Home > Handsets reach a crossroads

Handsets reach a crossroads

Supplier News

It lets users take and view photos and videos, listen to music, watch TV. In short, it seems as if the handset is on the verge of becoming the 21st-century Swiss Army Knife: a do-it-all gizmo that’s in everybody’s pocket or purse.

Feature evolution will be important in helping keep the money flowing in the mobile phone industry. The sales growth rate is slowing from the double-digit pace seen in the past few years to year-over-year growth of just under 6 percent. “It’s still a good pace,” says David Chamberlain, a senior wireless industry analyst at In-Stat. “This year will mark the industry’s fourth consecutive record year.” To encourage users to keep upgrading, handset manufacturers and carriers keep adding new features. The opportunities appear almost endless to supply new and better processors, radios, storage devices and other parts. That story line is just fine with component vendors; with more than 700 million handsets sold in 2005, the mobile phone is the current king of volume.

The trick is predicting what the next big thing will be in an increasingly hit-driven industry. That means uncertainty for everyone up and down the supply chain. “Increasingly, component suppliers will be asked to support services that have not yet developed a substantial market but show some future promise,” says Alan Brown, an emerging technologies and semiconductors analyst for Gartner.

There do appear to be a couple of smart picks for the coming years. Anything video- or audio-related appears to be a safe bet, although the right solution for data storage is still open for debate. And although the payoff is still years out, Wi-Fi and VoIP appear to be gaining traction as well. But these are shrewd guesses, not guarantees. Handset developers, cellular carriers, wireless providers and other parties with a stake in the technology all have different visions, and each one is trying to figure out how to anticipate the wishes of the one group that really matters: consumers.

The video picture is clear

Many in the industry say that the handset feature race began when Sharp built a camera into its J-SH04 handset, which debuted in Japan in December 2000. Since then the camera phone has become the poster child for the successful multifunction handset. In-Stat projects that unit shipments will soar from 295 million in 2005 to 570 million in 2008. As sales climb, the devices themselves are becoming more sophisticated. Some high-end models rival the capabilities of stand-alone digital cameras and are driving an increasing demand for sophisticated optics components. “This means imagers with 3, 5 and even 7 megapixels of resolution; better image processing behind the sensor; and control functions for the optics, such as integrated lens drivers for zoom and autofocus,” says Doug Grant, director of RF and wireless business development for chip maker Analog Devices .

Carriers pounced on camera phones when they first appeared, envisioning a lucrative extension of the short messaging service (SMS) trade: millions of subscribers sending images to each other instead of just text messages. Multimedia messaging (MMS) hasn’t taken off as quickly as the carriers hoped, but handset makers and their carrier partners are developing phones that function as personal media players (PMPs). Just as transistor radios revolutionised radio broadcasting in the 1960s, handsets with support for streaming media promise to turn content distribution on its head. Music and gaming have already emerged as hot mobile applications, as consumers look more and more to their [mobiles] for entertainment,” says Richard Kerslake, general manager of Texas Instruments ’ wireless terminal processors unit. The mass market is not yet willing to pay the hefty price for PMPs, US$400 to 500 ($540 to 675) , according to In-Stat. But as prices drop, In-Stat forecasts, worldwide PMP shipments will reach 7.5 million units by 2009.

“We can definitely see the trend from ring tones to full music starting now and continuing to grow into next year,” says Berardino Baratta, director of wireless and mobile systems strategy for chip maker Freescale Semiconductor (distributed by Arrow ). “I see video on handsets really taking off next year.”

In-Stat believes there is enough interest for mobile video to generate some significant revenue for carriers in the near term. David Chamberlain, an In-Stat senior analyst, notes that the number of subscribers purchasing mobile video content in the US will increase from an estimated 1.1 million in 2005 to more than 30 million in 2010.

In the business market, Andy Castonguay, a wireless/mobile industry senior analyst at US analysts Yankee Group, sees a growing potential for handsets that support mobile videoconferencing. He believes that the data network improvements that will come with the widespread deployment of Universal Mobile Telecommunications System (UMTS), a 3G broadband technology with data rates of 384 kbit/s and up, will help pave the way for videoconferences between users in multiple locations, inside and outside the office.

