iPhone quietly setting the tone in Barcelona

Aude Lagorce

LONDON - Call it the iPhone effect.

Such is the sway of Apple's yet-to-be-released gadget that it has, in subtle ways, shaped the agenda of the mobile-telecommunications industry's largest annual gathering.

The 3GSM show, which runs from Monday through Thursday in Barcelona, is the first major industry event since Apple Inc. unsettled handset makers such as Research in Motion and Motorola Inc. with news of its forthcoming $499 gadget back in January.

Loath to publicly admit it, they know the iPhone - a combination of a phone, an iPod music player and a device to surf the Internet_ rings in a new era.

So while the iPhone name may not be on every executive's lips at the show, it will most certainly be on their minds.

And as the likes of Nokia and Sony Ericsson unveil their latest high-end models, investors and industry insiders alike will be quietly assessing how they measure up to Apple's new creation.

Matthew Hatton, an analyst with technology research firm the Yankee Group, cautions that comparisons could be tricky.

"The issue with the iPhone is that very few people have seen one or had a chance to play with it. Is it really a sea change? Is it really that revolutionary? That's hard to assess without getting your hands on it."

So while they keep their ears open for more information, phone makers will likely stay mum on Apple's latest venture. "They can't comment because they don't know what they're really up against. That makes it hard to fight back," Hatton said.

In that context, low-key launches are expected at the gathering in Spain.

"Most of the models will be evolutionary," rather than revolutionary, said Hatton.

Carolina Milanesi, a principal analyst in Gartner's mobile-devices and consumer-services team, said she expects a flurry of launches, if only because fewer of them now take place at CeBIT, the annual tech industry trade show in the German city of Hanover in March.

"As the importance of CeBIT has waned, we've seen more consumer product announcements at 3GSM," she said.

This year more than 1,300 companies will be showcasing their products. Chief executives from Alcatel-Lucent, Vodafone, Ericsson, Nortel Networks, Research in Motion and others tech heavyweights will be attending. See more technology coverage.

Among the likely stars of the show will be Sony Ericsson's super-thin W880i Walkman, which was unveiled earlier this week and includes a 2-megapixel camera, and Motorola's KRZR K3. New versions of its slim `Q' smart phone are also likely to feature.

Research in Motion, meanwhile, is expected to show off the eagerly awaited 8800 `Indigo' handheld device.

Ahead of the conference, Oppenheimer analyst Lawrence Harris conjectured that the Indigo would probably be thinner than most BlackBerry handsets and borrow features from the sleeker-looking Pearl model.

At Nokia, the world's No. 1 maker of mobile phones, thinness will also be in vogue, with a potential update to the E62 smart phone, the introduction of the new E65 slider and maybe even the launch of the sleek multimedia `Barracuda.'

The advent of the iPhone puts undeniable pressure on handset manufacturers to beef up their top-end portfolio.

But the multitasking device, conceived to allow users to watch television, browse the Internet and listen to music rather than to simply talk, also signals a major industry trend: the erosion of traditional barriers between phone makers, mobile operators, content providers and Internet and cable giants.

"You're going to see content go from your TV to your computer to your phone. The borders between different devices, but also different providers, are blurring," said Gartner's Milanesi.

The industry conveniently refers to the trend as convergence. In practice, it means partnerships between mobile carriers such as Vodafone Group, Internet brands like Yahoo and entertainment empires such as Time Warner are likely to multiply as they vie to offer consumers a full package of services including voice, TV, Internet, music, gaming and other entertainment.

As an example, Vodafone last week announced an exclusive partnership with Internet portal to allow customers to edit their MySpace profiles, add friends and other functions while on the move.

"People want to be able to do on their phone the exact same thing they do on their PC. They don't want to have to learn new skills," said Milanesi.

But other alternatives to such partnerships could yet emerge. A week ahead of 3GSM, there was speculation that a group of operators including France Telecom, Deutsche Telekom, Telefonica and others could announce an alliance to create an in-house search engine, allowing them to bypass Google or Yahoo.

Underlining the growing importance of the convergence trend, a session at the show entitled "Clash of cultures - who wins when entertainment and communications converge?" will explore the topic and the potential consolidation it may spark.

While the issue of content delivery will keep operators busy in developed markets, they also know they must look beyond those markets for growth.

As recent interest in acquiring India's fourth-largest mobile operator Hutchison Essar shows, emerging markets are no longer an after-thought for global carriers such as Britain's Vodafone.

In the same way, the likes of Motorola and Nokia have recently stepped up efforts to appeal to customers in emerging markets with sturdier, cheaper but, also more fashionable, handsets. See archived story.

The increased focus comes as data show a majority of mobile-phone users now live in regions like Africa, the Middle East, India and China.

In fact, two thirds of the world's mobile customers lived in a developing country at end of 2006 compared with 50 percent at the end of 2003, according to consulting and research firm IDATE.

The heightened interest in emerging markets will be obvious at the show, with handset makers and mobile operators from developing countries holding more floor space than in previous years.

Official panels and discussions will also reflect the shift with the list of keynote speakers including Naguib Sawiris, chairman and CEO of Egyptian carrier Orascom, and Dinesh Wadhawan, CEO of the India Times newspaper.

Neil Mawston, associate director in the global wireless practice of Strategy Analytics, said emerging markets have driven the global device industry's 20 percent growth in 2006.

He said one of the key questions at 3GSM will be whether China and India can actually drive similar growth in 2007, and which manufacturers would get hit if there's a slowdown.

"The 20 percent growth rate has kept everyone in business. But the Japanese vendors are looking particularly weak in case of a slowdown," he said.





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