Fancy Phones Sell, but Services Lag

Consumers in both the U.S. and Europe are flocking to phones with advanced data features, but not that many are using the services operators want them to, according to a pair of recent surveys.

About 60 percent of all home broadband users in the U.S. have a mobile device that can reach the Internet, but only 5 percent actually use them for that purpose, research company Media-screen said in its Netpop Pocket survey announced Wednesday. Meanwhile, M:Metrics Inc. said phones that can play music now make up a hefty portion of sales in the U.S. and Western Europe, but few users are buying songs for them over the air.

The reports come as the mobile industry gears up for the CTIA Wireless show in Orlando next week. Carriers and other industry players are expected to promote emerging mobile data applications such as video, payments and location-based services there, with an eye to generating more revenue as voice calling minutes get cheaper.

Many U.S. mobile users steer clear of the mobile Internet because of cost, dropped connections, the size of the screen and the difficulty of finding content on the phone, said Josh Crandall, managing director of Media-Screen Consulting, in San Francisco.

One problem is that carriers make it hard for users of less-expensive limited data plans to find out how much of their monthly allocation they've used up, Crandall said. As a result, they avoid using the Internet.

"It creates an environment that is based on fear rather than interest in actually consuming services more," Crandall said.

A few music-focused phones such as the Sony Ericsson W850i have raised interest in the larger category of phones that can play music, M:Metrics said in its survey. At the high end, 40 percent of phones in the U.K. are music phones, while more than one-quarter of the handsets in Germany, Italy and Spain are, it said. In the U.S., only 17 percent of handsets can store and play music, but sales of such phones grew 385 percent in the year ended January 2007.

However, most users are "sideloading" music from their own collections into the phones rather than buying songs via the carrier. M:Metrics found 12.2 percent of mobile subscribers in the U.K. listen to sideloaded music, compared with 2.7 percent who downloaded songs from a carrier's store. Even fewer buy from carriers in Germany, France, Spain and Italy. In the U.S., 2.9 percent of subscribers listen to sideloaded music and only 0.7 percent buy from carriers.

Some carriers have frowned at sideloading, and with some justification: It's part of a trend that's cutting into their sales of personalization features such as ringtones and wallpapers, M:Metrics spokeswoman Jaimee Minney said. Thanks to Web sites that have made the process easier, many mobile users are now making ringtones out of their own music. Likewise, users with camera phones are just taking pictures and using them as wallpaper, Minney added. In the U.S., which often lags Europe in the mobile arena, ringtone and wallpaper or screensaver purchasing was up in January.