Ring tone upstarts see free ride ending

He has been hitching a ride on the well-guarded AT&T Wireless network since January, when he discovered an open doorway that lets him send e-mail from the Internet to AT&T Wireless phones for free.

Grinda has turned it into a business, sending out short bursts of popular music to replace the prepackaged tones used to alert someone to a call. Inside the 15,000 e-mails Grinda sends a day are 15-second snippets from P.Diddy's "Bad Boy For Life," or "Free Love" by Depeche Mode, which will soon become ring tones for the AT&T customers who have discovered his Web site, Zingy, where ring tones are free.

Zingy launched months before AT&T started charging in July for the same thing: sending ring tones over its network to cell phone users.

"I already have 150,000 users. It's really starting to happen," said Grinda, who earns his money by advertising on his site. "I'm really emulating a company in Europe. You stay free until you have 2 million users, then you start charging. Maybe that will be a year from now."

Zingy is one of a growing number of small companies like Supermegaphone that have been making use of a small window of access to the wireless networks of carriers AT&T, Cingular Wireless and VoiceStream Wireless to freely distribute ring tones, graphics and logos. For technical reasons, you can only download the ring tones from these free sites to three models of Nokia phones, which happen to be among the most popular in the United States.

But the carriers are quickly moving into what is expected to be a multibillion business once they start charging for the ring tones; Cingular became the first U.S. carrier to start selling ring tones in May. AT&T followed in July, and Sprint PCS on Thursday announced that it will start selling ring tones and graphics next week for use on the most recent Sprint phones.

It has so far been a peaceful coexistence between the carriers and the upstarts. Carriers are aware of the traffic, estimated to be in the hundreds of thousands of e-mails a day, and acknowledge that it undercuts their own efforts to sell ring tones, text messages or logos.

But right now, there is not enough business to care about losing, they say. Most carriers have decided to let the music industry's intellectual property watchdogs do the dirty work of shutting down the sites offering songs without the proper copyright licenses. Some analysts estimate 65 percent of the ring tone business is done by sites that are not properly licensed.

"We're letting nature run its course, just like Napster and other online sites. We're seeing them shut down on a regular basis," said AT&T spokeswoman Ritch Blasi. "If we think it's necessary and more of an issue, we might take action."

So far there has been only one lawsuit over ring tones. Record label EMI Recorded Music sued YourMobile, a ring tone seller and wireless advertising company based in Santa Monica, Calif. The case was settled after YourMobile received licenses from EMI and other major publishing representatives.

The American Society of Publishers and Composers (ASCAP), which sells the performance rights for hundreds of thousands of popular songs, has begun trying to weed out ring tone sellers working without ASCAP approvals. And The Harry Fox Agency, which handles the licensing for the National Music Publishers Association and its 27,000 members, is now licensing its tunes for ring tones.

Like Napster, some music groups embrace the new technology. This week, Zingy announced that rap groups Wu-Tang Clan and Mobb Deep agreed to release their music to Zingy as ring tone material before it was commercially released.

Ringing alarm?
But the unusual relationship between carriers and the free ring tone sites that use their networks is reaching a sensitive point. In addition to licensing rights, the carriers are clearly moving in to start charging for the same services many customers get for free. It does not make sense for the carriers to allow the competition access to their networks, essentially undercutting the carriers' new revenue source.

AT&T is banking on it, having just upgraded its own text-messaging center to handle 10 million messages a day.

Selling ring tones is already a big business in Europe and Asia. More than $300 million in ring tones were sold in Japan last year, and Nokia estimates it will make billions selling ring tones by the end of 2005. The StrandConsulting Group estimates there will be $1.5 billion in ring tones sold in Europe this year.

To head off Napster-like licensing issues, the carriers are working with big name entertainment companies. The Disney Internet Group now allows AT&T Wireless consumers to download famous Disney tunes as ring tones. But there is still little to stop a free ring tone Web site from putting "Whistle While You Work" into circulation.

"Certainly, court action is in the cards if people do not stop putting up our ring tones," said Larry Shapiro of Disney Internet Group, which said it has taken action against Web sites in the past three months.

The carriers are likely to act too. "The carriers realize they are leaving money on the table," Grinda said.

Yet few carriers have taken direct action, such as closing down public access or blocking the ring tones from getting through. VoiceStream has blocked some sites from accessing its network and uses filters to spot the e-mails. Cingular is in talks with a consulting firm about how to deal with the issue, both technically and legally.

Made their own beds
Ironically, carriers helped create the industry they now are trying to cope with because they wanted to give people an easy way to let anyone with an Internet connection send a text message to a cell phone for free. The carriers created these "message centers" on their networks to route the text messages, which are still struggling to take off in the United States. But it's a big industry in Europe, where a billion messages cross cell phones each day.

The free ring tone site operators quickly developed ways to use those "message centers" to send the ring tones. Visitors to Zingy, for example, do not even know they are using the carriers' network. They just choose from one of the hundreds of ring tones listed, enter their telephone numbers, service providers and type of phone. The ring tone is packaged in e-mail. Then, Zingy sends it through the "message center" in the network. It doesn't cost the free sites anything to use the network.

Calvin Kwok exploited the hole so his Web site, EssayWorld, could distribute more than 30,000 ring tones a day. But his free ring tone service was short-lived; it launched in January and closed in March after Sony Music sent him a letter over licensing rights.

"Since I was sending out over 30,000 ring tones a month, licensing the songs from all the music companies for a free service was not an option," he said.

For now, the sites offering U.S. residents free ring tones and logos continue their businesses relatively unfettered.

Free ring tones, for instance, have become like free e-mail, or 3D images: the latest must-have for the cooler Web sites. Don Thomas, curator of gaming Web site ICWhen, offers ring tones that mimic the sounds from some of the 1970s arcade games like Pacman.

Carriers, he fears, might one day shut down these gateways, or start charging the likes of ICWhen for the e-mails they send.

"I don't think you should charge for what's in an e-mail. How would you feel if your ISP says you like to send a lot of pictures of kids; we see this as a revenue generator, so every time you send a picture, we'll charge you extra money for it?" Thomas said. "If they want to charge an extra fee, that's just stupid and wrong."