Modu to Launch Tiny Phone 'Module'

The company, Modu, is set to announce Thursday that it will launch the phone, also called Modu, on Oct. 1 with Telecom Italia SpA in Italy, OAA Vimpel Communications in Russia and Cellcom Israel Ltd.

Telecom Italia Mobile and Cellcom are the largest carriers in their respective countries, while VimpelCom is the second-largest in Russia.

The Modu is slightly smaller than the current iPod Nano and weighs 1.5 ounces. It has a small color screen and a limited keypad, which allows it to work as a rudimentary cell phone on its own.

The jackets that will come with the Modu look like cell phones, with standard numeric keypads and other features like cameras. But they lack they lack the antenna and chips that communicate with a wireless network, and this is where the Modu comes in it pops into a slot, turning the jacket into a fully functional phone.

Modu founder Dov Moran said in an interview that the Italian carrier is excited about the concept because it can make cell phones more like fashion, tempting consumer to update their looks every few months.

"This allows you to make a summer collection and a winter collection," Moran said.

"The carriers really are interested in having more and more customers coming through their stores, rather than signing up and coming every two years to sign a new contract and get a new phone," said Daniel Amir, a chip analyst at Lazard Capital Markets in San Francisco. He called the Modu a potential "game changer" in the cell-phone industry.

The jacket is cheap to make, has almost no electronics, and doesn't need to be tested by the carrier to see that it conforms to its network standards.

Moran estimates that carriers will be able to sell a Modu and two jackets as a bundle for about $280, a price that they can then subsidize down to free or almost free with a two-year contract.