Pi-Consulting

“Call you back, I’m on the other application…”

Is it a bird? Is it a plane? Naw. Don’t get over-excited, now, people, it’s still basically just a cellphone.

One large worldwide purveyor of mobile telephony hardware, based in South Korea, is advertising its latest cellular telephone with the arresting claim that we should “Imagine a phone you can’t live without”. How ready are we to believe them?

We’re all supposed to palpitate with emotion at the mention of 3G (that’s third-generation to you and me) cellphones. They cruise the internet! They play music! They let you watch TV clips! They let you play live games online! They send e-mails and photos! They file your tax return! (Actually we made that last one up). The problem is, a gap is beginning to open up between consumers’ expectations of their cellphones and cellphone manufacturers’ expectations of their consumers.

At the root of the problem is money. As one heavily-committed cellphone enthusiast put it, “They hit you with all these extra charges, so you don’t want to use the thing”. Our hero (we’ll call him Buzz) subscribes to multiple mobile telephony services, and is now finding something like $60 per month being added to each of his bills. And, to top it all (technophile though he assuredly is), even Buzz is beginning to find it quite complicated to figure out how to use all the new features available on his handsets.

American mobile phone services have spent around $10 billion in three years on upgrading their networks, in the hope of making Buzz ecstatic, as opposed to just happy, which he was anyway. 3G has cost them dear, and Buzz doesn’t seem to be thanking them profusely enough. Which worries them because, if a self-confessed phone freak like him is hanging back on their offerings, where is the huge crowd of mainstream consumers they are going to need in order to recover their investment? It could take years for them to materialize in the required numbers.

Two mathematical equations are on a collision course. The industry’s math says that, with exotic new services on offer, consumers will find the money somewhere to pay for them. Consumer math, at least as calculated today, is starting to resent the monthly amount that existing voice-only cellular services are costing them, and is looking for ways to cut back even on that investment. There are enough markets like Japan and South Korea where 3G systems are already up and running to show that Consumer Math could trump Industry Math for quite a while after the 3G upgrade becomes available. Both countries found that it has taken several years and several rounds of price-cutting before consumers felt good enough to trade up in significant numbers to the new data and entertainment features on offer.

American carriers are being cagey about their 3G sales results to date, but industry analysts tell us that there are fewer than five million 3G phones in use in the USA, i.e. only about 3% of the market. Worse, a third of those phones are not even connected to 3G services, implying that some technophiles are more interested in their phone as a fashion accessory than as a conduit for infotainment in new and exciting forms. This thought is echoed in Japan, whose pioneer market status has seen customers upgrading to the new phones , yet actually reducing their individual monthly expenditure on services.

Some new services do seem to be finding a market. Delivery of data services to cellphones has doubled in a year in America, and big carriers like Sprint Nextel, Cingular and Verizon count on these for around ten percent of their revenue already. Sprint Nextel point to a million music downloads in the four months since their October 2005 launch (some were freebies, they admit), while Verizon claims that in a similar period its customers used their handsets to send over 7 billion text messages and more than 130 million photos.

Yet it seems that in some cases manufacturers are not adding new applications to their handsets in response to real consumer needs and demands, but simply because they can. How badly do people want their telephones to do all those other things anyway? We don’t yet require our dish-washing machines to double up as microwave ovens or lawn-mowers, after all. And much cellphone-to-cellphone data traffic can be handled by conventional non-3G handsets anyway.

Industry analysts Forrester Research put their finger on an underlying problem that may go even deeper than pricing issues: most people still look at these devices as simply telephones. Says a Forrester report, “The biggest impediment is not pricing or technology, but consumer behavior”.

And it is consumer behavior that will have to change if the cellphone market’s Next Big Thing is to take off. Will users click with the notion of viewing and exchanging TV clips on their mobile telephones? Will consumers on the move pop for an additional $10-$15 a month in order to download (slowly) and watch (on a very small LCD display) news items, sport clips or MTV rock videos? Particularly when they can catch the same fare at home for free — quicker and on a bigger screen?

When the verdict comes through, it will be coming to a very, very small screen near you.