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More Than One-Hit Wonders For Wireless

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Best of wades through the top stories and issues that rocked the industry in 2006 in this ongoing series.

Mobility devices and their users got off to a rocky start in many ways in 2006, with surveys showing that end-users turned away from downloading a bevy of new applications that carriers kept rolling into the market.

But by year’s end, the two were, well, downloading great music together. For carrier companies, a shifting mobile landscape remained the same: a search for new revenue and relationships as cell phones became media centers and Internet calling moved into the mainstream.

Carriers began the year with sobering reports on the failings of their handsets. Both smart phones and camera phones received thumbs down from consumers in two surveys.

Equally disquieting for carriers: use of ubiquitous cell phone cameras declined, propelled by devices falling short when compared to modern digital cameras. A survey by In-Stat found that camera phone users took under 10 pictures per month. Although some 40 percent of mobile device owners delight in the feature, it hit its high-water mark in 2005, In-Stat noted. Now, consumers are turning to different features, such as push-to-talk.

“Ultimately, there is nothing in it for carriers” to upgrade camera phones, In-Stat analyst Bill Hughes said. Small wonder that carriers spent 2006 casting about for new mobile revenue, including partnering with Internet portals, selling new content services and hiking prices.

For its part, Verizon Communications (Quote) began by raising
on its lowest tier DSL service. The price hike was followed by reports Verizon would sell 5 million phone lines across seven states as the carrier concentrated on expanding its broadband subscriber base within its phone service footprint.

Then along came more choices with music downloads, such as Cingular, which recently announced a service letting subscribers transfer
digital tunes from services such as Yahoo Music (Quote) and Napster. Cingular followed by revamping
its iTunes-branded phone. Responding, Verizon (Quote) unveiled its V-Cast music store and the Chocolate handset, described by one analyst as an MP3 player with a cell phone thrown in as an afterthought.

Carriers are listening for more ka-ching behind their music offerings in 2007, Jupiter Kagan Research analyst Joe Laszlo said. Plus, social networking services on phones could help keep camera phone usage — and charges — thriving.

Carriers are rushing into the popularity of social networking sites, such as Google’s (Quote) YouTube and News Corp’s MySpace. Verizon last month let V Cast customers access YouTube videos from Chocolate or MOTOKRZR handsets. Cingular sponsored
a “battle of the bands” contest at YouTube.

Hedging its bet, Cingular signed a deal with MySpace to let subscribers access the most popular social-networking destination from their cell phone. More camera phone usage? Naturally. But it’s the buzz of all that mobile social networking that creates value for carriers, noted Jupiter Kagan Research’s Julia Ask.

Meanwhile, Back in Court…

RIM, maker of the popular BlackBerry, saw more than five years of fierce legal engagement over patent issues with NTP come to an end in 2006. When the two companies finally settled for $612.5 million over NTP’s patent claims, the Canadian-based RIM kept its U.S. service alive, its customer base intact and its immediate future solid, if a little less profitable in the short term.

Speaking of legal problems, Vonage took a PR hit after its IPO after inviting customers in on the action, only to see the offering fizzle. Customers balked then sued after buying in on the 31.2 million pre-sold shares, only to find they were still potentially on the hook after the initial price went from $17 per share to $14.69 within days.

Carriers also kept an eye on the “pretexting” scandal that swirled around Hewlett-Packard in 2006. For example, Verizon sued the private detectives that used the ruse to gain access to the phone records of HP board members and journalists in the board’s quest to plug media leaks.

Here it Comes: That Convergence Word

As carriers struggled to find the right fit with users and extra services, the battle for primacy among smart phone users raged on between RIM’s (Quote) BlackBerry and Palm’s Treo handsets. RIM unveiled its BlackBerry
as Palm (Quote) trudged on with its Treo lines, despite delays.

Then came more maturity and acceptance in Voice over IP services. The two biggest names: Skype (Quote) and Vonage (Quote) spent 2006 jockeying for position.

Bought by Ebay (Quote) for $2.5 billion in 2005, Skype began the year getting down to business. Skype paid $27 million for Sonorit Holding, a VoIP company experts saw enabling Ebay’s phone company evolve beyond free PC-based calling.

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