Tech Special

SELLING THE CELLS

A cool new generation of do-it-all phones enters the market at a tough time

CHRIS WOOD December 3 2001
Tech Special

SELLING THE CELLS

A cool new generation of do-it-all phones enters the market at a tough time

CHRIS WOOD December 3 2001

SELLING THE CELLS

Tech Special

A cool new generation of do-it-all phones enters the market at a tough time

CHRIS WOOD

She looks harmless enough, sitting there behind the wheel of her van outside a school in southwest Calgary. Just another stay-at-home mom waiting for the kids to get out. Except this mom isn’t killing time with a paperback or some knitting. She’s plotting the downfall of global empires. At this very minute, in fact, Rosa Seabrook is targeting a wave of nuclear strikes against a distant rival in a titanic struggle for wealth and power being waged around the world—and across the tiny screen of her cellphone. It’s all a game, of course, a tricky multi-player contest pitting cellphone users against each other in simulations lasting weeks. But, confesses Seabrook, “I’m an addict. It’s a lot of fun nuking an empire.”

So much fun that Seabrook figures she spends far more time playing Atomic Dove—the creation of a Vancouver software company—than she does actually talking on her year-old cellphone. Which makes the blond and bubbly Calgary

mother of four exacdy the kind of consumer that cellphone makers and wireless carriers are praying for more of.

Against a sectoral gloom that set in even before the September terror attacks, Canada’s wireless industry is betting heavily on a mix of game-playing moms, corporate road warriors and digitally savvy kids to lift it above the weight of debt taken on to build new and faster cellular networks. All four major Canadian carriers will switch on their new services in major cities by early next year, with coverage in the rest of the country to follow. The networks differ slighdy among carriers. But all accomplish much the same thing: they let Web-enabled cellphones connect to the Internet at roughly the same speed as a good dial-up connection from a desktop computer—unprecedented in the wireless world. To make those networks pay, however, carriers and phone-makers now must sell consumers on a new generation of “communicators”—geek-speak for devices that combine the attributes of a cellphone with a text-messaging tablet like Canada’s BlackBerry and a Web-enabled personal digital assistant like the Palm—not to mention a mobile computer modem.

Despite an uptick in handset sales in the wake of Sept. 11, news out of the wireless sector has been mostly gloomy for months. Montrealbased Microcell Communications Inc., home of the Fido brand and the smallest of the big four, lost $120 million in the third quarter. CEO André Tremblay called the business environment “the worst the industry has seen for as long as anybody can remember.” No. 1 carrier

Rogers AT&T Wireless, which launched its new network in November (and whose majority owner, Rogers Communications Inc., also owns Macleans), had a $29-million third-quarter loss. Secondranked Bell Mobility does not separate out its bottom line, but its Montreal parent, BCE Inc., declared a third-quarter loss of $146 million. While Burnaby, B.C.-based Telus Corp.—the parent of third-ranked Telus Mobility—boasted a third-quarter profit of $584 million, that almost surely came from other ventures.

Handset makers have their own woes. Although industry leader Nokia Corp., based in Finland, is in the black, profit is down 70 per cent from a year ago due to a worldwide drop-off in sales. Americas Motorola Corp. had its third losing quarter in a row, and predicts red ink for the rest of the year. After watching handset losses mount, Sweden’s Telefon AB L.M. Ericsson has gotten out of the business entirely, spinning it off to a joint venture with Japan’s Sony Corp.

They, along with carriers and a host of smaller companies making software for Web-connected cellphones, are counting on the new networks to turn things around. On the evolutionary path from first-generation analog cellphones through second-generation digital phones to an envisaged future of lightning-fast wireless chatter among appliances of every sort, marketers and engineers quibble about whether this represents a real third-generation advance—known as 3G—or a second-generation extension dubbed 2.5G. What is more important is whether the connection speeds they make possible will finally sell consumers on the value of services that have been available on some cellphones for about a year, at much slower

delivery speeds.

Services like Atomic Dove. The game is one of about 30 offered by Air Games Wireless Inc., a startup housed in brickwalled Gastown digs.

It licenses its game and chat software to carriers—Telus in Canada, others in New Zealand, Holland and the Philippines. They in turn bill players a few cents each time they play. “Every turn you take,” says Air Games partner Fred Ghahramani, “Telus realizes some revenue, and we realize a part of that.” Telus charges 10 cents for each turn of Atomic Dove. Not much. Still, Seabrook, the self-confessed “addict,” expects her pastime to add as much as $100 a month to her next bill.

It’s an effect carriers hope to replicate with dozens of other services that become more convenient at the higher speeds of the new networks. Among them: downloadable custom ring tones; music clips and games; news, weather and sports headlines; online banking, stock quotes and bidding on Internet auctions; movie listings and restaurant reviews; dictionaries, daily jokes and even archives of suggested pick-up lines. More relevant to business users will be the ability to access corporate networks, desktop applications and specialized software from the road. Those will be available directly on the phone itself, or could be accessed at dial-up speeds from a laptop connected to the phone. A frequent for-instance imagined by marketers is the ability to update a PowerPoint presentation with new prices from

head office on the way into a sales meeting. Economist and Vancouver-based wireless consultant Michael Kuhlmann has tried many of the pioneering services on both existing Web-enabled phones and the speedier new networks. “For anything except e-mail now and then, it’s been just abysmal,” he says. “Now it does become usable.”

