Motorola iTunes Phones on Hold

in iPod + iTunes + AppleTV edited January 2014

Motorola iTunes plans on hold

Delay tied to power of wireless carriers

By Mike Hughlett

Tribune staff reporter

Published March 10, 2005

Motorola Inc. was set to unveil on Thursday its first iTunes phone--a much-anticipated model capable of playing music bought from a popular Apple Computer Web site.

But the Schaumburg cell phone manufacturer canceled at the last minute. And the reason speaks volumes about the balance of power between cell phone-makers and phone service providers, a balance increasingly tilted toward the latter, analysts say.

Motorola had previewed the iTunes phone to the media earlier this week, with the intent of publicly announcing it Thursday. Then the company got a last-minute message from a wireless carrier or carriers, and indefinitely postponed the announcement--a highly unusual occurrence.

Why would a wireless carrier have such sway with the world's second-largest cell phone-maker? Because of the unique structure of the industry: Wireless carriers--particularly in the U.S.--buy phones and then often subsidize their cost to consumers.

Motorola and competitors Nokia and Sony Ericsson have all launched major forays into music, hoping music-playing phones will boom in sales like camera phones.

Motorola's initiative--first announced last summer--has gotten the most buzz due to its link with Apple, creator of the wildly successful iPod music player and the popular iTunes music site.

The iTunes phone that was to debut Thursday has a display screen akin to the iPod. It is capable of holding up to 100 songs, depending on how much a buyer wants to pay for memory cards, a Motorola executive said earlier this week.

At the top end of song storage, the first iTunes phone has about the same capacity as one variation of Apple's new iPod Shuffle MP3 player. The first iTunes phone also has a stereo headset jack and is enabled with Bluetooth, a wireless technology.

The phone is supposed to hit the market this summer. But Motorola had planned to unveil it Thursday in conjunction with the start of CeBIT, a big technology and electronics tradeshow in Hanover, Germany.

The company killed the unveiling after discussions late Tuesday night with "our operators," said Monica Rohleder, a Motorola spokeswoman.

Motorola discussed "the logistics of this product with our carriers across the globe," she said. The result: "We decided to wait to announce it when everybody is in sync with it."

The announcement will come when the phone gets closer to hitting the market, Rohleder said.

Motorola hasn't said which wireless operator or operators will carry the iTunes phone. Analysts speculated the phone would be launched in Europe since it was being announced there.

If Motorola does a European launch, UK-based Vodafone would be a prime candidate to carry it there, analysts said. Vodafone is Europe's largest carrier and one of Motorola's biggest cell phone customers. Vodafone couldn't be reached Wednesday for comment.

So does the aborted iTunes unveiling mark the return of the glitch-prone Motorola of 2003, when production woes forced the company to miss a crucial holiday season launch for its camera phones?

No, said John Jackson, a wireless analyst at The Yankee Group, a Boston telecom research outfit. "I don't think this is the case of a product not being ready to come to market," he said.

Does the unveiling demonstrate the power of wireless carriers? "Absolutely," said Neil Strother, a wireless analyst in Seattle with market research firm In-Stat MDR.

"You don't want to make your customer mad," Strother said. "If the customer is not ready, then Motorola has to say we're not either."

In the United States, carriers have always had an upper hand over manufacturers, he said. That's because consumers have been more likely here than in Europe to choose phones based on the service plan they buy from a Cingular or Verizon.

Those operators, in turn, buy phones from Motorola and other manufacturers and subsidize their cost to consumers, often giving away lower-end phones to people who sign up for their plans.

But carriers are increasingly exerting more power in Europe, too, Strother and other analysts say.

In fact, carriers everywhere are gaining more leverage, said David Linsalata, an analyst at Massachusetts-based IDC, a tech research firm. They are asking for and getting more say in the specific features of phones.

Each carrier wants to differentiate its service from the other, and phone features are a way to do so. The addition of services beyond voice--games, ring tones, data transmission and now music--potentially gives carriers even more say.

Each of those services can be a revenue generator for the wireless carrier. Download a snippet of popular song for a ring tone, for example, and you pay a fee. Thus, carriers' wishes must be taken into account in designing such features.

"The more (carriers) can control, the more they feel they can provide a better experience," Linsalata said.

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