Move over fancy, pricey cellphones. The buzz ahead of the annual CTIA wireless show next week is all about cheaper data plans and mobile software stores, where a few dollars can get you a game or other cool application to impress your friends.
With consumers more cautious than before about shelling out for new smartphones, vendors are hoping applications will help sales. As a result they are turning to online stores to compete with Apple Inc, which sells downloadable software, ranging from the practical to the ridiculous.
Carriers in turn hope the new applications will increase interest in data services and boost revenue -- though with the economy in tatters, a big debate is brewing over whether phone operators need to lower the price of data plans.
Last year (CTIA) was really focused on devices like Android and the iPhone. Now people are realizing the power of applications for these devices, said Gartner analyst Michael King. I think this year it's going to be all applications.
The U.S. wireless showcase will take place in Las Vegas from April 1-3, with attendance expected to be down 15 percent from last year's 40,000 people due to the weak economy. Speakers include executives from Verizon Communications Inc, Research in Motion, Deutsche Telekom's T-Mobile USA, Microsoft Corp and Clearwire Corp.
While there will be many new phones on display, applications have stolen the limelight in the battle to capture consumers' imaginations and their cash.
BlackBerry maker Research in Motion is expected to officially launch its mobile application store at the show and Microsoft is expected to talk up its applications marketplace due out later this year.
Sprint Nextel Corp will also demonstrate Palm Inc's widely anticipated Pre phone, which is designed to stand out by making it easier for consumers to use multiple applications simultaneously.
But some analysts are doubtful if these companies can attract the variety of software developers that were drawn to the hugely popular iPhone and Apple store.
I think they're struggling to get the massive volume of developers Apple has, King said, referring specifically to RIM which is better known among corporate clients than consumers.
King expects a lot of attention at CTIA to go to new applications that put mobile users in a context, such as their location or if they are online and available.
DATA FEE DILEMMA
While Apple's App Store has proven popular, with over 800 million applications having been downloaded so far, it remains to be seen how many consumers can afford today's monthly data fees on top of voice rates.
Some analysts see data growth slowing unless carriers offer cheaper service plans. Sixty dollars a month is a lot to ask in a recession, said NPD analyst Ross Rubin, referring to typical U.S. data service charges for wireless connections to portable computers. These are separate to phone data plans.
Monthly data plans for smartphones are cheaper -- usually about $30 for subscribers with contracts of two years -- but are still too high for many consumers, analysts say.
There are only so many consumers willing to sign on upfront for data on top of voice plans with today's rates, said Current Analysis analyst Avi Greengart. There are a lot of people who want smartphones who are held back by the cost of the data plan.
But Gartner's King said that carriers are not ready to budge on retail prices partly because many corporate clients are already renegotiating cellular contracts to cut costs.
One big concern is that big discounts could lure so many new users to a network that performance becomes visibly weaker for carriers, which want to cut capital spending this year.
The mobile Internet has finally taken off. Now we need to cope with the traffic, said IDC analyst Scott Ellison. I think carriers are going to be very leery of encouraging usage they can't support.
As a result, discussions about technology alternatives will abound at the show. One option involves installing Wi-Fi on more phones. The short-range wireless technology offers fast Web access but is independent of carrier networks.
Another option is an emerging technology known as femtocells, which boost network coverage indoors and alleviate the strain on carrier networks. But prices for femtocells may take time to reach the $99 or less level needed for mass adoption, Ellison said, compared to more than $200 now.
In the meantime, carriers could experiment with cheaper fees that limit a user's Internet access. As the price of phones and wirelessly connected computers fall, so must service fees, analysts said.
If they're going to go with lower-priced devices, they'll have to have lower-priced services, said Gartner analyst Ken Dulaney.
(Reporting by Sinead Carew, editing by Tiffany Wu)