Quotes of the Day

Mobile-phone makers scored a surprising hit four years ago when they introduced handsets equipped with tiny digital cameras. Today, nearly one-third of the cell phones sold worldwide do double duty as cameras, and that could reach two-thirds by 2009, according to the Boston-based research firm Strategy Analytics. So what will the mobile-phone industry do for an encore?

If you listen carefully, you can hear the answer reverberating from those distinctive white "ear-bud" headphones attached to Apple Computer's iPod digital-music player. After the booming success of the iPod and Apple's iTunes Internet music store, the mobile-phone industry is keen to join the party by converting phones into mobile jukeboxes capable of storing hundreds or thousands of songs. Meanwhile, cellular-network operators are launching their own download services, hoping that by generating revenue from digital-music sales they can recoup some of the billions of dollars they've invested in high-speed, third-generation (3G) networks. "This is the prelude to people effectively using their phone as an iPod device," says Ralph Simon, Americas chairman of Mobile Entertainment Forum, an industry association. "All of the smart money is aware this is the way this whole thing is going."

In the past year, several European cell-phone carriers have started music services. And this month, Japan's KDDI plans to offer 10,000 wirelessly downloadable tunes for $2 to $3 a track. "This really is a step forward because you get CD-quality files for the first time" via a cellular network, says Kirk Boodry, an analyst with Dresdner Kleinwort Wasserstein in Tokyo. "The potential for this service seems very strong."

Indeed, there's ample evidence that music could become a lucrative new market for companies like KDDI. Sales of ring tones reached $4.1 billion worldwide last year, according to Strategy Analytics, proving that consumers are predisposed to wireless downloading, even if the product is little more than synthetic song snippets. Technical barriers are disappearing, too: as more carriers upgrade to 3G systems, sluggish data-transfer rates are becoming a thing of the past (songs can be transferred in as few as 30 seconds via 3G networks). The capacity of phones to store music remains a problem, but that's being solved, too. This month Samsung Electronics plans to launch the first phone with a miniature hard drive, à la the iPod. Called the SPH-V5400, the phone has 1.5 gigabytes of memory—that's less than half the 4 GB on the iPod Mini but still enough for 300 songs. The price is estimated to be a wallet-straining $800. Other handset manufacturers—like Nokia, the world's largest—are considering making phones with hard drives.

Of course, it's not certain the industry can repeat its camera-phone coup. For mobile music-download services to take off, business models have to be developed and pricing for songs settled. Many consumers may prefer to transfer tunes already stored in their home computers to their phones, instead of paying high wireless fees to download music. Devices sporting hard drives may be too complex and expensive for the masses. Most important, record companies must embrace the idea—and so far labels seem concerned that wireless downloading will spread music piracy. For example, earlier this year South Korean record labels and three cellular providers—KTF, LG Telecom and SK Telecom—attempted to reach an agreement over copyright protection for mobile music services, but the effort has been bogged down by infighting.

Still, hybrid phone-music players are expected to gain widespread acceptance. According to Strategy Analytics, within five years, more than half of all mobile phones sold will be able to play digital music. "I wouldn't quite say music on mobile phones is shaping up to be a killer application, but I would say it's a manslaughter app," says Neil Mawston, an analyst for Strategy Analytics. Need further validation? Motorola, the world's second-largest cell-phone maker, recently announced it will include Apple's iTunes software on its next series of phones.

• Austin Ramzy | Hong Kong
• The mobile industry wants to turn your cell phone into a jukebox