Web-Ready Cell Phones Flying Off Shelves

Sales of Internet-ready cellular phones at retail locations have managed to take off at an astounding rate in the past year, according to a study by The NPD Group, Inc. Almost half (48 percent) of cell phones purchased at retail locations during the second quarter of 2000 were Internet-ready phones, the study found. This is a tenfold increase over the same period last year.

The pricing of Web-enabled phones has stabilized, with consumers paying a premium (about one-third over conventional cell phones) for the phones that allow data and voice communication. The NPD INTELECT report found the average selling price for Internet-ready cell phones in second quarter of 2000 was $164, versus $211 one year ago.

In addition to Web capability, a host of new features are driving sales of Internet-ready cell phones. These include improved display and lighter weight, contributing to a more attractive consumer proposition.

The recent introduction and heavy promotion of wireless Web access by several major service providers appears to have boosted demand for new handsets. AT&T, Verizon, Sprint PCS, Nextel, and Voicestream, among others, offer wireless Web services, and while actual use of these services may lag purchases of Web-enabled phones, demand should increase, as content becomes more robust.

“Cellular penetration will continue to increase, to the point where the handsets are becoming commonplace. As content improves, applications will extend beyond basic sport scores, weather reports, and stock quotes,” said Peter Arato, NPD INTELECT account manager for telecom products. “E-commerce, location-based applications, and pipeline improvements promise to keep this trend going. The big challenge will be finding user-friendly ways to enter and access information on an increasingly miniaturized device. Whether that means improved displays, full keyboard, or voice-activated technology remains to be seen. Consumers have already shown an appetite for Internet applications on PCs. The big winners will be the companies that figure out a way to ease access to similar applications on cellular devices.”

And that may require some work. According to research by Allied Business Intelligence (ABI), many people are not aware of the cell phone’s wireless Internet capabilities. Less than 5 percent of the sample, which included both cell phone users and non-users, said the cell phone would be a good Internet access tool, while 40 percent thought it would not be. Many are still unsure of a cell phone’s capabilities, with 49 percent having no opinion on the subject.

When it comes to wireless data use, of those with a price in mind, ABI’s research found that most are willing to pay an additional $10 to $20 per month for unlimited access to data. Just over one-quarter (26 percent) said they would pay $10 to $20 per month, only 2 percent said $20 to $30 was an acceptable amount,and nearly 1 percent thought $1 to $2 was acceptable. More than half (62 percent) had no opinion.

Web-enabled cell phones are just one part of the m-commerce puzzle. But an increase in mobile access devices is good news for those looking to market and sell goods and services to mobile consumers. According to Datamonitor, the US m-commerce solutions market, while off to a slow start, is set to reach $1.2 billion over the next five years and will eventually surpass Europe.


Sales of Internet-Ready Cell Phones
in Traditional Retail Channels*
Time Period Unit Share
Q2 1999 5%
Q3 1999 10%
Q4 1999 36%
Q1 2000 44%
Q2 2000 48%
Source: NPD Group
* Includes electronic specialty, mass merchant,
office superstores, and department stores

“M-commerce solutions consists of the hardware, software, systems integration and professional services necessary to implement a mobile business channel”, said Sohrab Torabi, m-commerce analyst for Datamonitor. “Until the current market for these solutions has fully matured, m-commerce in the US will lag behind Europe.”

Europe’s lead over the US in m-commerce adoption is based on a number of factors, including favorable pricing structures, increased competition, greater quality of service, and declining costs for network operators. In the US, the inability to reach a single mobile telecommunications standard, low wireless device penetration, high prices, and lack of awareness have been the barriers to attaining the critical mass required for introducing new services. US companies are also holding back on transitioning to 3G networks, which would provide higher speed wireless Internet access, as they must leverage their already existing investments in digital networks.

Security is another reason for slow adoption rates in the US. As the Internet has changed the way people purchase goods and manage their finances, security has become a crucial issue in order to allow users to communicate and conduct transactions in a trusted environment. The only way to make customers spend or transact in the volumes that retailers and service providers have in mind will be by offering them a secure environment.

As the market evolves, however, US strength in content creation may shift the m-commerce pendulum back to the US. Datamonitor predicts that the fastest growing m-commerce sector in the US will be financial services, which will rise to more than $1.8 billion in 2004 from $90 million in 2000.

The US also has a single language with which to develop application content and internal services for a large population, unlike the fragmented European market. The US also has a greater amount of country-specific content and vendors that can be applied to the m-commerce market and more of the intellectual and commercial talent that is required to develop the m-commerce infrastructure than Europe, according to Datamonitor.

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