WHOLE LOT SMARTER SMARTER

The U.S. wireless industry is experiencing rapid and radical changes. A market long dominated by high-end business consumers is fast giving way to broad consumer acceptance of mobile telephony, and a duopoly is quickly turning into a heated competition between five or more carriers per major market.

Per-minute prices of 40> have fallen to between 15> and 20>, with the prospects of 8> to 10> a minute already evident in Canada. The increasing competition and falling per-subscriber revenues are forcing cellular and personal communication services operators to closely examine their product offerings. More refined marketing strategies call for a more targeted product line aimed at increasing appeal, raising per-subscriber revenue and reducing subscriber churn.

The traditional distribution model in the cellular industry is also changing. The old system of agents and resellers is giving way to carrier-owned stores and direct distribution. The higher price of early digital handsets has forced carriers to heavily subsidize the cost of the handsets and streamline their distribution. Consequently, carriers have greater power and influence over handset design and features, and they are increasingly strengthening their image by branding handsets with their logos.

The need for better product differentiation is evident both in the high and low ends of the industry. Voice service is difficult to differentiate beyond clarity, coverage and price. Carriers increasingly are looking to data services as a differentiation point for their networks.

The initial activity is in short message service, which is available with digital wireless technology including GSM, time division multiple access and code division multiple access (CDMA), providing service similar to one- or two-way paging. New Internet software platforms, such as the UP.Link Platform from Unwired Planet Inc., are turning mobile phone handsets into general-purpose information terminals.

These trends are signaling the emergence of a new middle tier of mobile handset functionality, nestled between the 1> phone and the $1800 communicator. These handsets are essentially conventional digital phones with added software intelligence.

Carriers are looking at these handsets, dubbed smartphones, to provide the information services and differentiation they need for their competitive services. Their goal is to keep the handset price the same and use innovative network-based services to enrich its functionality, an approach that mirrors the network computing movement in the PC industry.

Mobile computing devices The laptop PC has become the device of choice for mobile professionals. These devices are ideal for storing, analyzing and presenting information. They also have been enhanced with wireless communication capabilities.

Radiomail and Wynd have provided wireless e-mail services for the past few years through RAM, Ardis and cellular digital packet data (CDPD) networks. The PCMCIA architecture has allowed wireless modems to become better integrated and more portable.

Still, laptops have not been successful as mass-market wireless computing devices because of size, battery life and pricing issues. Most wireless modems are priced above $500, a serious barrier to mass adoption.

In the early 1990s, John Sculley, then chief executive officer of Apple Corp., coined the term "personal digital assistant (PDA)" to describe the newly launched Newton device. Newton was joined by a variety of "personal organizers" such as Sharp's Wizard, designed to establish a new category of personal appliances.

PDAs are characterized by their small size, light weight and novel input mechanisms - such as a pen or touch screen. The devices often use innovative software, including handwriting recognition software.

The main purpose of these devices is to keep track of appointments and store address books, to-do lists and projects. Newer PDAs such as Hewlett-Packard's LX or Microsoft's CE platform also provide a level of integration with desktop productivity applications such as Microsoft's Excel and Word. The emphasis, however, is clearly on the storage and access of personal information.

The most successful PDA to date has been the U.S. Robotics Pilot. This highly optimized device is simplistic in its approach, providing the capabilities most commonly demanded by users: address book, appointment calendar and to-do lists. The Pilot uses handwriting recognition for text input and is small and light enough to fit in a shirt pocket. The Pilot embodies the philosophy of a single-function appliance but is nonetheless an open software platform allowing value-added application development.

Historically, PDAs have lacked wireless connectivity, primarily because of form factor and battery power considerations. Most wireless connectivity solutions today take the form of PCMCIA cards. These cards require a card slot and derive their power from the host device.

Unlike laptops, however, most PDAs operate on double-A batteries, which hardly provide the power to operate wireless transmitters. Various PDA manufacturers are examining tightly integrated wireless data communications in future models, but even those will yield devices better suited to vertical applications than to broad horizontal markets.

Network computer meets mobile phone The network computer has emerged over the past year as a radical rethinking of the client-server computing model. The notion of reducing the intelligence and size of the client device and increasing its dependence on intelligent network resources is reshaping the architectures of corporate and consumer computing devices.

Oracle Corp. Chief Executive Officer Larry Ellison and Sun Microsystems CEO Scott McNealy have been the most outspoken advocates of this approach. Their rationale is that reducing the power and intelligence of the client device and increasing the capabilities of the network actually yields great improvements in system manageability and scalability. Furthermore, it enables centralized administration and software distribution, which can contribute substantially toward reducing operational and support costs.

The results of network computing are clear: smaller, less-expensive client devices that are easy to manufacture and distribute in large quantities. Network computing is a model that can greatly benefit the mobile phone industry.

Over the past few years, the communications industry has been eagerly awaiting the arrival of the mythical communicator - a device that would unite the capability of the PC or PDA with the portability of a mobile phone. Multiple incarnations of this device have appeared, from the Simon to the Nokia 9000.

These devices are all a result of the desire to combine the PC, PDA and phone into one device, seeking consolidation and integration for more effective communication. All, however, share a single characteristic: In the attempt to add "smarts" to the phone, the resulting devices failed to take market realities into account. They are hybrids - too large, heavy and expensive to achieve true mass-market acceptance.

A new device - the smartphone - has emerged as a natural evolution of today's mass-market digital mobile phone. Smartphones have the necessary ingredients to gain mass-market acceptance in the immediate future.

