(FORTUNE Magazine) – For years the mobile professional has had a tool belt to rival Batman's--equipped with a cell phone, a pager, a Palm. That's about to change, thanks to companies like Nokia, Ericsson, and Motorola, which are releasing phones this year that can access the Internet or a company's intranet, or link with a calendar program to bring up meeting schedules. Qualcomm is introducing its pdQ, which marries a Palm with a cell phone.
The trend toward wireless data is being driven by the profit drought in the cellular voice market. Heavy price competition has sent prices plummeting--on average, customers are paying 11% less for service than they were last year. They're being offered killer deals and promotions, and are happily switching carriers over and over. Wireless companies are banking on smart phones to boost margins.
Crafting a phone that can surf the Web and link to computers isn't a new notion. The problem is with the networks. Companies like AT&T and Sprint have spent years of effort and billions of dollars cobbling together a spider web of wireless towers that allow customers to make voice calls nationwide without losing their connections every few miles. But what makes for better voice service doesn't help with transmitting data. Most of today's wireless networks move data at a leisurely 9.6 kilobits per second--state of the art for computer modems circa 1992. Digital networks, while better for security and battery life, today don't transmit data any better than analog ones. But by this summer Sprint will have a 14.4-kilobit network in place; next year it will test a two-megabit network. The Yankee Group, the Boston consulting firm, expects to see some 64-kilobit networks in place this year.
Faster networks spell opportunity for cell phone makers; they're scrambling to figure out how to turn their wee phones into stripped-down PCs. "We can't conquer the human body," sighs Jeffrey Belk, vice president of marketing at Qualcomm. "You've got to deal with the size of fingers and the fact that baby-boomers' eyes are getting worse." To reduce the strain of hunting-and-pecking on a cell phone's keypad, Nokia, Motorola, and others have turned to Tegic, a Seattle software company that produces an algorithm for turning a telephone keypad into a keyboard. Industry analysts also have high hopes for the Bluetooth consortium, which is building a tiny radio receiver on a chip. Backed by Nokia, Ericsson, Intel, IBM, and others, Bluetooth allows machines to communicate without cables. For example, a Bluetooth-enabled cell phone can pull names and numbers from a similarly enabled palmtop nearby.
As cell phones get more complicated, they'll need better operating systems. Not surprisingly, Microsoft is expected to release its Windows CE for the mobile-phone market by early 2000. But it won't be an easy sell. Motorola, Ericsson, and Nokia are backing competing software by Psion, a British maker of palm-sized computers.
Finally, after years of promise, the wireless industry is about to get exciting, says Jeffrey Hines, a telecom analyst at BT Alex. Brown. "Every year the industry says, 'Next year will be the big year.' But before, the transmission medium has never been in place. Now things are looking different."