirtysomethings who grew up with game controllers and cell phones glued to their hands. People like Park think nothing of spending $100 a month for phone-based services ranging from talk and instant messaging to mobile satellite TV, games, and e-books.

Not surprisingly, the Thumb Generation is also dreaming up some of the most interesting media-junkie mobile applications. "They don't ask why something can't be done; they simply figure out how to do it," says Ken Hyers, an analyst at industry watcher abi Research.

Entrepreneur Sam Altman is all thumbs--in a good sense. Instead of spending his 2005 summer traveling abroad, the 21-year-old Stanford University computer science major holed up in a sublet in Cambridge, Mass., writing code to create the friend-finding service Loopt. It aims to address the most common question in text messaging: Where R U? "There's nothing worse than trying to meet a friend, and you don't know how to get to them," he says.

Loopt is a $2.99-a-month service available through youth-oriented wireless carrier Boost Mobile in 41 states and parts of Mexico. It combines mapping software with global-positioning technology and proprietary code to send out alerts when a friend in your opt-in personal network is nearby. With Loopt, you also can view photo diaries of your friends' lives, "chirp" them with the push-to-talk feature on certain phones, and display maps that show where your friends have gathered.

Nobody expects a seamless transition to this new wireless world. Even in areas where there is plenty of venture funding, such as cashless payments and mobile TV, two startups will probably fail for each one that succeeds. More than a dozen companies already offer social mapping software similar to Loopt, and there's a good chance Google, Microsoft (MSFT ), or Yahoo! (YHOO ) could trump such services with their own ad-supported deals.

Features, however cool, may not always win fans. Wireless carriers expected digital cameras on phones to boost their data revenues as consumers e-mailed millions of pictures to one another. But in the five years since Nokia Corp. (NOK ) introduced camera phones, most pictures snapped by Americans remain in the phones' memory. On the upside, U.S. carriers were surprised by how readily Americans paid $2.99 for personalized ringtones. (Sometimes expectations are dead on: Everyone thought NTT DoCoMo Inc.'s (DCM ) Hello Kitty paraphernalia, heavily downloaded in Asia, would fail in the U.S., and they were right.)

The next big battleground could be your back pocket. Studies show that people notice their cell phone is missing within an hour of losing it, compared with a day or more for credit cards and wallets. Such insights helped persuade MasterCard (MA ), Visa, and American Express (AXP ) that phones are central to people's lives and actually could start to replace wallets. The Big Three are working with handset makers and service providers to add low-power chips for two-way communication between handhelds and payment systems, on the model of Seoul's electronic turnstiles.

One novel idea: Let visitors in a shop download and pay for a music video simply by waving their phones in front of a poster of a band. Some 450 million handsets with this sort of technology built in are expected to ship by 2011 in the U.S. It would open up a "micropayment" market that could be worth $1.3 trillion. In Japan, contactless payments will total $900 million this year, according to researcher Strategy Analytics. MasterCard and Visa researchers found that consumers whip out the contactless device 18% more often than debit or credit cards, and they spend more per transaction.

Many tech investors are also betting mobile video will eventually catch on. When Paul Scanlan and a partner founded MobiTV in 1999, they had just $500,000 in venture funding. By 2003 their service offered 12 channels of video. Today they have $100 million in backing and stream XM Satellite Radio (XMSR ), along with premium fare, to handsets. Last year, MobiTV began distributing video for Sprint-Nextel, (S ) Cingular Wireless (T ), Orange, and a more than a dozen other carriers worldwide.

Carriers have an urgent need to make these new services stick. While Americans still gab at a rate of 67 billion minutes a month, call revenues have declined sharply because of fierce competition. And as more devices tap into cheap or free Internet calling systems such as Skype (EBAY ), revenues from voice calls could take another hit.

The carriers may well make up for some of that lost revenue by selling episodes of Lost. But as wireless networks become more congested with data-heavy applications such as video, it's a challenge to provide good service consistently. "Whoever can execute most quickly and most effectively is the guy who's going to lead the horse race," says Bill Clift, a former Cingular chief technology officer who now runs wireless consulting firm Optimi Corp.

New technology may clear some of the bottlenecks. High-speed data networks finally are delivering Web connections to the cell phone with speeds that rival dsl at home. This could lead to a virtuous circle: As network speeds improve, the Gang of Five handset manufacturers--Nokia, Motorola, Samsung, Sony Ericsson, and lg--take a risk and build higher-end digital cameras, music players, and recording devices into their handsets knowing that consumers will find it easier to share content from their phones. That's already happening. At the same time, the handset makers are adding chips that not only help you figure out where you are but also allow others to find you and possibly sell something to you.

Does anybody really want that? Nokia believes its users will welcome such services. Two years ago the company scrutinized 6 billion data points from customer surveys, then embarked on a major push to create do-it-all multimedia phones under the Nseries brand. "If we don't embrace multimedia, enterprise, and the Internet, we will get left behind," says Nokia Chief Technology Officer Tero Ojanpera.

