At Wireless 2009, it's all about the apps

The mobile industry's big trade show will see applications trump devices. But what will Skype on a cell phone mean for the carriers?

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By Stephanie N. Mehta, assistant managing editor

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NEW YORK (Fortune) -- First there were the would-be iPhone clones. Now come the putative App Store copycats.

More than a year ago device manufacturers followed Apple's (AAPL, Fortune 500) hugely successful iPhone (Apple sold close to 4.4 million units in the quarter ended Dec. 27, 2008, up 88% from a year earlier) with their own touch-screen models. Today the wireless industry is feverishly trying to mimic Apple's App Store -- a digital marketplace where iPhone users shop for games and other downloadable fare.

Analysts believe Research In Motion (RIMM) this week will unveil its BlackBerry App World, its response to the App Store, at CTIA Wireless 2009, an annual industry trade show that will convene April 1 in Las Vegas. Convention goers also will be looking for Palm (PALM) to provide more details about its new Pre smart phone, which the company has said it will ship in the first half of the year, and is likely to have its own storefront for mobile downloads. (Google (GOOG, Fortune 500), while not a device maker, is the leading force behind Android Market, an application library for yet another mobile operating system.)

In related news, eBay's (EBAY, Fortune 500) Skype tomorrow will begin offering a free application on the iPhone that allows users to chat and make calls over Wi-Fi networks. (More on that in a moment.)

"The App Store phenomenon is real," says Phil Asmundson, managing partner of consultancy Deloitte's technology, media and telecommunications practice. "Applications totally change the device; they make your device less of a phone and more of what you the consumer want it to be."

Indeed, with downloadable software from thousands of third party developers (the store boasts some 25,000 applications) people can turn their iPhone into, say, a pedometer, a special machine that can identify constellations, and a musical instrument -- just to name a few of the functions that apps make possible on the device.

For Apple, the triumph of the App Store isn't just about the money. Apple retains about 30% of the revenue from application sales, and with roughly 800 million apps downloaded, ranging in price from free to north of $10, the device maker certainly benefits financially from the store's success.

Apple and its rivals also know that having the coolest applications on their platforms also helps win new customers and retain existing users. That's part of the reason device makers RIM and Palm have been wooing software developers to their platforms. Quite simply, they don't want to lose customers because they can't compete with Apple's array of cool downloads.

But for wireless network operators such as Verizon (VZ, Fortune 500), AT&T (T, Fortune 500), Sprint (S, Fortune 500) and T-Mobile the value of apps is not as clear cut, especially if those applications might eventually cannibalize their cash-cow voice business (more on this in a moment).

Right now carriers are supportive of applications for a couple reasons: They, too, are in a fierce war to win and retain customers, and having cool devices (and that means cool downloads, too) is an important tool.

Moreover, downloaded applications require customers to buy data service plans, usually on top of traditional voice plans. That adds to the carriers' monthly revenue per user, a key metric in the wireless industry.

So far, so good. But now eBay's Skype, will make Voice-over-Wi-Fi available as a download on iPhone's App Store. That doesn't mark a major threat to iPhone carrier AT&T's main voice business - people can't make so-called VOIP calls unless they are fixed near a Wi-Fi hotspot - yet. Still, "Skype's mobile application could mark a new era in the U.S. wireless space," writes Julien Blin, president at of Los Angeles-based JBBresearch, a tech research and consulting company.

Indeed, Skype's presence on the App Store could be a Trojan Horse: Analysts such as Blin believe it is only a matter of time before voice-over-IP applications come to the mobile world. That's bad news for carriers: If Skype's voice application were available on an operating system, users could simply download the Skype application and make phone calls using a data plan, bypassing the wireless carriers' voice networks altogether.

Lowenstein believes carriers will eventually offer their own VoIP applications to compete with Skype and others. Clearly, letting consumers make wireless calls on their data networks may not be as profitable as selling voice plans, but the carriers may be able to charge a small premium for VoIP services by assuring better quality connections. And at a minimum, as with all applications, they might get customers to buy more data minutes.  To top of page

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