Apple's iPhone setting the bar

Device is expected to change consumer cell phone market, but critics point out its limitations

Jeff Smith, Rocky Mountain News

Published June 25, 2007 at midnight

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Apple's iPhone goes on sale Friday to huge hoopla. But at $499 for the cheapest model, it's pricey. And critics already are pointing out its limitations.

Still, even if it doesn't quite live up to its considerable hype, the iPhone could change the landscape of the consumer cell phone market.

"It opens up a consumer's perception of what a smartphone can do for them," said Chris Hazelton, a senior analyst at IDC, a Massachusetts-based research firm.

Smartphones are essentially minicomputers - multitalented devices that support gobs of applications.

In the U.S., smartphones - such as the BlackBerry Curve or the Palm Treo - have catered more to the business user than the consumer, in part because of the price.

The iPhone combines a powerful iPod music player with BlackBerrylike applications. Its talents include synchronizing contacts, calendar and photos with a personal computer, retrieving e-mails on a set schedule and, of course, synchronizing the user's iTunes library. The company announced last week that about 10,000 YouTube videos will be available for iPhone's launch.

But because it's essentially a small computer, it's going to be aggravating the first time it crashes, "when you ask it to do too much, run too many applications," Hazelton said. "It's going to be a new experience, especially if you haven't used a smartphone. . . . The risk is that if it isn't a very good experience, it could limit the excitement for a smartphone."

Critics have pointed to a number of limitations, in addition to the hefty price. Although the device works with popular e-mail services such as Yahoo! Mail, Gmail, AOL and .Mac Mail, it doesn't hook up to most corporate e-mail services, like the BlackBerry. So that gives the BlackBerry Pearl and Curve an edge in that department.

And the touch-sensitive screen may either be the wave of the future or a flop. "That's a concern," Hazelton said. "Are people going to be happy with a completely touch-screen environment?"

Apple CEO Steve Jobs told The Wall Street Journal that it may take a "few days" to get used to the screen, but "once you actually use touch display like this, there's no going back . . . The other nice thing about it is that we can use that physical space for other things (such as new applications) when you don't need a keyboard."

Apple already has addressed some of iPhone's perceived shortcomings, announcing last week a more powerful battery and a touch screen made of optical-quality glass that's less likely to scratch than plastic.

Hazelton said the changes may have been in the works for a while but announced now so competitors wouldn't have as much time to adjust.

Also, "it may be more of how Apple works. There's different departments within Apple that know different things about the phone, and they're not able to talk to each other," he said. Apple specializes in secrecy and mystery.

Competitors have made a big deal over the fact that iPhone's Web-browsing will be slower than Sprint's and Verizon's. Sprint and Verizon have upgraded to high-speed networks, while iPhone's technology corresponds to AT&T's slightly slower and sometimes less extensive nationwide network.

"Obviously, it's an exciting time for the industry," said Verizon Wireless Colorado spokesman Bob Kelley. "But we're not worried. A lot of the things being hyped right now we've been doing for two years."

That includes offering cell phones equipped with music, mobile TV and navigational services, he said.

Match the song

He also noted the carrier will debut a song ID service this summer. Customers who hear a song they like, for example at a grocery store, will be able to find out the song's name by holding up their cell phone and letting the ID service match the notes against Verizon Wireless' 3 million-song library. With faster data speeds than the iPhone, customers more easily can download the songs they like directly onto their cell phone.

Jobs, however, maintained in the Journal interview that the phone, in general, isn't a great vehicle to browse for online music. Not only is it slower to download music than using a high-speed Internet connection at home, but consumers want to store their music on the computer in case they lose their phone.

Both Sprint and Verizon Wireless have services in which customers can download two copies of a song - one for their cell phone and one for the computer.

Allan Keiter, chief executive officer of MyRatePlan.com, said it's unclear how iPhone will do, given its limitations and price.

"It's going to be a hit out the door," Keiter said, especially with the "Wow!" crowd eager to buy the latest gadget. "But it remains to be seen how it's going to stand up against some of the options that cost so much less."

Ample competition

For example, a consumer can buy a music phone now for $100 or less, and still have $400 left over to buy an iPod Nano and $200 worth of online music.

Music phone competitors include Sprint's Samsung UpStage, Verizon's LG Chocolate and T-Mobile's Nokia 5300 Xpress.

Sprint Colorado spokeswoman Debra Havins noted that UpStage was introduced at $149.99, and now is $99.99. Music from the Sprint online store has been reduced to 99 cents a song, when it previously was as high as $2.50 a song, she said. Havins added that users can play music in the background while surfing the Internet and that the phone includes a camera and all of Sprint's video service capabilities.

Said IDC's Hazelton: "Sprint's UpStage is not a smartphone, but it does two things well: voice calls and music," and that might be enough.

In fact, in a survey released last week, IDC and Market Insight Corp. said that both the price and cost of switching carriers could dampen the demand for the iPhone, or at least put consumers in a "wait and see" mode.

The survey of 456 online mobile phone shoppers found that while nearly 60 percent were interested in the iPhone, they were unlikely to buy one anytime soon. Cell phone contracts typically run two years, with big penalties for early termination.

M:Metrics, a mobile marketing firm, produced a more optimistic assessment, estimating that 19 million Americans and 7 million Brits have a strong interest in buying an iPhone.

"This is an early indication that AT&T's strategy to use the device to lure customers from competitors could pay off," said Mark Donovan, a senior analyst at M:Metrics.

And if it is successful? Consumers can expect to see more smartphones in the future.

New standards?

It's hard to match iPhone's hype. The powerful $499 device combines iPod and smartphone applications. But iPhone's competitors aren't obsolete, by any means. Meet the other players:

• BlackBerry Pearl, $199.99: Addition of multimedia features makes it compelling for both consumers and business users.

• Nokia 5300 XpressMusic, $99.99: Solid music phone with good quality.

• Palm Treo 755, $279.99: Expensive but good high-speed, Internet-enabled smartphone with a camera, instant messaging and Google Maps.

• LG Chocolate, $99.99: Slick design and rich multimedia features. But hasn't lived up to hype. New model coming soon.

• Samsung BlackJack, $74.99: Sleek broadband Internet- enabled smartphone that supports AT&T/Cingular's video and music service. Critics say the phone has some performance and design flaws.

• Samsung UpStage, $99.99: Heralded as a strong example of combining music and calling features into one device.

Comparing features

smithje@RockyMountainNews.com or 303-954-5155

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