Two clever technologies may be crucial to putting the mobile device on equal footing with the PC. The first is WiMAX. A global standard, it is designed to blanket whole cities in broadband and could be available to as many as 1.5 billion users worldwide by 2008. Intel (INTC ), Motorola, and Samsung have invested heavily in the technology, and Sprint plans to begin building an entire Web-based phone network tuned to WiMAX starting next year. "Everybody is now serious about it," says Intel Corp. Executive Vice-President Sean M. Maloney.

Even more intriguing is a next-generation networking architecture called ims, or ip Multimedia Subsystem. The technology would essentially link up all appliances and electronic devices over the Net. Each one then becomes its own Internet "node" able to interact with all the others. Early applications might include cellular handsets that provide ultrafast Wi-Fi access when you're at home, then switch automatically to cellular frequency when you are out of range. Startup Mavenir in Richardson, Tex., hopes to take this idea a step further, providing software to cellular carriers so they could serve up everything from Internet phone calls to TV shows. So if you're out of the house during the big Michigan-Ohio State game, you can tap into your TiVo from your cell phone, then switch to the big screen--right where you left off--when you get home. This has huge implications for mobility. "A PC is like a telescope into the virtual world," says Kiyoyuki Tsujimura, ntt DoCoMo's executive vice-president of products and services. "But with a cell phone, there's a merging of the real world and cyberspace, the physical and the virtual."

Consumers generally agree that do-everything gadgets deliver on their promise, but at a big cost. Battery life tends to be so miserable that users end up having to carry separate devices with dedicated functions, such as playing music. Of the 125 million people who own super-versatile smart phones today, 75% still use one or more of these other portable gizmos, according to researcher In-Stat.

Part of the problem is reconciling function and fashion. Members of the Thumb Generation see their phones and music players as extensions of their personalities. That's why so many of them demand stylish phones like Motorola's Razr. Rivals blasted it when it debuted because of its poor battery life and confusing user interface, but it has sold more than 50 million units in just two years on the market, nearly as many as the iPod. Nokia, Samsung, and even Research in Motion (RIMM ), maker of the BlackBerry, have responded with devices like the e61, BlackJack, and Pearl, respectively, which are also battery-challenged if users try to move around too much data in the form of TV shows or music. "The mobile phone can either be like a Swiss Army knife or a Swiss watch," laments Scott McGregor, CEO of wireless chip provider Broadcom (BRCM ). "One does a lot of things, none of them particularly well, and the other operates with perfect precision."

Like automakers, handset manufacturers are turning to alternative energy sources to solve the ubiquitous battery problem. Samsung this fall received a methanol-based battery prototype from fuel-cell maker mti Micro (MKTY ). It hopes to commercialize that in late 2007, replacing its traditional lithium-ion batteries. Consumers would buy replacement cartridges made by Gillette (PG )/Duracell to get battery life sometimes measured in weeks instead of hours. Toshiba (TOSBF ), Hitachi (HIT ), Fujitsu (FTJSY ), and other battery makers also are pursuing the technology.

Once the technical issues are fixed, the rollout of such technologies could disrupt the business model of both gadget-makers and content providers. This process can be perplexing to consumers. Microsoft's new Zune digital music player, for example, ostensibly does the same thing as an iPod, but its selling point is that it shares information over a wireless link. Apple reportedly plans to respond next year by selling a phone that also plays music. Do you call it a phone, a music player, or an iPod? It's a muddle. Nokia now calls its Nseries of smart phones "multimedia computers." Samsung has settled on the term "mobile information terminal" for its most phone-like products, but devices not much larger are referred to as "ultramobile PCs."

Figuring out who gets paid for which part of the business is almost as dicey as deciding what to call the different elements. Consider what happens when American Idol viewers pay 99 cents to cast a vote for their favorite singer via text message. Proceeds that can amount to millions of dollars are split between the network, the show, and Cingular. If you watch the show on your cell, MobiTV also takes a cut.

With so many partners in on each transaction, the stage seems to be set for consolidation. A year ago, Sprint partnered with Comcast, Time-Warner (TWX ), and other major cable players that would allow each to resell a combined wireless and content package. Some speculate Comcast (CMCSA ) may eventually be forced to buy Sprint-Nextel to compete with Verizon Communications (VZ ), which is rapidly building a fiber-optic network to complement its traditional wired and wireless businesses.

Chaotic, to be sure. Yet this is the future 25-year-old Noah Glass relishes. After all, his generation says it no longer wants to fumble for cash, and it trusts the Web enough to handle tasks like preordering and prepaying for Subway sandwiches. Glass's startup, Mobo, allows its members to store their credit-card information, favorite restaurants, and typical menus on a computer server. Each order has its own number. As you head to work in the morning, you text just one of those digits to Mobo, which places the order and pays the bill. The restaurant then texts back to tell you when your order will be ready. Arriving at the restaurant, you skip the line and pick up your breakfast at Mobo's express counter. Mobo charges you nothing but gets 10% of each order from the vendor.

Glass sees no reason Mobo can't extend this model to ticket ordering, parking-meter payments, and taxi services. "We want to make Mobo a verb, as in I just Mobo'd my lunch,'" Glass says. Looking back in a few years, maybe we'll discover that we have all just mobiled our whole lives.

By Cliff Edwards and Moon Ihlwan, with Kenji Hall

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