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Will New Phones Take a Bite Out of the iPod?

When the Apple iPod was introduced a few years ago, it ushered in an era: the MP3 player made it possible to carry an entire music collection — hundreds of albums, thousands of songs — in a shirt pocket.

Similarly, cell phones have shrunk from large devices the size of a brick to tiny units that allow users to check e-mail, shoot video clips and photos, play games and browse the Internet — all, of course, in addition to making phone calls.

So it was inevitable that the two devices would merge at some point. But is the technology ready to provide the best of both worlds?

Wireless providers say yes, but some industry analysts aren't so sure.

Among the contenders in a new breed of MP3-ready cell phones are the Sony Ericsson Walkman phone, the Motorola ROKR and the Sanyo MM9000 and Samsung SPH-a940, both of which feature SprintNextel's Power Vision cellular multimedia service.

The Sony Ericsson Walkman W800 phone ($499) is, as the name implies, a cell phone and a Walkman rolled into one. In addition to features standard on most cell phones, such as a camera, the W800 features up to 512 megabytes (MB) of built-in memory — about 100 songs — with the capability to double that to 1 gigabyte (GB).

The Motorola ROKR phone ($149, with a two-year Cingular subscription) features a built-in Apple iTunes browser to assist in downloading and sorting music files, and also has 512 MB of built-in storage for music.

The Sanyo MM9000 ($379) and the Samsung MMa940 ($399) both work with Sprint's new music-download service, the Sprint Music Store, and can also copy MP3 files from PCs.

The Sanyo comes with a 16 MB miniSD memory card, replaceable by other miniSD cards, which currently run up to 1 GB in capacity. The Samsung comes with a 32 MB microSD card, a slightly different format; replacement cards go up to 512 MB.

None of these phones come anywhere close to the capacity of the latest generation of full-fledged stand-alone MP3 players — the top-of-the-line iPod ($399), for example, has a 60 GB hard drive, capable of holding 15,000 songs or 150 hours of video.

But, of course, you can't make a phone call on an iPod.

Wireless service providers and most industry analysts agree that cell phones with built-in media players will become more common over the next few years. So does this put the iPod in danger of being overwhelmed by a wave of MP3-playing cell phones?

"No, absolutely not," says Mike Goodman, an analyst with The Yankee Group, a market research company that monitors consumer trends.

The portable media market, which includes MP3 players, and the mobile phone market have significant differences, Goodman says.

He says iPods and other portable media players are part of a "demand-side" market, meaning that if a person purchases an iPod, he's likely to use it often.

But MP3 players built into cell phones are treated as add-ons, much like calculator or camera functions, and aren't used so frequently. Wireless companies subsidize them, but the actual number of users typically remains small.

Goodman says the multimedia capabilities of cell phones are limited by the fundamental fact that they still have to function as telephones first and entertainment devices second.

Many analysts believe that in the same way that phones with built-in cameras haven't eliminated digital cameras, and phones with video game systems haven't put a dent in Xbox or PlayStation sales, phones with MP3 players are unlikely to render stand-alone players obsolete.

Another obstacle to the growth of cell phones as personal entertainment devices may be the simple cost of downloading files from wireless providers.

Sprint Nextel launched the Sprint Music Store on Oct. 31, selling music from the four major record companies — EMI, Sony BMG, Warner Brothers and Universal — at the unheard-of price of $2.50 per song.

By comparison, Apple's iTunes Music Store sells songs for 99 cents each, and Wal-Mart's competing service undercuts that by 11 cents.

And most digital music being listened to in the U.S. costs even less than that, Goodman points out — it's "ripped" from CDs, many borrowed from friends, or downloaded for free from both legal and illegal Web sites.

Sprint representative Emmy Thomas said her company's Music Store pricing is based on the assumption that since customers have been happy to pay $1.99 for a 20-second music-based ringtone, they'll have no problem paying an extra 51 cents for the entire song.

She further argued that convenience is a main selling point, since Sprint customers get quick, over-the-air downloads without any time-consuming steps involving an intermediary PC.

Goodman, however, thinks the company may be pricing itself out of the market. The Yankee Group agrees — one of its recent reports predicts that while wireless phone hybrids will comprise half of all portable music players by 2009, they'll account for only one-third of music-based revenue.

Thomas wouldn't provide any numbers about how the new Sprint music service has fared so far, but she did say customer and media feedback have been good, despite some grumbling about prices.

Then there's the big question — whether Apple itself will step into the wireless-phone ring. Rumors about an Apple "iPhone" have been making the rounds online for over a year, and considering how quickly the iPod Mini and Shuffle crowded similar competitors out of their niches, traditional handset manufacturers might have something to be worried about.

In the meantime, the decision to purchase either a stand-alone MP3 player or a media-playing cell phone seems to come down to just what, exactly, the consumer wants to do with the devices.

The newer breed of MP3 players, especially those with multimedia capabilities such as the video-playing iPod, the Creative Zen Vision or the Archos AV and PMA, can do a lot of things far better than even the most expensive media-playing phone on the market.

But, at least for now, they still can't call home.