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Can phones challenge iPods?

Pay a premium, but download tunes over the air

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Verizon has managed to get positive headlines for its attempt to make music downloads popular "over the air" by announcing that it is dropping its original "pay up front" demand - a monthly $15 subscription fee.

But a song which costs $0.99 to download to a PC still costs $1.99 to buy via CDMA data.

The phone which is the basis of the latest story is LG's Chocolate device, which Verizon sells for $150 ("after rebate with new two year activation") - and for $249 with a one-year contract. There is also a Samsung music phone involved in the promotion.

There is another up-front cost: the storage chip (two gig capacity) costs another $100 on top.

So far, Verizon's attempts to get into the iPod market have been a resounding flop.

It started out in January by "upgrading" the Samsung phones with new software so subscribers could buy tunes from V Cast - the Verizon music store. But subscribers were outraged to discover that not only were they stung for the $15 a month fee, but also, the software disabled their phones. Before the upgrade, they could play MP3: after, this feature was broken. It could only play Windows Media files (WMA).

The latest deal - double the Apple price if you download over the air - seems to be based on the hope that some customers will want the music "right now!" rather than being prepared to wait till they get home.

The cheaper alternative is to download to a PC, and sync the music to the phone. Sensibly, Verizon's V Cast system says you can do both - the price gives you two downloads, which solves the problem of "What do you do when the CDMA data download is corrupt?"

Analysts have focused on the cost reduction, saying this is part of a move by "cellphone companies who now are edging further into the turf of music players by designing handsets with prominent playback buttons and more storage space for songs".

The analysis is questionable. The phone makers are certainly trying to steal market from the iPod, but cellphone companies need to compete with iTunes. Selling the same tune for twice the price would be a highly unusual launch strategy in any conventional market analysis. The premium is, clearly, aimed at the impulse buyer who can't wait.

In theory, Verizon doesn't need to sell too many OTA downloads to make a healthy revenue stream; but what isn't clear is what the profit implications are.

The question which needs to be answered is whether Verizon can actually make extra money out of that premium sale. The costs of network time, administration, and retail margins mean that V Cast doesn't expect much profit (or it would certainly reduce download costs).

Phone-spotter Mobile Burn's review of the phone at least was enthusiastic: "The black slider style handset looks incredible, and backs up its fashion tendencies with a great feature set. The LG VX8500 sports a large, 262k colour TFT display, which disappears when not active, along with touch sensitive navigation controls that work off the heat in your fingertip. A 1.3 megapixel camera sits on the back of the VX8500 Chocolate, and a microSD memory card slot is included, which can be used to store music downloaded from the Verizon V CAST music store."

As sold, the Chocolate can still play MP3s. It's only after the V Cast upgrade that this feature is disabled: Verizon says it "is working on a solution" to this problem, and that it is "not intentional" but rather due to the fact that it wasn't able to write new software capable of playing both formats in time for the launch.

The announcement it would "shortly" announce an upgrade to fix this was made back in February. The new software is still not available.

In the UK, the Chocolate phones are available through O2, Vodafone and T-Mobile.

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