Most people in the U.S. use cellphones, but own basic models or do not make use of the more advanced features on smartphone models--devices that can be used for both voice calls and others tasks like surfing the Web, texting and e-mail. Part of the reason for this is that, until recently, smartphones were generally seen as specialty products mostly intended for businesspeople.

 

Yet, it is smartphones that have tended to capture the imagination of both consumers and businesspeople alike because they are potentially so very cool and so very useful. The infatuation over smartphones reached a fever pitch this summer with the launch of Apple’s iPhone, a multimedia device that lets users make phone calls, take photos, surf the Web and check e-mail, and also includes a built-in MP3 music player.

 

Seemingly for the first time, here was a smartphone for consumers, a smartphone that was really smart. You could say that iPhone, at least as perceived through the eyes of starry-eyed consumers, seemed like the Platonic ideal form of a smartphone--a device that comes with lots of cool features that are easy to use and offers a sleek, sexy form factor. In other words, a device that is both useful in daily life and is also something you can show off to your friends.

 

 

But let's take a step back. Just how useful are smartphones, really? (iPhone or otherwise.) Do people really need "converged" devices that let them do so many things from the palm of their hands? How functional are such features, really? Maybe a good place to start would be defining what "smartphone" really means. Even that question, it turns out, may not be easy to answer. By some definitions, iPhone—cool though it is—can’t be called a smartphone.

 

"I don't consider the iPhone to be a smartphone," Bill Hughes, Principal at analyst firm In-Stat (News - Alert), said. "Generally speaking, a smartphone is a device that runs an open operating system, with built-in ecosystem to develop applications for that platform. But that's not the case with the Apple iPhone. It's not a published interface."

 

Hughes added: "The fact that you can do e-mail on the iPhone doesn't, in itself, make it a smartphone. It does make it a multimedia phone."

 

Okay, so maybe iPhone is a multimedia phone. Or maybe it's something else that we haven't quite defined yet.

 

"The devices we've traditionally called 'smartphones' have been business-centric," said Charles White, senior vice president of the telecoms department at analyst firm TNS (News - Alert). "iPhone is a consumer-centric device. Enough is different about iPhone to fit into its own category."

 

 

Whether you believe that iPhone really fits into the category of "smartphone" or not, there's no denying that it is different. It's different because it's a consumer-grade converged device. It's different because its price is not subsidized. It's different because the manufacturer, rather than the service provider, is running the ship for the most part.

 

These last two points together form what could be the most different thing about iPhone, a difference that potentially could change the entire landscape of the cellphone industry in the U.S. To understand why this is so significant, think about how regular home phones work. You sign up for phone service by choosing which company you want to be your service provider (though depending on where you live, there many not be many choices). Then you go to an electronics store,  pick out a phone with the features that are most appealing to you, bring the phone home and plug it in.

 

Now think about how cellphones work. Instead of pairing your phone or choice with your provider of choice, you choose a provider and are limited in your choice of phones depending on which models that provider offers. You can't just go to a store, buy a phone, and plug it into any service.

 

Some people, like Core Capital Partners managing director Jonathan Silver, think the way the cellphone market is set up in the U.S. is fundamentally flawed, and in fact is hurting the country's global technology standing.

 

"I don't think anybody disagrees with the general observation that large parts of Asia and Europe are two or three years ahead of us in terms of their cellphone technology and the use of handheld devices in daily life," Silver said. "A large part of that has to do with the fact that they have successfully decoupled the relationship between handhelds and networks."

 

Silver thinks the U.S. would be better off it the market for cellphone services and devices was set up the same way it is for regular phones--you pick the phone you want, and the service you want, to those two elements work together regardless of which you choose. Until iPhone, however, there was little sign that the status quo would change anytime soon, since cellular network operators are big companies and wield a lot of control.

 

"The economics of the phone industry in the U.S. to date have been about subsidizing handsets," said M:Metrics analyst Mark Donovan. "If you wanted to sell a handset it had to conform to a whole bunch of requirements from the operator. The iPhone is a singular event because in this case the phone manufacturer really is driving the ship end-to-end. The fact that AT&T stepped aside to let Apple do its thing was a really new event in the U.S. mobile industry."

 

Short of regulation, which seems somewhat unlikely, the only way the U.S. cellphone market will change is through events like iPhone's launch--the marketplace introducing a new model that's powerful enough to make people sit up and take notice. The question that remains to be seen is how successful Apple will be in maintaining this paradigm shift, and whether it will catch on with other manufacturers and operators.

 

Apple has set some pretty lofty goals for itself, after all. Bill Hughes at In-Stat thinks those goals are unrealistic.

 

"Apple has set a bogey for itself with the goal of selling ten million iPhone units in the first 18 months," Hughes said. " If Apple sells two or three million iPhone units it will have achieved a fantastic success."

 

Achieving its 10 million unit goal is a likely reason why, last week, Apple lowered the price of the ---GB iPhone from $599 to $399. It could be that Carlaw was right; it wasn't realistic for Apple to sell so many units so quickly, at least at such a steep price tag. The proof likely will be in how sales do over the holiday season.

