"IPhone" could be music to Apple's ears

SAN FRANCISCO (Reuters) - With the help of Motorola, Apple Computer chief executive Steve Jobs finally made good last week on his pledge to deliver a mobile phone that plays music like an iPod, Apple's wildly successful digital music player.

Even so, many expect Apple to go further.

Ultimately Apple may introduce its own cell-phone iPod combination, dubbed the "iPhone," designed by Apple itself from the ground up and which would most likely be made by a contract electronics manufacturer, such as Flextronics or others.

But don't expect it in the next year or so, analysts said, noting that Apple, which is based in Cupertino, California, has a number of hurdles to overcome. Among them: partnering with a cellular phone carrier to resell minutes on its network and choosing a contract handset maker to produce the devices, which must work with the different cellular transmission standards.

"Given Apple just did this with Motorola and Cingular, I can't see anything short term," said Tim Bajarin, an analyst with market research firm Creative Strategies. "They have to let this thing play out and see if the Motorola phone can be successful on its own."

Last week in San Francisco, Apple announced the Rokr phone, which is made by Motorola and was the company's long-awaited foray into the wireless realm. Though reaction to the phone was muted and overshadowed by Apple's introduction of a sleek, smaller replacement to the iPod mini, called iPod nano.

Number one mobile service provider Cingular Wireless, a venture of SBC Communications Inc and BellSouth Corp, will be the exclusive US carrier of the phone, which it will sell for US$249.99 to customers who sign up for a two-year service contract.

Speculation has centred on a device that looks more like one of Apple's signature white iPods rather than a traditional mobile phone. The iPhone might include Apple's well-known "click wheel" to navigate through the phone's functions and would also include a pop-out keyboard.

It would also be a true iPod, one that could hold thousands of songs and photographs, compared with the 100 songs that the Rokr phone can store, analysts said.

In a recent research report, Munster wrote that a survey of 200 people his firm conducted showed an 18 percent interest in an Apple branded phone with iPod capabilities.

It is an enticing market: More than 750 million mobile phones are expected to be sold worldwide this year, compared with an IDC forecast of 57 million digital music players sold in the same time period. Apple has about a 75 percent market share of the global digital music player market.

If Apple were to design its own phone and partner with a contract electronics manufacturer, which it could then sell to its own network of retail stores, it would need to set up what is known as a mobile virtual network operator, or MVNO.

An MVNO, such as Virgin MobileUSA, typically does not have its own network and purchases minutes from traditional carriers and resells them to its own customers.

Munster said that while there may be sufficient interest for an "iPhone," he also noted potential obstacles.

"Apple would need to strike deals with carriers on how to share the economics of consumers downloading content," he wrote. "Further, Apple would also have to design its products for carriers' differing network technologies."

For its part, Apple said last week that it retained flexibility in the deal it struck with Motorola. As it tests the market for music on mobile phones, Apple is free to work with other handset makers and cellular providers, said Phil Schiller, Apple's head of worldwide product marketing.

"We have flexibility to do many things," Schiller said.

So, perhaps consumers can expect more Rokr-like phones from the likes of Nokia, Samsung and others down the road.

But perhaps the most titillating indication of Apple's intentions is a Web site, http://www.iphone.org. A visit to that Web site brings a visitor to Apple's own home page and the iPhone.org site itself is registered to Apple.

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