“Cingular, for example, by the end of 2006 should have pretty decent UMTS coverage, which really does facilitate videoconferencing,” says Castonguay. “Our expectation is that carriers will have good access to a wide variety of handsets that are going to be enabled for that type of activity.” This trend is expected to lead to camera-equipped handsets featuring image processors and other components capable of handling outbound-video streaming. “If a handset can accommodate incoming media streams, there’s no reason it can’t also handle outgoing streams,” says Castonguay. “Many of the components can easily support both modes.”

The arrival of videophones is good news for processor makers, with handsets requiring speedier and more powerful graphics engines. Nvidia is targeting handset makers with its new GoForce 3D 4800 Wireless Media Processor (WMP). “It integrates highly realistic 3-D graphics; multimegapixel still imaging; high-quality video capture, and playback that rivals that of home console gaming systems, digital cameras and video camcorders,” says Glenn Schuster, Nvidia’s director of partner programs. “Several [mobile] manufacturers have products using the GoForce 4800 in development.”

There is less certainty on the storage front. Handset makers are investigating several different technologies. Many models already accept Flash cards, such as SD and miniSD devices, with capacities maxing out at about 5 gigabytes. But such limited space leaves relatively little room for media storage, especially compared to media players equipped with mini hard drives, such as Apple Computer’s high-end iPods. That’s why more handset makers may move toward tiny drives. “Samsung has already made phones with hard drives in them,” says Gartner’s Brown.

On the other hand, handsets equipped with a hard drive consume more power than models using Flash cards, and users may not be willing to trade off more storage capacity for less operating time. Even more troubling is that the connivance of handset makers and carriers promises to derail the integration of handsets and hard drives. Carriers are in favour of anything that boosts airtime usage - users playing stored songs transferred from their PCs aren’t burning minutes.

The new Motorola Rokr handset music player, for example, uses 512 megabytes of Flash memory rather than a hard drive. The device also prevents users from storing more than 100 songs, regardless of the Flash card’s size, an apparent concession to both Rokr carrier Cingular, which at some point will probably begin offering wireless song downloading capabilities, and Apple, which wants to protect sales of its higher-capacity iPod models. If such a mind-set spreads to other PMP ventures, makers of mini hard drives might experience a hard time cracking the handset market.

Cellular versus wireless

As handset makers cram more technologies into their products, voice communication remains the reason—often the only reason—people buy a mobile phone. Yet voice technology is also undergoing a sea change, changing handsets, threatening existing carriers’ business models and opening opportunities for new service providers.

Voice over Internet Protocol (VoIP) technology, currently revolutionising traditional landline phone service, is heading to mobile phones. IP phone services (such as Skype, recently acquired by eBay) allow users to make free- or low-cost calls to virtually anyplace in the world from the Wi-Fi hot spots materialising inside a growing number of homes and offices as well as hotels, airport lounges, coffeehouses and other commercial locations.

A new generation of dual-mode IP/cellular handsets promises to give mobile callers the best of both worlds: low-cost voice connections inside hot spots and easy connectivity almost everywhere else. Most major handset vendors are either developing or planning to develop dual-mode models, says Brown. A few products have even reached the market. Fujitsu’s WiPCom1000, for example, looks very much like a regular mobile phone but has a Wi-Fi connection and a port for a Personal Handyphone System (PHS) card, a Japanese standard that allows users to add GSM/GPRS connectivity.

Mobile IP telephony is hardly pain-free. Among the troubles are garbled voices, sudden dropouts, severely limited service areas and numerous other quality-of-service issues. IP handsets also draw more power than conventional mobile phones, resulting in shorter talk and standby times.

Nevertheless, interest among potential users is high. Even though mass production of dual-mode handsets is not scheduled until 2007, a recent In-Stat survey found that more than 80 percent of businesses have an interest in the technology. Worldwide, the percentage of consumer VoIP subscribers using wireless IP phones will grow from 2 percent currently to 73 percent in 2009, predicts the market research firm. By that same year, In-Stat forecasts, more than 66 million cellular/Wi-Fi handsets will be in use.

