Disposable phones' indispensable niche

Trend: Some say a new wave of bare-bones, low-cost phones is ushering in a new wave of cellular service.

March 19, 2001|By Joshua L. Kwan | Joshua L. Kwan,KNIGHT RIDDER/TRIBUNE

The newest cell phone on the block doesn't look anything like its fancy, feature-filled cousins: It doesn't have a keypad, lacks a display screen and uses a disposable battery. And someday, it might be sold in vending machines and at gas stations for about $30.

Telespree, a start-up in San Francisco, has unveiled one of the world's first disposable wireless phones. Its vision to make cell phones and prepaid service plans as easy to buy as disposable cameras may open up a new market for wireless carriers. It also could bring wireless phone service to young, old and low-income people - groups that might not otherwise buy a full-featured wireless phone and service plan, analysts said.

Telespree still has a long way to go before it reaches the ubiquity of disposable cameras. The first hurdle is convincing a carrier that its speech recognition and software work well enough. Then it has to sign distribution deals with nationwide retailers such as Wal-Mart, gas stations such as Chevron and convenience stores such as 7-Eleven.

Telespree's phone has just two buttons: one to turn the device "on" and the other for placing emergency calls. To dial, speak a phone number. The phone has two major pieces. Consumers keep the colorful segment that forms the earpiece and microphone. The "AirClip" portion holds a battery and keeps track of how many minutes are left. When the minutes run out, consumers can unsnap the AirClip, throw it away and buy a new one.

Telespree aims to sell its technology - the handsets and wireless network - to carriers such as AT&T, Cingular Wireless and VoiceStream, carriers that use the Global System for Mobile communications standard, or GSM.

Essentially, all the intelligence of the phone would reside in Telespree's network - which includes speech recognition technology from Nuance Communications - rather than costly components inside the cell phone.

"Where everyone is adding more features on phones, Telespree is making it simpler and easier to use. They're unique in going in the opposite direction," said analyst Charul Vyas of International Data Corp.

Another low-cost disposable phone on the horizon comes from Randice-Lisa Altschul, a New Jersey woman who hired engineers to develop a cell phone that's made largely of paper.

The first model from Telespree only makes outgoing calls. Versions that can receive incoming calls may arrive within the year, said CEO Alon Segal. Features such as an address book and voicemail are also in the works and can be written into Telespree software; consumers wouldn't have to buy an expensive gadget upgrade.

Most people who want and can afford cell phones have already signed long-term contracts with carriers. Now, the challenge is to make service plans attractive enough and cell phones cheap enough to reach those who don't want to commit to a long-term deal and a pricey phone, analysts said. "Buying a cell phone should be no different from buying a book or magazine," said Eddie Hold of Current Analysis, a research firm in Virginia. "It needs to be a convenient purchase."

Nearly all wireless subscribers in the U.S. pay a monthly fee for a set number of minutes. Carriers spend roughly $150 in cell phone subsidies for each new subscriber, according to Current Analysis. To recover that investment, carriers lock customers into long-term service deals. And to protect that investment, carriers run credit checks on potential subscribers.

Those who fail the credit check are shuffled into prepaid plans, which are typically much more expensive on a per-minute basis than monthly plans. Carriers have long treated prepaid customers as second-class clients because they tend to jump from one company to the next and don't commit to buying a regular amount of minutes.

Disposable phones such as Telespree's can turn a fickle and ephemeral customer base into a potentially profitable group for carriers, analysts said.

Bryan Prohm of Gartner Dataquest said that the youth market is perfect for prepaid plans. Parents can control how many minutes to give to kids, and the kids don't have to worry about losing an expensive device.

Seniors are another group who might benefit. They can keep a phone for safety without adding to their monthly expenses.

Carriers are exploring ways to make prepaid service more attractive to consumers. AT&T introduced a new prepaid program in November, but the cost of the cheapest package, including cell phone and $25 worth of minutes, still hit $100.

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