Handset makers hope to add to the appeal of such wireless online services by packing the next generation of communicators—no longer simple telephones— with additional features. Models available or coming soon from Nokia, Motorola and Ericsson, as well as South Korea’s Samsung and Japan’s Kyocera, boast bigger on-board memories, bigger screens (monochrome for now, but colour versions will begin to appear next year) and, in some cases, miniaturized but full-alphabet “QWERTY” key-

boards. With as much as 40 megabytes of memory, some new phones rival devices like the Palm, Compaq’s iPAQ, Research in Motions BlackBerry or Handsprings Visor. Developers of those, in turn, are working to add voice to their existing wireless Internet capabilities. Handspring, for one, hopes to have something called the Treo —already for sale in Britain—on the market in Canada by mid-2002. “The idea,” says Handspring founder Jeff Hawkins, “was to combine a phone, organizer and wireless data access into one small product so people could carry a single device instead of two or three.”

For carriers, its all about “arpoo.” What sounds like a rude noise is actually wireless industry verbal shorthand for a critical number: revenue per customer, or “RPU.” As ordinary mobile-phone service has become a commodity in recent years, margins have been pared to the bone. Nor do carriers profit from handset sales: Canadian carriers have traditionally subsidized their customers by selling handsets at below cost, hoping to make back the investment on airtime charges. As the economy sours and cellphone sales level off, carriers are increasingly desperate to wring more revenue from each existing user. “What’s going to drive RPU higher,” says Jim Filice, Motorola Canada’s director of wireless messaging sales, “is downloading ringtones, downloading music, downloading applications onto the device.”

But the new model remains unproven. If they build it, will Canadians come? The evidence to date is hardly encouraging. Available for a year, Internet services over low-speed connections from cellphones have hardly taken the nation by storm. Among existing users of Palm-style devices, fewer than five per cent add available wireless modems, says Dennis Asbury, general manager ofTLD Computers Inc., which sells electronic equipment to companies. He expects that number to grow once higher speeds are available on national networks—but only to about 15 per cent within the first year.

Another unknown is whether Canadian youth will embrace the phone-based e-mail known in Europe and Japan, where it is hugely popular, as SMS (for short message ser, vice). In those places, phone companies don’t charge cell THflF

subscribers for calls they receive, as Canadian carriers do, and far fewer people have access to the Internet from personal computers. Will Canadian kids, accustomed to free instant messaging from their desktop, be willing to pay for the same thing on a cellphone? Carriers aren’t sure, but they took a big step toward making it more likely on Nov. 6, agreeing to open their networks beginning next year so that an SMS message sent on one of them will be able to reach its recipient on any of the others. But that may not be enough. “To get this down to the teenager,” says economist Kuhlmann, “you have to go an order of magnitude cheaper. It simply will not happen if there is not a cheap, all-you-can-eat plan.”

For executives tasked with making the new networks pay, figuring out how to charge for them is a burning priority. “Pricing architecture is so sensitive it’s a competitive issue,” says Rajiv Pancholy, president of Microcell’s oper-

ating subsidiary, Microcell Connexions. “You search for the sweet spot.”

One big change: because the new networks are always “on”—electronically checking in with every cellphone within range every few seconds—the old notion of charging customers for how long a circuit is open is meaningless. “It’s a new billing paradigm,” says Charlotte Burke, Bell Mobility’s vice-president of market development. “We go from billing in time to billing in data, by kilobit or packet or whatever.” Burke predicts consumers will be paying for some services on a per-use basis, for others with a flat monthly rate.

But as carriers, software developers and handset makers all search for the sweet spot on the new networks, longer range plans for even beefier wireless webs are being rescheduled out into the future. True 3G networks able to deliver streaming video and interactive games to handsets at speeds approaching today’s cable and high-speed phone connections were once anticipated by 2003 or 2004. They’re now more likely to appear in the second half of the decade. The players have their hands full selling Canadians on the value of paying bigger monthly phone bills for portable, but still tiny, windows on the Internet. That, and the primal satisfaction of launching the odd global nuclear attack. El

G-SPOTS AND X-RATINGS

VHS and Beta. Apple and the PC. Now, the dog and the penguin. As the wireless industry gears up for a massive marketing assault to promote its new phones, there is once again a question of standards. While Microcell’s Fido pooch will always be able to speak to Telus Mobility’s penguin, the differences could affect which phone you buy.

Canada’s four major wireless carriers used various incompatible technical standards for cellphone traffic before the advent of the latest networks, and they still will. Bell Mobility and Telus Mobility, which employed the CDMA standard widely used in North America, have adopted its next-generation equivalent, the unpronounceable lxRTT, to transmit data, such as Web pages and messages. Rogers AT&T and Microcell, whose new networks use the Global System for Mobile Communication standard (GSM) that is also deployed in Europe and Asia, are adopting its high-speed data sister, known as GPRS. Happily, the big four have agreed on a

way to seamlessly exchange short messages punched in on the keypad. So what’s the diff?

The GSM carriers will be able to advertise phones you can use overseas, while their rivals will proclaim that their X-rating gives them the edge in data speed.

Bell has even maintained that its new network is “third generation”-known as 3G. The others make a more modest claim to 2.5G status-an intermediate improvement on second-generation digital phones, en route to 3G. In fact, the world’s only true 3G network at the moment is the closely watched NTT DoCoMo system in Japan, which will offer full-motion video on its colour-screened phones. To be 3G, phones must offer speeds up to twice that of a standard computer dial-up modem even in a moving car, and should be able to zap data like a cable connection while stationary. The current Canadian offerings pretty much stop at the dial-up modem speed, with Bell claiming a few more bits per second. But once they get to 3G, all are supposed to use the same standard, and dogs will be indistinguishable from penguins.