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Convergence-back with a vengeance

More than 1.5 billion people subscribe to wireless services. The vast majority of those wireless users see their mobile phone as a device that allows them to talk to other people-and nothing more. The wireless industry, however, is spending billions of hours and dollars inventing gadgets that can do much, much more.

The buzzword is convergence. It means: What else can you stick in a phone besides the standard dialing and talking stuff? The list-in no particular order, and by no means complete-looks something like this:

Internet browser, push to talk, digital camera, digital music player, TV, presence, video player/recorder/calling software, FM radio, audio player, color screen, 3D rendering, a QWERTY keyboard, Bluetooth, removable memory cards, Java/BREW application engines, Wi-Fi, a hard drive, ZigBee, UWB, ring tones, alarm clock, calendar, e-mail client, speakerphone, GPS, text and multimedia messaging, RFID, smart cards, e-wallet technology, fingerprint scanner, over-the-air updating software, calculator, infrared, USB, bar-code scanner, desktop computer synchronization, instant messaging, voice recognition, etc.

Some high-end phones even sport a full-blown operating system-indeed, how else could you manage all those features and functions?

Thus, a wireless user in the future could hear a new song on their phone’s radio, download and watch the music video, purchase and download a digital copy of the song, beam it through Bluetooth to a computer, and then take a picture of their roommate dancing to it-all without ever placing a call.

The proliferation of mobile-phone technologies-those that provide services above and beyond voice-introduce both opportunities and challenges for wireless players. On one hand, such features and functions can spur additional phone sales and higher carrier revenues. On the other, industry innovators stand to lose millions of dollars if a particular technology fails to tickle users’ fancy.

Take WAP, for example. Heralded as a major technology breakthrough at the turn of the millennium-it’s the Internet on your phone!-WAP largely fell flat with users.

“WAP was sort of the great science experiment to the world that convergence was possible,” said Bob Egan, head of research and consulting firm Mobile Competency. “But no one would use it if it was done bad.”

When it was first launched, WAP offered users black-and-white, text-based access to a relatively small number of wireless Web sites from the likes of CNN, the Weather Channel and Yahoo!. U.S. users enamored with the freewheeling, colorful world of the 20-inch-screen wired Internet were not impressed.

And five years later, there is still not much demand for wireless access to WAP Internet sites. According to numbers from market research firm Stax Inc., just 6 percent of U.S. mobile-phone shoppers said they were set on a phone with mobile Internet service. However, success can be measured in a variety of ways: The vast majority of phones shipped today feature a WAP browser.

Although WAP did not meet industry expectations, the convergence of the camera and phone exceeded expectations. According to Stax, 15 percent of shoppers rated cameras as their most desired feature.

“It’s incredibly easy to take and send a picture,” Egan said.

Introduced more than a year ago, camera phones in the United States have already taken the market by storm. In some cases it’s hard to find a phone that does not feature an integrated digital camera. Worldwide, handset makers shipped 170 million camera phones this year, according to Strategy Analytics, meaning that one in four mobile phones features an integrated digital camera.

“People like taking pictures,” Egan explained.

Despite such numbers, the impact of non-voice features is still miniscule. Major U.S. carriers score less than 5 percent of their revenues from non-voice services. But that isn’t stopping the wireless industry from researching convergence as a way to boost revenues and increase sales. The trick is to anticipate which combinations will succeed.

“We are enabling different services than voice, and we are enabling the phone to do voice differently,” said Remi El-Ouazzane, business manager for Texas Instruments’ Mobile Connectivity Solutions group. TI is one of the industry’s foremost chip suppliers, and therefore needs to be on the cutting edge of device convergence.

El-Ouazzane said TI’s Mobile Connectivity Solutions group is focusing on phone technologies including Bluetooth, Assisted GPS, digital TV and Wi-Fi. To justify the expense of researching and developing a particular technology, El-Ouazzane said TI looks at a few key metrics.

First, a particular technology-Bluetooth, for example-must pass the 30-70 rule. At some point in the next several years, the technology has to be deployed in between 30 and 70 percent of the world’s handsets. El-Ouazzane said Bluetooth today is in around 20 percent of all handsets, but TI expects that number to increase to 70 percent by 2009.

TI also expects Wi-Fi to hit the 30-percent rate at some point in the next several years, which is why the company has begun developing Wi-Fi/cellular chips. Indeed, El-Ouazzane said TI believes that most of the major U.S. carriers will launch a Wi-Fi/cellular device by the third quarter of this year, and that those devices will be aimed squarely at the consumer. TI bases its estimates on research from firms like Gartner and IDC as well as on its own information.

El-Ouazzane said TI also calculates the cost of chip development as well as average phone selling prices when evaluating various technologies.

Convergence is inevitable, El-Ouazzane said. Indeed, five years ago TI was not convinced that a camera/phone combination would be successful.

“I cannot believe that this device will be used for voice only,” he said. Converged devices “are not just for nerds.”

Analog Devices Inc. is also trying to divine the will of the market. The company sells chips to the likes of Research In Motion Ltd., LG Electronics Co. Ltd., Sharp Corp. and others. The company is interested primarily in convergence at the chip level-where technologies like ring tones, speakerphones, cameras and color screens are combined onto a single chip.

“Our approach is to have fewer processors, and smaller and better ones,” said Doug Grant, director of ADI’s business development for RF and wireless systems. “What we look at are things that everyone wants.”

Thus, ADI’s evaluations are much stricter. The company will only devote time and money into single-chip integration if most of its customers will use it. For less essential technologies, ADI partners with other chip suppliers to offer dual-chip products. For example, the company combined Cambridge Silicon Radio’s Bluetooth chip with its own offering for customers who were looking for Bluetooth capability. If a time comes when all of ADI’s customers want Bluetooth, the company then would work to integrate the technology into a single-chip product.

Those in the industry predict the phone market will shake out into three distinct categories. On the low end will be phones that offer voice and a smattering of data. On the high end will be smart phones replete with operating systems and all manner of bells and whistles. And everything else will fit in the middle.

“There’s this middle ground that’s just enormous,” ADI’s Grant said. “Feature combinations will proliferate.”

A variety of combinations will populate the mid-tier, Grant said, each appealing to a slightly different class of user. There will be music-centric devices that will combine a phone with a digital music player and an FM radio. There will be gaming-centric devices that will feature speedy processors and 3D graphics. There will be video-centric handsets offering digital camcorders and TV services. And such mix-and-match combinations will grow as the number of wireless technologies expands.

There will be “an increasing number of hard-to-classify solutions, which take advantage of the enormous popularity of cell phones and their mobility,” said Nitsan Duvdevani, co-founder of research and consulting firm Standard Insider Ltd.

However, Duvdevani, Egan, Grant and El-Ouazzane could not name a feature combination they thought would fail.

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