WSJ(4/3) Technology Report: Are Consumers Ready To Watch TV On Their Cellphones? We'll Find Out Pretty Soon
(From THE WALL STREET JOURNAL) By Li Yuan
IT'S NOT CLEAR YET how many Americans will pay to watch TV on their cellphones -- right now, the number is tiny. But wireless-technology giant Qualcomm Inc. and cellular-tower operator Crown Castle International Corp. are betting that technological advances will help that number grow significantly.
The two companies are building competing broadcast networks aimed at sending television signals directly to a new generation of cellphone handsets, augmenting carriers' own cellular systems. The planned networks, the first of which could be available later this year, will offer live TV programs, on-demand videos and audio channels to customers of wireless companies that decide to carry their services.
The new networks promise improvements over current cellular TV services. "With these networks, phone users will have more-reliable connections, and picture quality will be less jumpy," says Jonathan Atkin, a San Francisco-based analyst at the RBC Capital Markets unit of Royal Bank of Canada. "And that could translate into more consumers buying the services."
There are hurdles to be cleared before cellphone TV becomes commonplace in the U.S. San Diego-based Qualcomm and Crown Castle of Houston have enlisted handset and chip makers as allies, and the rival groups' technology differs slightly -- suggesting a possible battle between competing standards that could impede the market's growth. As with most new technologies, prices are high for the required hardware, in this case handsets, which can cost up to $800. And the new services will drain batteries far more quickly than ordinary cellphone use.
But industry officials and analysts believe the demand for cellphone TV services will grow rapidly once the new networks are up and running.
Crown Castle's Modeo unit has been conducting trials in Pittsburgh since last year on a network that covers an area of about 500,000 people. The company recruited an undisclosed number of residents to use the service on prototype devices. It plans to roll out the service commercially in select major markets, including New York City, later this year, and is working to deploy its service in the top 30 U.S. markets by the end of 2007. Modeo says its lineup will include more than 10 TV channels and more than 20 audio channels.
There is one important piece of Modeo's plans that has yet to fall into place, though: It doesn't have an agreement with any U.S. wireless carrier to use the service.
Meanwhile, Qualcomm's MediaFlo unit has been conducting network trials in about 20 markets and is expected to launch its service in partnership with Verizon Wireless in some markets early next year. The network will offer 20 TV channels and 10 audio channels.
Verizon's rivals haven't committed themselves to either Crown Castle or Qualcomm, or to any other new technology for TV transmission. Sprint Nextel Corp., the first U.S. carrier to offer TV service over its cellular network, says it is evaluating several alternatives, including the MediaFlo service. Sprint, of Reston, Va., says it will make its choice based on which one will deliver the service at the lowest cost. The other big U.S. cellular carriers, Cingular Wireless and T-Mobile USA Inc., a subsidiary of Germany's Deutsche Telekom AG, declined to comment on their plans.
Both Crown Castle and Qualcomm are depending in part on cellular carriers' craving for new revenue sources. With almost every American adult already owning a cellphone, the market for voice traffic is just about saturated and prices are falling. TV presents new growth opportunities for cellular carriers.
A service that broadcasts television signals directly to users' handsets, instead of over a cellular network, helps solve another big problem for cellular carriers -- network capacity. Taking TV off the cellular network frees up space for other data-heavy services, such as music downloading and Web browsing, that carriers are also hoping will provide new revenue streams. Carriers would have to pay MediaFlo and Modeo for leasing the TV transmission networks, but the amount would be minimal compared with the cost of expanding the carriers' cellular networks to accommodate video.
Verizon Wireless, a joint venture of Verizon Communications Inc., New York, and Vodafone Group PLC of the U.K., currently offers only video-on-demand service, which consumes much less bandwidth than live TV. Sprint Nextel and Cingular Wireless, controlled by San Antonio-based AT&T Inc., offer subscribers 32 TV channels.
But the technology, provided by mobile-TV service company MobiTV Inc., Emeryville, Calif., takes additional network bandwidth for every subscriber using the service, and could congest cellular networks if too many people are watching TV at the same time. When a network is overburdened, phone users could experience dropped calls or an inability to place calls. MobiTV says it's experimenting with new technologies that would allow more efficient use of network capacity.
MediaFlo and Modeo say they are talking to a wide range of content providers for their program lineups. Michael Ramke, vice president of marketing for Crown Castle's Modeo, says Modeo's target audience will be young people and urban professionals. Its TV programs will include news, sports and entertainment channels. Gina Lombardi, president of Qualcomm's MediaFlo, says her company is talking to many TV networks, including ESPN and MTV. The mix of programs in the initial lineup will look very much like basic cable packages, she says. Both companies say that cellular carriers using their TV networks will be able to develop interactive services. For instance, a phone user could zoom in on clothes appearing on TV and find out the brand and where it is being sold.
Neither MediaFlo nor Modeo is likely to have a complete nationwide rollout in the next year, which could turn off some potential users, especially business travelers.
MediaFlo's network can offer more TV channels than Modeo's because the spectrum it uses can carry more content. But that spectrum, which is also used by TV stations across the country, isn't available in every market. A Congressional ruling in February mandates that the TV stations move to a new spectrum by February 2009. Until then, MediaFlo will take what markets it can get. "Depending on which markets I can clear up today, we'll do it in stages," says Ms. Lombardi of MediaFlo.
Modeo already has the spectrum necessary to build a nationwide network, but it doesn't have the deep pockets that Qualcomm does; it is still looking for external funding for this project.
Both networks also face challenges common to emerging technologies. The handsets that operate with both cellular and TV networks are still expensive, ranging from $600 to $800 in South Korea, where such services already are available. Also, battery life has proved to be a problem, because displaying images drains a battery faster than making phone calls, and there are limits to how much talking time consumers are likely to sacrifice to watch TV.
The two networks also are based on different technologies, and the two companies have formed competing alliances around their networks. It looms as another technology-standard fight, which, analysts say, could confuse consumers and fragment the market, retarding its growth.
Qualcomm has aligned with Verizon Wireless and handset makers Samsung Electronics Co. and LG Electronics Inc. around a technology called Flo, developed by Qualcomm. Crown Castle has the support of chip makers Intel Corp. and Texas Instruments Inc. and handset makers Motorola Inc. and Nokia Corp., using DVB-H (for digital video broadcasting, hand-held), a technology standard developed by a consortium of companies including Texas Instruments.
Qualcomm announced recently that it would also develop DVB-H-based chips, which would give it an interest in both competing technologies. But it claims Flo delivers faster channel switching and longer battery life. Texas Instruments counters that its latest DVB-H chips deliver performance similar to Flo technology.
Despite the looming fight over standards and the other hurdles, analysts see rapid growth for the cellphone TV market in the U.S. in the next couple of years, albeit from a tiny base. Fewer than two million U.S. wireless-service subscribers, or 1% of the total, now watch TV and videos on cellphones. Boston-based technology-research firm Yankee Group forecasts that by 2008 the number of cellphone TV and video subscribers in the U.S. will reach 20 million and revenue will reach $1.5 billion, up from roughly $87 million in 2005.
The MediaFlo and Modeo services should be appealing if the monthly price is affordable and channels are easy to access, says Mr. Atkin of RBC Capital Markets. "I would consider $10 to $15 a month appropriate," he says.
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Ms. Yuan is a staff reporter in The Wall Street Journal's New York bureau. She can be reached at li.yuan@wsj.com.
(END) Dow Jones Newswires
04-02-06 2100ET
Copyright (c) 2006 Dow Jones & Company, Inc.
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