With VoIP apparently gaining momentum, Wi-Fi chip set suppliers and vendors, such as Global IP Sound, that develop VoIP-oriented devices have been eagerly eyeing a potentially lucrative market. But those mass sales may still be years away. Agere Systems , for example, introduced a wireless VoIP chip set more than two years ago. Yet Mark Bode, Agere’s director of mobility products, believes that it’s only a matter of time before dual-mode handsets hit the mainstream. “It’s getting close,” he says.

Yankee Group’s Castonguay believes that wireless VoIP offers significant long-term potential, although most early adopters will be laptop computer users. “I think it will be a pretty small market niche for the next year,” he says. “But depending on how successful handset and carrier vendors are in making it easy to use and a true value, I think you may see some interesting uptake.”

Many cellular carriers would like to see handset makers steer away from dual-mode models, at least until the carriers can figure out how to move from a market based solely on cellular minutes to deals that accommodate both cellular and other wireless services. “It’s unlikely that carriers alone will be able to halt the rollout of a technology customers want,” says Castonguay. “For many carriers, the writing is already on the wall,” he says. To hedge their bets, several carriers have already begun deploying their own Wi-Fi infrastructures and/or creating alliances with Wi-Fi and VoIP providers. But like many mobile VoIP observers, In-Stat’s Chamberlain is a skeptic. “I can see why the cellular carriers would be very supportive of it,” he says, “because there’s really very little danger to them.”

What do they want?

The dirty little not-so-secret, of course, is that figuring out “what customers want” often seems like little more than pure black magic.

Perhaps most unsettling is consumers’ tendency to view innovation with suspicion, if not downright hostility. According to a recent In-Stat survey, 70 percent of mobile phone users are either “not at all interested” or “not very interested” in having a phone that plays music files. Only 30 percent expressed some level of interest. “That’s a lukewarm response, at best,” says Chamberlain. And the news gets even worse. Less than 11 percent of the respondents were very or extremely interested in broadcast TV functionality.

As handset makers continue to cram new technologies into their devices, they risk alienating users who simply want the ability to reliably place and receive voice phone calls. “There’s this big gap between what the handset vendors are providing and what consumers are really asking for,” says Chamberlain. In-Stat’s research is detecting a simmering rebellion among handset users.

“One of the basic underlying things is that people aren’t that interested in fancy uses of their [mobile] phone,” he notes. “Even text messaging is one of those features that goes unused by many people.”

The fear is that if the industry pushes too far, feature bloat may overwhelm handsets, intensifying size, cost and usability problems. In response, consumers and enterprises may begin opting for cameras, media players, portable games and other mobile devices with built-in telecom capabilities rather than handsets featuring multiple technologies.

That’s a worrying scenario for handset manufacturers, which stand to see their high-end sales drift away to vendors in other markets. “Mobile phones are competing with just about every other consumer electronics category,” says Avi Greengart, mobile device analyst for Current Analysis, a technology market research firm.

One could argue that electronics suppliers need worry only if the consumer electronics device manufacturers and service providers misstep so badly that consumers abandon their love affair with gadgets completely, a prospect that doesn’t keep many people up at night.

TI’s Kerslake says he isn’t overly concerned about negative statistics. But he has the luxury of working for a company with a broad technology portfolio. Companies relying on a specific technology may have some nervous nights ahead.

“As SMS and downloadable ring tones showed, you can never fully predict what will catch on with consumers,” says Kerslake. It’s not quite “who knows what those crazy kids will do next?” but it’s an uncomfortable truth for everyone, nonetheless.

Further information: This article first appeared in Electronic Business, November 2005. John Edwards (jedwards@john-edwards.com) has been covering technology for more than 20 years. His latest book is The Geeks of War (Amacom, June 2005).

Newsletter sign-up

The latest products and news delivered to your inbox