 

Hughes also expressed concern that the touchscreen technology on iPhone is not all it's cracked up to be. He recalled the cautionary tale of the Apple Newton.

"The handwriting recognition program Newton came with caught everyone's imagination," Hughes recalled. "But, the fact of the matter was it didn't work that well. I'm skeptical about iPhone's touchscreen technology."

 

Stewart Carlaw, research director at ABI Research (News - Alert), expressed a similar sentiment.

 

"The problem with touchscreens is always sensitivity," he said. "Apple has done a good job in terms of the Web browser experience. But for sending e-mail, there have been some reported problems with the screen being less sensitive and responsive than a dedicated QWERTY keyboard in a hard form factor."

 

Carlaw said the real sweet spot for user interfaces is voice recognition. But he predicted it will be at least three years before voice recognition technology robust enough for everyday use will be introduced. Mobile phone processors simply are not powerful enough yet to support such robust applications. Part of the reason for this is that the form factor of today's smartphones limits their functionality.

 

Device design, Carlaw pointed out, is a trade-off between price, functionality and battery life. He said concern over battery life is probably a key reason why iPhone doesn't yet use a faster wireless network. Battery life may seem like a background issue, but in fact it is pivotal. For the time being, manufacturers are mostly limited to developing creative ways to manage battery life. RIM's BlackBerry devices, for example, power down between keystrokes and automatically go into sleep mode when they're inserted into a holster.

 

Carlaw said what's really needed is a new type of battery, based on fuel cell technology. But the technology need to evolve so there isn't danger of fuel cell batteries overheating or blowing up. Plus, of course, the price needs to come down.

 

Jonathan Silver at Core Capital Partners thinks the future of portable power lies in thinfilm batteries like those made by Infinite Power Solutions in Colorado (one of the companies Core Capital has invested in).

 

"A thin-film battery is a battery that has the size, shape, weight and flexibility of a postage stamp," he said. "A huge part of the size and shape and weight and structure of the iPhone is dictated by the battery. Even then the battery is not that good. Now imagine battery taking any shape--it could be the skin of the machine, for example. If thin-film battery technology succeeds, the form factor of virtually every smartphone out there could be changed."

 
By combining thinfilm batteries with flexible screens, and maybe even hologram keyboards, Silver thinks manufacturers in the future will be freed to create devices with form factors we can't even imagine.

 

"There's a huge amount of technology development going on right now around flexible screens," Silver said. "It possible to imagine a rollable version of a converged device using thin-film batteries. Even the iPhone is constrained by the requirements of current hardware technologies."

 

 

What will people do with such futuristic devices?

 

"You're going to get a whole new generation of people who use the Web differently in ways you and I can't even guess at," Silver said. "I think it's possible to imagine that information delivery will be much more visual than text-based in the future. I'm seeing huge numbers of business plans now around the development of different kinds of widgets."

 

By widgets, Silver refers to visual "tools" that display information like the weather in a particular city or sports scores for a favorite team in a relatively small amount of space--ideally suited for mobile devices. Widgets and other ways to display information on mobile screens have created, in a sense, a new type of Web--the mobile Web. This is different than the Internet we've come to know and love.

 

"Yes, people can get ‘Internet’ on their cell phone, but I don’t think anyone at this is a a replacement for other types of Internet usage," said Charles White at TNS. The mobile Internet is a thing in and of itself."

Silver said iPhone will have a major impact on how people use mobile devices for three main reasons. First, it makes content easier to manage. Second, it will cause people to use the Web in more and different ways. Third, it will change the nature of mobile video.

 

Mobile video has become a pretty hot topic, and Silver thinks in the future people will have access to on-demand video on their handheld devices. He predicts that companies like Roundbox, which makes technology for delivering real-time TV to mobile phones, will redefine what "mobile video" means. Rather than downloading video to their mobile devices, users will instead simply turn them on and tune in, just like with regular TV.

 

 

Delivering what essentially is broadcast TV to mobile devices will take both breadth and depth of broadband coverage, though. In some places, the bandwidth needed to deliver real-time video is available, in other places not. Donovan pointed out that Sprint (News - Alert), Verizon and other U.S. carriers this summer have been heavily touting the bandwidth of their networks which offers better speeds than the relatively pokey EDGE network AT&T offers for iPhone.

 

But even the coverage of Sprint and Verizon's networks leave something to be desired when compared to other areas of the world.

 

"One of the things the U.S. market lacks is geographic coverage for wideband CDMA-based solutions and HSDPA," Carlaw said. "In some European and Asian markets where there is a more blanket coverage. But, it's expensive to build."

 

AT&T, Donovan said, is working on a faster network based on HSDPA technology. At some point this network will blanket most of the country, requiring everyone to buy new iPhones since the current models don't work with HSDPA. T-Mobile's HotSpot @Home WiFi service is also something to keep an eye on, since it amounts to a telco offering a service that enables users to make free phone calls.

