The second coming of the 'information appliance'

A few years ago, there was great interest in the personal-computer industry in the so-called "information appliance." This was to be a device that would supplant the difficult-to-use ("user-hostile") personal computer with a "user-friendly" gadget that would be as easy to use as the plain old telephone. Needless to say, the attempts to make and market such information appliances fizzled largely because they were too expensive to buy and use and potential buyers could not understand why they needed such a gadget. Once again, the computer industry succeeded in making something without clear evidence of demand.

But I believe that the information appliance is creeping up on us again and may be here before we realize just what it is. It most certainly won't be called by the clumsy title of "information appliance," a term only a card-carrying geek could love. No, the information appliance will probably be called a "telephone," a term that is almost universally understood and a device that most people understand how to use even though they may have very little idea of how it works.

I'm not talking about those cumbersome add-ons to a hand-held computer, such as the popular Palm Pilot, that bolt on telephone functions. Nor am I talking about the oversized pagers, such as the Blackberry, that permit mobile e-mail handling. No, I'm talking about a device that will look like a telephone, talk like a telephone, and walk like a telephone. And the one service that these devices will provide first and foremost is plain old telephone service (POTS). Naturally, these mobile phones will also take advantage of their digital electronics to provide POTS add-ons such as voice-mail boxes and short text-message services. But they will offer much more.

I am guided to this view by the rapid expansion of mobile phone usage around the world (with the possible exception of North America). According to a recent report in The Economist (Oct. 13, 2001), Japan already has almost twice as many mobile phone subscribers as personal computers. In Italy, where telephone service used to be regarded as an oxymoron, there are almost four times as many mobile phone subscribers as PCs. In fact, the only countries where the number of PCs in use exceeds mobile phone subscribers are the United States and Canada. That's largely because, in North America, local fixed-line telephone calls are essentially free, whereas mobile phone users pay both to make and receive calls. And, beyond major metropolitan areas, service is often spotty.

The forerunner of the new species of telephone can already be seen in use on the streets of Tokyo where people are avidly using a new mobile service of Japan's giant telephone company, NTT. This wildly successful service, called "i-mode," has enabled NTT's DoCoMo to take some 60% of the Japanese mobile-telephone market. Specially designed i-mode phones can send and receive e-mail, access local weather forecasts, play games, make airline reservations, handle banking transactions, and download software from 50,000 i-mode-compatible web sites. And the 27 million i-mode subscribers are happily paying for such services at the rate of around $0.02/kbyte. Those pennies add up to telephone revenues that are 25% to 30% higher.

We are currently seeing the relatively widespread use of second-generation (2G) mobile phones (the first-generation mobile phones were analog-based, whereas the second generation uses digital technology). Some of the facilities already enjoyed by i-mode subscribers in Japan will slowly become available in the United States with the adoption of so-called "enhanced" second-generation phones (2.5G). But the full potential of this new breed of telephone will not be realized here until the adoption of third-generation (3G) telephones that will offer high-speed, always-on connections to the Internet, just as cable modems and digital subscriber lines do for desktop PCs in some parts of the United States today. Such 3G phones will also permit video conferencing (via a built-in digital video camera) and access to subscriber-based advanced data services.

Although money will be made in manufacturing components for 3G phones, such as flat-panel color displays, keypads, video chips, and custom integrated circuits, the long-term money will be found in developing and providing services for 3G and later telephones. In my view, that's likely to lead to a second dot-com explosion. Stay connected.