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3/31/2008
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Cell Phones Face Extinction As Smartphones Take Over

Apple's iPhone, Verizon's open network, and devices based in Google's open source Android mobile platform are expected to put simple cell phones to rest.

The garden-variety cell phone is going the way of the black-and-white, low-definition, small-screen TV set adorned with an antenna. That was the conclusion of the panelists at Monday's Smartphone Summit, a curtain raiser for the big CTIA Wireless show in Las Vegas.

In the United States alone, sales of smartphones -- usually defined as mobile devices running on an open operating system for which third-party applications can be written -- will nearly double this year, to 14.6 million devices from 7.4 million units sold in 2007, according to Mark Donovan, senior VP at research firm M:Metrics. That's significantly higher than the rate of growth in overall mobile phone sales.

Big wireless carriers are realizing that "their profitability is now driven by smartphones, and more specifically by data applications that run on them," said In-Stat principal analyst Bill Hughes. What that means is that in two or three years, it will be nearly impossible to buy a conventional cell phone, the panelists agreed.

To be sure, the Smartphone Summit is designed for and populated by people who have a vested interest in the growth of the market, including smartphone vendors and the analysts who cover them. Nevertheless, it's clear that the sea change in the mobile device market that has been swelling for years has now gained sufficient momentum that it's impossible to deny: The device of the future is the smartphone, and it will likely replace millions of cell phones at the low end of the sophistication scale, and laptop computers at the high end.

That, said Andy Castonguay, director of consumer research at the Yankee Group, will "upset traditional business models" as carriers get out of the practice of subsidizing handsets.

"Over the next 18 months, you'll see many of the top-end smartphones offered [by the carriers] subsidy-free," remarked Castonguay, "in exchange for a greater combination of offerings including one-year contracts or no contracts at all."

That development is already under way, as Verizon Wireless has begun opening up its cellular network to devices and applications from third-party providers. The launch of the software development kit for Apple's iPhone and the impending emergence of devices based in Google's open source Android mobile platform also are expected to hasten the disappearance of the conventional cell phone.

"When you walk in a carrier retail store today, you see the smartphones are no longer in a little corner off by themselves," observed Jonathan Goldberg, a senior analyst for mobile and wireless at Deutsche Bank Equity Research. "They're mixed in with everything else. Those lines are becoming completely blurred."

For many consumers, particularly in the developing world, the smartphone will automatically become their "data device of choice," added Goldberg. "The majority of the world's population will never own a PC."

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