One approach to smartphones is to add valuable software features to existing consumer devices. This approach minimizes the consumer adoption cycles that slow the introduction of new technologies. Since consumer electronics devices such as mobile phones are actually composed of relatively standard computing hardware and software, manufacturers can add functionality without changing that hardware. Unwired Planet was born out of the notion that mobile phones make the perfect network computers - an ultra-thin client communicating with a capable network.

The smartphone takes an ordinary phone and adds sophisticated software to yield new capabilities. The result looks like, weighs the same as and works like a phone, with the addition of some valuable functions, including built-in digital data connectivity, a Web browser, the ability to compose, send and receive e-mail messages, and the capability of alerting the user when various notifications are received. Ideally, these added capabilities will not affect the physical size of the phone, its battery life for standby and talk time, or its price.

Smartphones require data network capabilities to allow them to interact with network computing resources. These data capabilities must be present in the handset itself without external PCMCIA cards or other attachments. Additionally, the network computing model calls for reliable, two-way networks to connect the client to information servers.

Tariff trouble Two-way short message service and CDPD are the only broadly available technologies that supply two-way data communications (Table 1). CDPD provides low-latency, high-throughput communications, with typical round-trip latencies of one second or less. The CDPD tariffs, however, are typically 5> per kilobyte of data sent.

Two-way short message service provides high-latency data transport with round-trip latencies of 10 to 20 seconds. The throughput provided is low, since individual messages are limited to between 140 and 160 bytes. Short message service tariffs vary, but they typically provide low pricing on mobile-terminated short message service - messages arriving to the handset - of around 1> per message. Higher prices are charged for mobile-originated short message service - messages sent from the handset. The cost can be as high as 50> in some European countries.

CDPD and short message service each brings its own limitations to the smartphone market. The software architecture that they both support successfully, however, is the Web browser model, which allows the smartphone to retrieve and display pages of information that are transmitted from Internet servers anywhere in the world.

The open publishing model of the Internet has revolutionized information distribution, allowing universal access to data. Corporate management information system applications have also been revolutionized by the emergence of open Internet technology. The client-server applications of the last decade have given way to a rapid infusion of intranet applications powered by Web browsers and servers. The browser represents a universal client - platform-independent and easy to manage.

However, one shortcoming of Internet technology has been its dependence on the wire and the desktop. The wireless world has been largely passed over by the incredible momentum of the Internet and intranets. The smartphone attempts to change that.

In 1996 three smartphones were introduced to the market: the Mitsubishi Mobile Access, the PCSI Pal and the Samsung Duette. These phones operate on the CDPD data network and provide analog voice service.

The original design for these phones was a hybrid voice phone and CDPD modem, with the main intent to provide data connectivity to laptops. All three devices offer a four-line LCD with 12 to 20 characters per line. These phones also have the ability to tether an RS-232 cable to a laptop and provide wireless TCP/IP connectivity.

Unwired Planet created the UP.Browser - a very small-footprint Internet browser that fits in the existing ROM and RAM of these phones. Combined with the UP.Link Gateway that resides in the network, the UP.Browser allows subscribers to browse selected Web sites.

Qualcomm's newest generation of CDMA smartphones, the QCP-1900 and Q phone, run Unwired Planet's UP.Browser. The vendor plans to make all its phones smartphones and will differentiate CDMA as a leading-edge data-capable platform.

Multiple CDMA carriers are expected to roll out smartphone services in 1997 and early 1998.

Smartphones are also popping up on the European GSM network - the Alcatel OneTouch Pro, the Nortel/AEG 1911 and the Mitsubishi M3. These phones provide three to five days of standby, three to five hours of talk time and small, lightweight designs. With the addition of the UP.Browser software, the phones provide Internet browsing as well as e-mail and alert services. As with other digital smartphones, the GSM smartphones are not expected to cost any more than phones without Internet browsing functionality.

Content and information services Because smartphones are equipped with Web browsers, the variety of content accessible to them is virtually unlimited. Any Web site can make its content available to smartphones. The information services provided to smartphones today include: Directory. White pages, Yellow Pages, toll-free pages.

Entertainment. Movie listings, television listings, jokes, horoscopes, gambling.

Financial. Stock quotes, trading, banking.

News. World, financial, business, company information.

Sports. Scores, news.

Travel. Restaurants, airline reservations, flight arrival and departure times, gate information.

Most Web sites depend on advertising or subscription fees to generate revenue. Smartphones do not yet support the sophisticated graphics necessary for consumer advertising. Smartphones are expected to offer bitmapped graphics by 1998.

Web sites that choose to provide information to smartphones can benefit directly from subscription fees or indirectly through increased brand awareness or attracting consumers who will also use their PCs to access advertising-supported Web sites.

Three models have emerged as typical business models. Some developers offer valuable content, such as real-time stock quotes and traffic reports, on a subscription basis. In the pay-per-view model, valuable content is available on demand without requiring an ongoing subscription. And some Web sites offer content - such as delayed stock quotes, news headlines and weather - for free. By the end of 1997, hundreds of Web sites are expected to provide content tailored for smartphones.

Ultimately, smartphones will radically alter the landscape of the cellular and PCS business. Carriers will have the flexibility to design unique and compelling services to attract and keep their customers.

Services such as e-mail will strengthen the bond between consumer and carrier. And a new middle tier of phones will have larger screens and keyboards while still priced at mass-market levels.

The very nature of the wireless handset will evolve from a voice communication appliance to a general-purpose information access tool. The Internet no longer will be only on the desktop - it will now be in the pockets of millions of people.

Ben Linder is Vice President of Marketing for Unwired Planet Inc., Redwood Shores, Calif.