Open Networks Could Spark a Gadget Boom

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"It could be a tipping point for broader adoption of devices showing video and playing music."

Beyond Phones and PCs

What might these new products look like? Sony's e-book reader may take on a wireless component, says Steve Haber, a senior vice-president at Sony Electronics. About a year ago, wireless and multimedia chipmaker Qualcomm formed a group focused on wireless devices other than phones and laptops. "We are already engaged with a lot of customers," says Sanjay Jha, Qualcomm's chief operating officer. He declined to elaborate.

Web-services providers like eBay (EBAY), News Corp.'s (NWS) MySpace, and Google's YouTube may have the best shot at introducing hardware tied to their services, since they have deep pockets, say analysts. Any company hoping to succeed with its own devices and services will need to provide such accompanying services as marketing, retail distribution, and customer support. Web-services companies could also potentially make their gadgets more attractive to carriers by offering to share revenues from related services.

Meantime, cell-phone makers will probably come under added pressure to devise feature-rich devices. "The pace of innovation should increase," says Richard Doherty, a director at consultant Envisioneering Group. For instance, manufacturers could introduce handsets that work on multiple carriers' networks, from Verizon Wireless to AT&T to Clearwire's (CLWR) Wi-Max broadband service. Such dexterous devices could debut as early as the January Consumer Electronics Show in Las Vegas, Doherty says.

But there's a potential downside: When selling some devices directly to consumers, cell-phone makers will have to charge higher prices. Currently, carriers typically subsidize $50 to more than $200 of a device's cost in a bid to get users to sign wireless contracts. "This type of move erodes, over time, the subsidy structure for devices," says Pieter Knook, a senior vice-president for mobile communications at Microsoft (MSFT).

More Package Deals?

As a result, if consumers have to pay more for cell phones, they may hold on to these devices longer and buy new mobiles less frequently, says Knook. That said, carriers may start charging less for monthly service to users of gadgets they don't subsidize.

More Americans may subscribe to family plans with a monthly subscription allowing, say, three gadgets to connect to a wireless network. Already, 5% to 10% of U.S. wireless customers are power users, often brandishing a BlackBerry (RIMM) for work e-mail and an iPhone for music and fun. Others may enjoy wireless connectivity for free, à la Kindle. Some hints of carriers' new pricing models could appear in early 2008.

What and how carriers charge for access to open networks will determine just how big this consumer-electronics boom will be. "People are always interested in connectivity, but that connectivity has to be easy, and it has to be cheap," says Chris Crotty, a senior analyst at consultant iSuppli.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.