Cellular Handsets: What's Hot, What's NotKey Points

TWICE: As cellphones evolve into multipurpose devices that function as digital cameras, PDAs, game players, personal media players and handheld navigation systems, what will be the impact on sales of dedicated devices?

Laikin: Cellphones with embedded digital cameras surpassed dedicated digital camera sales in 2005. High-quality, multi-megapixel optic phones such as Nokia's N90/91 have become significant threats to digital cameras and camcorders. As flash-memory capability increases in handsets, there will be a decreased need for dedicated digital cameras. Similarly, stand-alone PDA sales will continue to decline due to the growth in sales of the converged smart mobile devices.

Misuraca: We continue to see the merging of multifunction devices, but the high-end products will never get cannibalized. Consumers don't want to rely on multiuse devices for everything because while the device does many things, they don't do them well enough for most consumers.

The overwhelming majority of consumers still consider their digital camera their primary picture-taking device. Navigation on the phone is becoming more user friendly by the day and provides a nice solution to on-the-go travelers and mobile business users. However, navigation systems on cars are also coming down in price and provide a more of "sense" of direction being that it is stable and you have a real-time compass to easily figure what direction your car is headed vs. how you positioned your cellphone sitting on your seat or dash.

Burke: The size of the opportunity for wireless operators and device manufacturers will surely grow as categories merge and evolve. We believe that in the near term, many consumers will still be interested in devices with basic phone capability. As the converged devices begin to deliver “usage expectations and results" comparable to dedicated, stand-alone devices, consumers will migrate to the convenience of a single device.

The cellular phone will continue to be the one technology device most consumers have with them at all times. It's "your keys, your wallet and your phone."

The interesting story in imaging is not that we are capable of delivering 8-megapixel phones. The interesting story is that 2-megapixel capability — sufficient to print a 4-inch by 6-inch image with quality — is becoming available at mainstream price points and that the ecosystem for taking, managing and printing images is becoming easy-to-use for the mainstream consumer.

Skarzynski: One of Samsung's strengths is our ability to port consumer electronics functionality (camera, music, video) to handsets. We are the undisputed leader in advanced camera handsets (5-megapixel handsets) in Korea, where we've announced 7-megapixel handsets. In the United States, we were the first, and still only, handset vendor to launch multi-megapixel handsets and handsets with optical zoom. Converged high-quality camera/handset devices cannot help but have a negative impact on stand-alone digital camera sales.

Of the main handset vendors, Samsung was the first to market and is the leader in PDA handsets.

We are the first, or among the first, to market 2.5/3G handsets, which support streaming video, streaming music and advanced services. We will have launched three EV-DO handsets at Sprint by year-end 2005, and our closest competitor will have one. We have launched the most EV-DO handsets at Verizon (four). We have launched the most EDGE handsets at Cingular (four), and will be among the first, if not the first, to launch a Cingular UMTS handset.

Stone: We see the all-in-one phones that perform these functions well as being the most popular devices. For example, the new V phone from Verizon Wireless does many things (camera with picture and video capabilities and messaging, music player, gaming and video downloads, Bluetooth, etc.). There are and will continue to be application-specific devices in the marketplace (e.g. multi-megapixel cameras), but they will be more niche. Remember, the customer wants simplicity in devices and believes that less is more — when leaving the home or office, today's customer has three things: their wallet, keys, and mobile device. A single device that can serve multiple purposes is key to simplifying a consumer's life.

TWICE: What is the music-phone potential?

Misuraca: The potential is tremendous and a natural fit for the industry. Consumers will want both capabilities, however, in order to maximize their home and on-the-go music libraries. There currently isn't enough cross-platform compatibility for music phones to challenge the iPod or other MP3 devices.

Burke: Will consumers prefer MP3 phones that play ripped and authorized-download files transferred from a PC? Will they go for over-the-air downloads to the phone? The potential for music phones is very significant, and "yes" to all of the above. Music is evolving rapidly as a category. Consumers expect to be able to do the same things with music on their "music phone" that they want to do with their stand-alone music devices.

Motorola believes that the large number of phones sold and truly easy-to-use music capabilities for the mass market are going to re-invigorate, and positively impact the evolution of, the legal commercial digital music business.

Skarzynski: Converged music/handsets can currently provide consumers with high-quality music devices and high-quality voice handsets. The ability to provide great user experience for both functions (music/voice) will make converged music/handsets a success. Stand-alone music devices will have to adapt by launching a converged device or risk losing sales.

Again, Samsung is well positioned in the converged music/handset market due to our consumer electronic success and strength. Samsung was the first to launch a converged MP3/handset. Unfortunately, this occurred several years ago, and we were three to four years before our time. Currently, we have music-oriented 3G devices at both Sprint (only one) and Verizon.

On these converged devices, consumers want to only pay once for a song and be able to play that song on any device they own (computer, handset, etc).

Bent: Today your phone is always with you as part of your daily life. What better way to access your music anytime/anywhere and listen to the music you love on the go? But as music is a natural extension on the handset, it must also be a phone first, without compromise, and then a credible music player. Mass-market appeal will come from a quality experience not requiring a steep learning curve.

Setting the right expectations is critical to not confuse or over-promise on functionality. This will come from a phased approach to getting music on a mobile phone, thus fostering consumer acceptance and satisfaction that will drive greater adoption of services in the future.

As we already see today, ripping CDs and moving music files from your PC to the music phone is establishing a simple solution to use the phone as a music player. Consumers are already familiar with this, and providing access to a consumer's existing music library is an important first step. This already can be accomplished today on a variety of our handsets.

In the second phase, consumers will seamlessly manage purchased music files on their PC and phone. A critical element is to consider the consumer. With open standards, consumers can manage their music regardless of source without restrictions. People want choices, and with more music services and devices emerging, confusion over Digital Rights Management could prevent a positive experience.

As open standards and high-speed 3G networks become widely available, the consumer experience will expand to support purchasing new music whenever and wherever seamlessly with more choices than ever before.

Stone: In the music arena, Verizon Wireless sees a market for multiple use cases. In terms of music-capable devices, the key driver will be a device that can support multiple formats, interact with a PC interface, and download songs over the air. Of course, the process needs to be simple and intuitive as well.