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Monday, May 8, 2006 - Page updated at 12:00 AM

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An iPod phone may be on the line

Chicago Tribune

CHICAGO — Nana Furman doesn't own a mobile phone, preferring not to be pestered with calls during her private time. But Furman, a young Chicago professional, is a big fan of the iPod and all things Apple.

So, if Apple Computer were to launch a cellphone — one with links to Apple's Web music store — she might reconsider, saying she would "definitely be intrigued."

Apple watchers and wireless-industry observers think a lot of people would be intrigued. They expect the iPod maker to launch its own phone and wireless service, calling it a logical extension for Apple.

And, last week, reports filtered out that the U.S. Patent & Trademark Office had approved an Apple patent that appeared to link a portable wireless device and telephony.

Phones are increasingly becoming stylish multimedia affairs, replete with music, video and data — all familiar terrain for Apple. Plus, the music-phone market is expected to be a lot bigger than the MP3 player business.

"Nobody has come up with the definitive music experience on a handset yet," said John Jackson, a wireless industry analyst at the Yankee Group. "It's a very open opportunity. It has powerful potential."

But an Apple phone would entail some powerful risk, too, analysts say. The mobile-phone business is far different — and more competitive — than the MP3-player business.

Cupertino, Calif.-based Apple wouldn't comment.

Earlier this year, though, Apple applied to trademark "Mobile Me," an appellation that would cover mobile-phone services, among other things.

Meanwhile, the Apple phone rumor mill "has been spinning furiously," said Jackson, who believes Apple will prove the rumors true. "On the bulletin board of some [contract manufacturer] in Korea or Taiwan sits a prototype of an [Apple] phone."

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If it is being built, its arrival time is uncertain. But Jackson and others say sooner is best for Apple.

Music phones

Just look at phone maker Sony Ericsson. It has parlayed Sony's famous Walkman brand into a music phone that has recently become a big hit. The Walkman phone helped propel a threefold increase in Sony Ericsson's first-quarter profits.

Apple has dabbled in cellphones through a partnership with Schaumburg, Ill.-based Motorola. After much ballyhoo, Motorola last September launched the Rokr E1, the first non-Apple device to include iTunes.

The Rokr was panned for being bland and for storing only 100 songs, far less than most iPods. A second Motorola iTunes phone was far more stylish, but still held only 100 songs.

So far, Motorola's iTunes phones have been "clearly designed not to interfere with the iPod," said Ross Rubin, a consumer electronics analyst at NPD Group.

Impact of the iPod

In just four years, the iPod music player has transformed Apple from a hip but minor computer maker into a gadget giant. More than half of Apple's sales now stem from music.

With the iPod, Apple has captured 60 percent to 75 percent of the global MP3 player market, depending on who's counting. That market is expected to grow from 58 million devices shipped in 2005 to 116 million in 2007, according to market-research firm Strategy Analytics.

The music-enabled phone market is expected to grow fivefold during the same time to 551 million units by 2007, Strategy Analytics says.

Big opportunity

Charles Golvin, a wireless industry analyst at Forrester Research, sees the music-phone market as an extension of the iPod's market — and a potentially big one. The question facing Apple: How best to crack that market, particularly in North America, he said.

Here, mobile phones are primarily distributed through wireless carriers like Cingular and Sprint. Carriers subsidize the cost of phones to consumers by tying the handsets to wireless service contracts. That system gives carriers lots of clout.

The traditional sales channel would offer Apple the widest possible distribution. But Apple is known for being every bit as controlling as the carriers, if not more so.

A natural clash with the networks would seem likely, several analysts said.

So, Apple would probably get into wireless by becoming a Mobile Virtual Network Operator, offering a package deal: phones and phone service.

It would buy wholesale airtime from a wireless network, and farm out much of its work — billing, phone distribution, customer service — to others.

A distraction?

Mark Stahlman, a stock analyst at Caris, said a phone venture would be a "distraction" for Apple. "It's so different from what they've done to date."

He noted, too, that the wireless industry is known as a particularly competitive business.

The same couldn't be said for the MP3 business before the iPod took off, he said. Ditto for the computer business when Apple released its first model in the late 1970s.

Once the industry became fiercely competitive, Apple's market share dropped and today is in the low single digits.

"Apple has done extremely well when it has had no competition," Stahlman said.

Copyright © 2006 The Seattle Times Company

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