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LAS VEGAS -- Microsoft has moved swiftly to develop a new version of Pocket PC that integrates wireless telephony features, and the first handheld gadgets based on the new software will go on sale from Hewlett-Packard and others by mid-year, officials here say.

The move effectively lets a Pocket PC handheld act as a wireless phone without needing add-on hardware. Microsoft is adding CDMA and GSM capabilities to support voice calls from the personal digital assistant. The new platform, which is being called Wireless Pocket PC but will be rebranded when sold, should help Microsoft compete with gadgets such as Handspring's popular Treo, a combined cell phone-PDA.

Bill Gates, Microsoft's chair and chief software architect, referred only briefly to Wireless Pocket PC in his keynote speech at the start of the Consumer Electronics Show here Monday. But the company has apparently worked fast to make headway in the emerging market for products that blend telephony with a PDA.

"We don't think there's an ideal device that speaks to the needs of all users, so we're placing multiple bets," said Ed Suwanjindar, a product manager for Microsoft's mobility group, in an interview here at CES.

HP will offer a version of its Jornada PDA that uses the telephony features in Wireless Pocket PC, Suwanjindar said. The GSM device, code-named StarFighter, is likely to ship in Europe this year, he said.

Also in Europe, British Telecommunications' MMO2 division will offer a GSM phone manufactured by Taiwan's High Tech Computer, which manufactures Compaq's iPaq. That device will be offered in Europe by mid-2002, and will likely come to the U.S. this year, Suwanjindar said.

AudioVox, meanwhile, plans to offer a Wireless Pocket PC device in the first half of this year. Called Thera, it will work with CDMA networks and be sold in the U.S., he said.

Competitive Field

The devices will mostly be branded and sold by telecommunications providers, who are likely to subsidize prices much as they do with cellular phones today. That means customers may end up paying about the same price for a Wireless Pocket PC device as they do for a standard Pocket PC, Suwanjindar said.

The Pocket PC, marketed by a number of vendors, ranges in price from about $350 to $600. Handspring's Treo starts at $400 for a monochrome screen, $600 for color.

Microsoft is entering a very competitive market, and must stick to its shipping schedule to avoid being left behind, says Tim Bajarin, president of research company Creative Strategies. "Unless Microsoft can get these products out quickly, Handspring will have a long advantage in terms of time to market," he says.

The Wireless Pocket PC has all the applications of a standard Pocket PC PDA, but adds hardware to connect to cellular networks and software to dial numbers and send text messages. Microsoft is also building ties to applications like Pocket Outlook, so users can tap on a contact name and automatically dial the associated number. Right-clicking on a contact presents a menu of choices, such as sending a text message.

Business users will be able to synchronize their Wireless Pocket PC devices with Microsoft's Exchange Server. Because cellular bandwidth is limited, Microsoft has a "smart forward" feature that lets users send a large file, such as a PowerPoint presentation embedded in an e-mail message, without actually having to download it to the PDA, Suwanjindar said.

It Roars, Too

To give the platform some "cool," users can choose virtually any ring tone for their device. Tones are stored as .wav files, easily created on a PC, he said. Demonstrating HTC's device here, Suwanjidar showed how to load Chewbacca's roar from Star Wars onto the device for use as a ring.

If you're viewing a digital video clip or listening to a song when a call comes in, the device can automatically pause playback, and resume when the call is finished.

Microsoft faces several challenges, analyst Bajarin notes. Handspring has established an early lead with the Treo, and other devices based on Palm's software are likely to soon emerge, he says.

"I suspect what you'll end up with is a very crowded market," Bajarin says. "That will be good for consumers because there'll be a lot of choice."

Microsoft's capability to forge close ties between its gadgets and its desktop and server software is a big advantage and makes it a potent competitor, he said.

Microsoft now has three platforms for handheld gadgets: Pocket PC, for standard PDAs; Wireless Pocket PC; and Stinger, its software for smart phones that this week was renamed Smart Phone 2002.

The Smart Phone software is for devices that are primarily cell phones with PDA functions; Wireless Pocket PC is for PDAs that also act as cell phones. PDAs typically have larger screens, are intended to be used with two hands and a touch-screen stylus, and run applications, which Smart Phone 2000 does not.

The Wireless Pocket PC devices have Smart Card expansion slots, a 206-MHz StrongArm processor, and 32MB of memory. Microsoft may add a small punch keyboard, similar to that of the BlackBerry, but will keep the software keyboard for now, Suwanjindar said.

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