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Cocky carriers dismiss Apple as 'niche'

We'll bundle iTunes into submission

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Wireless carriers have hinted at plans to challenge Apple's iTunes and iPod market lead by bundling music from their download services with videos and ringtones for cell phones.

Verizon said its is not only desirable but "inevitable" to bundle downloadable tunes with other snippets of music and video for cell phone users. Backing Verizon were Cingular and Sprint - all speaking at CTIA Wireless 2006 in Las Vegas.

There was also the hint of possible collaboration between Cingular and Verizon as executives from the carriers in charge of multi media joined music companies EMI Music, Universal and Sony to debate what fledgling over the air (OTA) download services can do to beat Apple.

"We want to make that [bundling] one of the ways we grow the business," Verizon's head of mobile music Ted Casey told The Register. "It's not only inevitable, but there is a tremendous opportunity." Casey declined to comment on what potential services Verizon has planned, but said: "The first way to look at it is, how do we bundle... that song is your ringtone, ring back and show some video. The next step is, how do bundles enable a transformation?"

Cingular's director of entertainment and content Mark Nagel added: "We think bundling is a great opportunity." Nancy Beaton, Sprint's director of music and personalization, said Sprint is upgrading its search to work across ringtones and other products. "We believe they [bundles] can co-exist" she said.

The companies are busy ramping up their separate music download services. Sprint claimed its Groove Mobile-powered Sprint Music Store, launched last October with backing from EMI, Universal and Sony among others has just passed its two millionth download, with the second million growing faster than the first. Casey did not provide numbers of downloads for Verizon's V Cast, launched in January with support of EMI and Universal, but claimed the company is "very happy" with its own service which now lists one million songs.

These companies are late comers to OTA, with Cingular yet to launch a service. At the back of everyone's minds was the seemingly unstoppable force that is Apple's iTunes and the nearly ubiquituous iPod music and video player, which competes with cellphones as an entertainment device.

The move to bundling of music and video comes as Apple recently started offering packages of music videos and TV content through iTunes. Unsurprisingly, the companies believe they have an edge over Apple by offering consumers an open music format that plays on a multi-function device - the phone.

Rio Caraeff, general manager for Universal music mobile, claimed there are 44m iPods in circulation worldwide compared to 180m phone customers in the US alone, meaning phone companies have a large addressable installation base for OTA services. A point seized on by Nagel, who called Apple "niche."

There is also general skepticism that Apple could potentially challenge them by delivering its own, oft rumored, handset or a virtual network. Casey said Apple would be distracted by dealing with simple quality of service issues like connectivity and dropped calls that are already "baseline" functionality for other carriers. "The killer application for some time on phones will be voice," Casey said

Beaton added any device or service would not be simple or cheap to deliver. "Apple is a loss leader for what they are trying to achieve. In the wireless sector, our handsets are subsidized [plus] we have other costs. It's not as easy as taking one business model and one practice and replicating it into another," Beaton said.

It seems, though, wireless companies are paranoid about Apple's success. For all their smiles and claims of being "very happy" with downloads there was mutterings - particularly by Universal and Sony - over Apple's refusal to open its service to others.

Plans are also afoot to keep refining services against iTunes. One key area of focus is improving search at the handset level and pre-empting consumers' music choices by making recommendations based on past downloads. With 40 per cent of Cingular's music sales coming from search, Nagel said Cingular would like to make discovery of music easier. Sprint is building a database of misspelt search terms to make recommendations for people while improving the user experience on handsets, according to Beaton.

That's the type of innovation we've come to expect from US carriers.

"The roadmap for the rest of this year is to increase functionality. Right now, we are bolting down feature, function and programming changes. Other changes are to functionality so you can do more with the phone while you are buying and shopping," she said.®

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