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AT&T and Verizon tout wireless gadgets

Mobile operators see a big opportunity in connecting all kinds of devices to wireless networks, but will they be able to offer business models that appeal to consumers?

LAS VEGAS--In the-not-so-distant future, your cell phone provider will likely also be providing wireless Internet access for your digital camera, electronic book reader, or any other electronic gadget you may own.

During the CTIA Wireless 2009 trade show here this week executives from AT&T and Verizon Wireless described a new era in wireless in which their networks would be used not only for cell phones but also to provide network connectivity to everything from e-readers to personal navigation devices to heart monitors.

At a press event here on Thursday Ralph de la Vega, president for AT&T mobility, said that in a few years retail chains, such as Best Buy and Wal-Mart Stores, will be stocked with electronic devices that wirelessly connect to Internet.

"In the next few years, portable devices that aren't connected wirelessly to the Web won't sell," he said. "Wireless connectivity significantly increases the value of devices. And it's what people want."

De la Vega pointed to growth in the smartphone market as an indication that consumers are increasingly becoming more accustomed to always connected devices.

"It's like the PDA market," he said. "When you added wireless to a PDA, it became more useful. And the smartphone market was born. The same will be true of cameras, personal navigation devices or e-readers. And the companies that don't add wireless to their product won't be successful."

While an everything-connected world may sound cool, there are still lingering questions about how much this access will cost consumers and how users will actually pay for it. And if it wireless operators aren't willing to adapt their business models, it may be difficult to get consumers to sign up for pricey data services with lengthy contracts.

Glenn Lurie, president of AT&T's emerging devices business, said he realizes that that wireless operators will have to change how they do business.

"This is going to require a different business model," he said. "And we are going to have to break some rules to bring these devices to market in a customer friendly way."

An untapped market awaits
Today, nearly 85 percent of the U.S. population owns a cell phone. As this penetration rate approaches 100 percent, it's unlikely that cell phone operators will experience much new growth simply by adding new cell phone subscribers. Adding new devices, such as electronic readers and cameras, to the network greatly increases the addressable market. AT&T executives believe the market for connecting devices other than phones to their wireless networks could be as big $90 billion over the next five years.

Verizon Communications' CEO Ivan Seidenberg said during a press conference here this week that he believes people in the U.S. will own multiple wireless devices and that eventually wireless penetration could reach as much as 500 percent in the next few years.

"I'm not saying that people will be carrying around five mobile phones," he said. "But you might have something in your pocketbook that talks to a thermostat or any number of devices that are connected wirelessly across the global Internet."

AT&T has created a special business unit to identify and help get emerging consumer devices ready for its wireless network. Lurie heads up the new business unit and has spent the past five months talking to a wide range of device makers from garage start-ups to established consumer electronics makers.

Verizon Wireless is addressing this new market through its Open Network Initiative, which was launched last year and is designed to expedite the process of certifying devices for Verizon's network. Verizon has already certified some 36 devices, including a smart-grid device that monitors energy consumption and a wireless tablet for the health care industry that serves as a portable medical chart.

Tony Lewis, who leads Verizon's open network, said the company is also talking to consumer electronics makers.

One product category likely to make its way onto carrier networks first is the electronic book reader. Sprint Nextel provides wireless service for the Amazon Kindle. And the product, which allows people to download books, newspapers, and magazines over Sprint's 3G wireless network, has been a huge hit with consumers. Now other e-book manufacturers are looking for ways to wireless enable their devices.

Verizon is currently talking to five e-book makers about making their devices available on Verizon's network, Lewis confirmed. AT&T wouldn't provide details, but executives hinted that an e-book deal could be in the works its network as well.

New business models needed
The notion of providing wireless connectivity for consumer electronics devices has been around for a long time. Chipmakers like Qualcomm have been developing chips just for this purpose. And Wi-Fi is also finally making its way into many consumer electronics devices.

But connected consumer devices haven't taken off yet, mainly because the carriers' business models are too restrictive. Today, wireless operators typically offer wireless service for a single device. The phones are sold through the carrier. And the operator subsidizes the cost of the phone in exchange for consumers accepting a contract.

But if consumers are expected to own multiple devices that connect to a carrier's network, they're not going to be willing to sign up for multiple services. This means that mobile operators are going to have to change how they do business.

"We can't expect people to have five different accounts," Tony Melone, CTO of Verizon Wireless, said during an interview this week. "There needs to be a mechanism that allows people to have some kind of account for multiple."

Executives from AT&T and Verizon acknowledged that multiple business models will likely co-exist. For example, Amazon, which uses Sprint Nextel's network for wireless service on the Kindle, pays Sprint for the data access and bundles that price into the cost of the product. As a result, Kindle users don't sign up to for an account with Sprint Nextel nor do they pay a dime for downloading books over the Net.

"The Kindle has a great business model," said Verizon's Lewis. "But it's not the only one out there."

AT&T's Lurrie said that how the service is monetized will depend on the device that is using the network. For example, Lurie said that most consumers would not want to spend an additional $10 a month for wireless service to upload photos to a digital picture frame. But they might be willing to pay for one-time use or even pay for several uses.

For all its talk of new business models and breaking rules, so far, AT&T seems to be following its traditional business model when it comes to selling Netbooks. Just as it does with smartphones, AT&T is subsidizing the cost of these mini-computers in order to get subscribers to agree to a data service contract.

And it appears the carrier is willing to deeply discount these devices just to get people using the network. Earlier this week, it announced a pilot program in Atlanta and Philadelphia where it will sell Netbooks for the cost of $50 to consumers who already subscribe to its broadband service. In exchange for this rock-bottom price, subscribers must agree to a two year contract for its $59.95 per month data service, which also provides access to AT&T's 3G network as well as its 20,000 Wi-Fi hotspots around the country.

But Lurie said that the company will not rely on subsidies alone to fuel adoption of these services.

"I don't think the subsidy model will drive the business," he said. "We will provide some subsidies, but we will be experimenting with all kinds of different business models."

De la Vega said the company is still in the early stages of figuring out the best way to monetize its services. But he said the old model alone will not be enough to grow AT&T's business in the new era of wireless where every device will be wirelessly connected.

"We need to be more flexible," he said. "This is a new frontier. And we need to approach it with new ideas. We can't be forced to go down an old path."