Camera-Phone Combos Face Uncertain Reception
Tue Jul 9, 1:14 PM ET

By Paul de Bendern

HELSINKI, Finland (Reuters) - Aim, click, type in the phone number or e-mail address, press send and off it goes. Sending a digital photo from a camera-equipped mobile telephone should be no more complicated than that.

The arrival of mobile phones with built-in cameras in Japan over the past year -- and in Europe in recent weeks -- have excited telecom network operators and mobile phone makers, who hope the devices will finally kick-start a sluggish market for plain old voice-only phones.

Their counterparts in the United States are as keen to see whether so-called picture, audio, animation and text messaging will be a hit when it lands on their shores in late 2002.

But while the first phone cameras on sale in Europe from Nokia ( news - web sites) and Sony Ericsson ( news - web sites) are sparking interest, hefty price tags will keep most consumers at bay for now. In Japan, where most phones are heavily subsidized by network operators, phone cameras have sold well, but repeat usage of picture-swapping services has been slow to follow.

Some analysts question whether wireless phone calling and digital picture-taking should remain fundamentally distinct markets. Will consumers be willing to trade the quality and permanence of conventional pictures for the convenience of picture-swapping phones?

Nokia's first much-anticipated camera mobile phone model 7650 has just gone on sale in Europe for a staggering $780 without discounts. The new phone from Nokia, which makes fully one-third of the world's mobile phones, faces an uphill battle for widespread acceptance.

"The combination camera and phone is a tough sell," said Chris Chute, a digital camera analyst with market researcher International Data Corp. in Framingham, Massachusetts. "It's trying to do two very different things.

"A digital camera is about sharing images. It's eventually going to be a film replacement," he said. "But it's difficult to say what applications there will be for the camera phone. It's basically just a form of enhanced mobile phone communication."

A recent British survey showed that nearly half of all mobile phone users are unlikely to use their handsets for anything other than making calls. That's bad news for an industry betting that so-called Multimedia Messaging Services (MMS) can drive a new wave of demand for phone services by allowing people to swap music and pictures over phones.

"I don't see MMS as a big hit any time soon. In Japan the service has existed for more than a year and while subscriptions have grown, statistics show few subscribers send pictures with their phones," said Teppo Turkki, executive advisor at Finland's second-largest mobile network operator, Elisa Communications .

"They still prefer to use a proper digital camera," said Turkki, who returned recently from a research trip to Japan.

DO INSTANT POSTCARDS MAKE A MARKET?

Picture messaging has existed for more than a year in Japan, the world's most advanced mobile phone market -- and a country renowned for its obsession with picture taking. The market for camera phones is expected to become as big as the digital camera market in Japan as more cell phone users take still pictures and swap them via e-mail. Marketers hope that the same will happen in Europe and the United States.

Japan's No. 3-ranked mobile operator J-Phone launched such a camera phone service in late 2000 and has attracted some 5.1 million subscribers. J-Phone appears to be using camera phones to differentiate its latest phone services from NTT DoCoMo ( news - web sites), the Japanese mobile market leader, which has so far given short shrift to camera phones.

Major U.S. wireless carriers such as AT&T Wireless and Cingular Wireless are starting to boost text messaging and eventually plan to launch photo messaging services.

But multimedia messaging faces more of an uphill battle in the United States, because competing networks built on different technologies may make it hard for subscribers to a service such as AT&T Wireless share photos with users of Sprint PCS phones, for example.

"If the phones become cheap enough picture messaging will move beyond a niche market," Lehman Brothers analyst Stuart Jeffrey said in London. "The initial reaction to the concept seems positive. I think MMS will be a bigger thing in Europe than in the United States."

Text-messaging has also been slow to take off in the United States because mobile network operators such as Sprint have been reluctant to allow their subscribers to communicate with callers on other networks.

The potential is there, with industry experts predicting that wireless network operators in Europe and Asia already derive 10 percent to 20 percent of their profits from text messaging. Picture messaging could boost profits even more.

"If it's easy to use and priced correctly it will be a success, but it won't be huge. There is no killer application apart from one, which is voice," said Ben Wood, a senior analyst at research group Gartner Group in London.

NOKIA POINTS AND SHOOTS

Nokia's 7650 imaging phone has been well received by Finnish retailers desperate for new devices, but they also say the high price could hurt sales.

It is the size of a standard pocket camera, the weight of a television remote control and is equipped with a matchbox-sized high-resolution color display.

While the phone is larger than those from rivals on sale in Japan, it is easy to use. The 7650 has a screen that covers most of the phone and a joystick to navigate through screen menus more easily than button-based navigation. Underneath the cover rests a small keypad, which slides out for typing numbers and letters.

Sending a picture, with a text or a sound, is fairly easy.

Nokia's new model is superior to the alternative offered by Sony Ericsson, the tiny T68i phone, which sells for about $630. Yet neither camera has a built-in flash, and moving images are blurred. These cameras take something akin to Polaroid snapshots instead of lasting mementos.

Another catch is that a digital picture and audio can only be sent to users with MMS-capable devices and to users who subscribe to a carrier that runs MMS technology, complicating the growth of picture-swapping in the near-term.

By contrast, digital cameras are now selling for little more than $100 that offer more or less similar quality digital photos that can be shared via e-mail.