Alltel, Others Move Toward All-in-One Handsets

The cell phone industry these days is about hearing more than ringtones and a caller on the other end of the line. Carriers continue to roll out more services and products that deliver audio content, such as music downloads and streaming newscasts.

Earlier this month, Alltel Corp. of Little Rock introduced Axcess Mobilcast, a service that enables Alltel customers to use their cell phones to search and listen to thousands of podcasts, such as National Public Radio or CNN news shows, for a monthly subscription of $3.99. Axcess Mobilcast uses Alltel's Brew technology to access the podcast library of Melodeo Inc. of Seattle.

Two days later, Alltel announced an agreement with XM Satellite Radio to provide 20 of XM's most popular stations to Alltel customers for $7.99 per month. Through the agreement, XM provides its content to MobiTV of Emeryville, Calif., which streams the content through BREW directly into a mobile phone application developed by MobiTV.

Alltel was the first wireless carrier to forge relationships with both of the companies, although Sprint has had a similar arrangement with XM's satellite radio competitor, Sirius, for almost a year.

Alltel's two announcements quickly followed Verizon's U.S. debut of the new LG8500, also known as the Chocolate. The new phone — currently available only to Verizon customers — looks, feels and sounds like a music player. The Chocolate also packs a memory slot that supports up to a 2-gigabyte card, comparable to Apple's iPod Nano.

The similarity to an iPod is no coincidence, Verizon spokesmen Jimmy Duvall said. The Chocolate is expected to compete with cell phones and with popular music devices.

"It's really designed first as a music player and second as a phone. All the previous designs were phones that happened to be a music player," Duvall said.

The Chocolate delivers music content via Verizon's V Cast music service, which launched in January. In preparation for the Chocolate, Verizon bumped up the number of songs in V Cast's library from 1 million to 1.3 million. Verizon also discontinued its former $15 monthly charge for access to V Cast content. Any customer can now download individual songs at $1.99 per direct download to their phone or 99 cents per download to their computer, which can be transferred to their phone.

The announcements by Verizon and Alltel illustrate the two differing approaches to flowing digital content directly into customers' phones: taking the risk of developing your own content platform, as in Verizon's case, or playing it safe by partnering with other companies whose products may already be familiar to many customers, as Alltel has done.

Wade McGill, Alltel's senior vice president of wireless product management, said Alltel was reluctant to jump into the downloadable music race because of the cost of delivering music directly to cell phones versus the price customers will be willing to pay to get it. Apple has set the standard at 99 cents per download, so why, he asked, would customers pay up to a dollar more for each download to their phone?

"We felt like XM was the way to go on the music," McGill said. He also said Alltel plans to roll out a new music service later this year, but it won't be an over-the-air service.

Donna Jaegers, an analyst with Janco Inc. who tracks Alltel, said this strategy is in line with the company's historical corporate personality as a "fast follower."

"They don't want to spend a bunch of money putting up an in-frastructure to give people service that nobody wants," Jaegers said.

"They will watch industry trends and when they see something that really starts to get some traction, then they are in there right away."

However, some analysts see great growth potential for downloadable music. The International Data Corp., which researches market trends of the information technology, telecommunications and consumer technology industries, released a report in June projecting that wireless mobile music users could surpass online music users by 2010.

But Duvall said the Chocolate and V Cast music will be successful in the short term as long as they create a lot of buzz among young consumers in particular and drive more customers of all ages into Verizon stores, regardless of whether or not each one of them buys a new Chocolate.

"Obviously, the early adapters on any new service are going to be...your teens and early 20s, that type of group. And that is really who V Cast music and the Chocolate are really geared to first of all," Duvall said.

The profitability of providing wireless customers with audio content remains uncertain. Revenue from audio is lumped together with all other data services, including text messaging, e-mailing and other forms of online entertainment. Across the board, data revenue has been on the rise.

Verizon, for example, recently reported data revenue surpassing $1 billion for the first time in the second quarter. Revenue from data is 13 percent of Verizon's overall revenue.

Duvall said V Cast music is the fastest-growing component of Verizon's data services, but this could not be independently verified.

Of course, neither Verizon nor Alltel is the first to offer downloadable or streaming audio content via cell phones. Almost exactly a year ago, Sprint announced a partnership with Sirius to offer 20 of Sirius' stations to its customers. Sprint also offers a music store were customers can download songs to their phones for $2.50 a pop.

Last September Cingular began offering its Bill-board mobile ap-plications and the Rokr, the first phone available with iTunes, which suffered a tepid reception in the market.

Analysts say these developments are bringing us closer to the Holy Grail of the industry: an all-in-one, multimedia hand-held device that customers will actually use.

Jeff Kagan, a technology and telecommunications expert, said cell phones will soon become a viable "third screen" that customers will use to access the Web, take pictures and watch video.

"These are all good ideas, but it depends on how well they are priced and how easy they are to get ahold of," Kagan said. "These are things that are just at the beginning of this wave, but I think we are going to be trying a lot of different pricing models and usability models."

Last month, the consumer research group Knowledge Networks released a report stating only half of subscribers to video cell phone services actually use those services.