 

The real magic for widespread broadband coverage, Carlaw predicted, lies in femtocells. These are small, in-home wireless base stations the consumers can use to deploy five-bar mobile phone coverage in their houses. Femtocells provide this coverage by backhauling signal through in-home IP networks. So far, two U.S. carriers are testing out the potential of femtocells: Sprint and AT&T.

 

Carlaw said femtocells address a type of Catch-22 network operators face when it comes to delivering the type of bandwidth needed for Web 2.0 applications on mobile devices. Consumers want faster networks and will use them if they're available, but as user bases increase so too does the amount of money operators need to spend on supporting new services. Femtocells help solve this problem by reducing the strain on carrier networks.

 

According to ABI research, Carlaw said, about 70 percent of mobile Internet data is consumed inside buildings and at least 30 percent of phone calls using mobile devices occur indoors. By offloading the bandwidth for this usage to home networks, mobile network operators can save a lot of money.

 

"Femtocells will be revolutionary from the carrier perspective," he said.

 

Femtocells, Carlaw said, also will provide a significant stimulus for consumers to make full use of their mobile devices; most people don't use even 80 percent of the functions on their mobile devices. The technology also could have a huge impact on mobile device usage in business environments because it provides a means to blanket entire buildings in wireless coverage using an IP backbone. That means wideband coverage encrypted end-to-end.

 

 

With such coverage, and with more powerful processors and batteries, lots of possibilities for new applications on mobile devices open up. Such as user-generated content, for example. Already, Donovan said, smartphones have changed from devices used to access content to devices used to create content--and he's not just talking about Facebook status updates and blog entries.He recommended paying a visit to Flickr and looking at the "camera type" tag on various photos; many of the images are taken using mobile phone cameras. The same is true of many videos posted on YouTube (News - Alert).

 

Better phones, more bandwidth and more robust services result in people using their phones more and in new ways. Cellphones increasingly are not just phones anymore; they're portable music players and computers, too.

 

In the future, smartphones also could become payment devices. The basic idea here is to use nearfield technology--which enables close-range wireless transmission of information from a mobile device, in the style of gas-station key fobs and E-Z Pass tollbooths--to perform secure payments using a cellphone. Silver said the type of cashless payment systems offered by Freedom Pay are very popular in Asia, and he thinks this technology will eventually become widespread in the U.S.

 

Yet another high-bandwidth application that hasn't gotten much attention in the U.S. as a cellphone feature is Global Positioning Satellite service, or GPS. Lots of Americans use stand-alone GPS devices in their vehicles, but the technology is not yet something people expect to find in their cellphones. Pete Cunningham, senior analyst at ---based research firm Canalys, said GPS embedded in mobile phones is an up-and-coming trend in the Europe, Middle East and Asia (EMEA) market. Nokia's acquisition of gate5 is an example of a mobile device manufacturer looking to grab a piece of the GPS pie after seeing the success of stand-alone navigation device makers like TomTom and Navman.

 

 

iPhones' launch this summer brought new attention back to the dream of having one converged device capable of doing just about everything but sweep the floor and wash the dishes. Apple created a very appealing product that surely has left many other manufacturers scrambling to keep up. It's worth noting, though, that very little on iPhone is truly new; it's really how all the pieces were put together that make the new phone such a compelling consumer product.

 

"There have already been touchscreens and there have already been music players in cellphones, but Apple has brought these features together in one package with an extremely strong brand," Carlaw said. " It is a benchmark in terms of design, feel, and quality of product."

 

To appreciate what gives iPhone that extra oomph, it helps comparing the device to smartphones from other manufacturers, many of which has recently started offering innovations not unlike those on Apple's product. LG's Prada phone is an example of another company's take on touchscreen technology for mobile devices. Carlaw said the touchscreen on the iPhone is not significantly different from the Prada. HTC's The Touch also uses finger-driven touchscreen technology.

 

Helio's Ocean is an example of a smartphone manufacturer taking a completely different tact regarding user interface. It features two hard-format keypads--one for dialing phone numbers, the other for typing.

 

Carlaw said slider phones like HTC's Hermes and Nokia's N95 continue to be quite popular. And of course iPhone is certainly not the first device to combine a phone and a music player in one package. One of the more recently launched products in this category, Sprint's Upstage (phone and music player about the size of the iPod Nano), came out not long before iPhone.

 

If it weren't for iPhone, these smartphones probably would seem the height of coolness. But iPhone just has that extra something. Defining what that something is might be difficult, but it probably has a lot to do with the focus Apple placed on user-friendliness and simplicity without sacrificing functionality.

 

White: "iPhone is definitely a step toward the seamless integration that we’ve been promised for a little while now," White said. 

 

Silver echoed that sentimenet: "iPhone is, in a sense, the first truly converged personal device."

 

Whatever it is that give iPhone that exra oomph, it seems likely that its introduction is a positive event for consumers, both now and in the future.

 

"iPhone is been fantastic for the industry as a whole because it's forcing many other vendors to step up their game, to innovate," Cunningham said.