NOVEMBER 27, 2000 VOL. 156 NO. 21

Outside Interest
The mobile giants aren't the only ones eyeing 3G
By PENNY CAMPBELL

ALSO
Wireless War
Japanese mobile-phone manufacturers take aim at Nokia and Ericsson in the battle to dominate the coming market for third-generation handsets. Can the Europeans hold the fort?
• Role Model: NTT DoCoMo's stunning success with the i-mode offers valuable lessons for all of Japan Inc.
• Thumbs Up: A look at Japan's mobile-phone culture
• Big Screen: Say goodbye to those old phone displays

The heavyweights of the mobile-phone business are not the only ones limbering up to do battle for the 3G handset market. Companies like Palm, the California-based outfit that has become synonymous with handheld computers, are also lining up for a share of the spoils.

ALSO IN TIME COVER: There's No Turning Back Two weeks later, the world still awaits a definitive result. The mood in Florida is getting ever more rancorous and ugly, but neither candidate can afford to give up now THE PHILIPPINES: It's Hitting the Fan Now The impeachment of President Joseph Estrada threatens to take the lid off the region's most volatile democracy • Viewpoint: Let Asia's elected leaders finish their terms TELECOMMUNICATIONS: Wireless War Japanese mobile-phone manufacturers take aim at Nokia and Ericsson in the battle to dominate the coming market for third-generation handsets. Can the Europeans hold the fort? • Entering the Fray: Outsiders want a piece of the action, too • Role Model: NTT DoCoMo's stunning success with the i-mode offers valuable lessons for all of Japan Inc. • Thumbs Up: A look at Japan's mobile-phone culture • Big Screen: Say goodbye to those old phone displays GOLF: Homecoming Daze He may be all-conquering on the course, but Tiger Woods didn't win many new friends on his visit to Thailand EXHIBITIONS: National Treasure Exquisite works by Japan's 17th-century master Koetsu CINEMA: Guardian Angel How Cheung-Yan Yuen got Charlie's Angels looking so good • Young Turks: A new direction for Taiwan film TRAVEL WATCH: Finding Peace in a Himalayan Hideaway

According to research firm International Data Corp., Palm now has 70% of the world market for personal digital assistants, or PDAs, which currently function mainly as a combined diary, address book and memo pad. Most models can be used to access e-mail and the Internet via mobile phone, modem or PC, and the latest incarnations offer wireless connections. But you still can't use them to call your friends. All that will change with 3G. Just as the new-generation mobile phone will have PDA-like functions, so the next version of PDA will double as a mobile phone.

Is this a threat to the mobile market? You bet, though perhaps not in the short term. Mobile-phone sales currently dwarf those for PDAs, and even though the Gartner Group predicts that PDA sales will rocket from just under 7 million this year to 28 million in 2004, mobile-phone sales are expected to more than double during the same period to 908 million. As distinctions between the devices blur, this promises to be a heated battle. "There will be fragmentation in the marketplace," says Ian Bertram, a Gartner regional director, "with maybe seven different devices." At the high end, the distinction between a feature-rich phone and a voice-enabled PDA will be fine, indeed. "After five to 10 years," Bertram adds, "the devices will meld together."

In the short term, consumers' preferences will continue to depend on whether they essentially want a phone or a minicomputer. If all you really want to do is chat or send messages, a PDA would be overkill, particularly given its relatively high price tag. But for the business user who wants a broader range of applications, a handheld might be more attractive. Some could opt for two devices—a smaller phone for social occasions and a PDA for the office.

But PDAs could become the preferred option if some of the newer 3G applications that exploit the PDA's larger screen start to catch on—like video, which becomes possible with 3G's higher speeds. You could watch previews of films showing locally before booking a movie ticket—something that wouldn't be much fun on a tiny mobile-phone screen. The larger screen would also be useful in reading online maps (say, to find the theater) that take advantage of 3G's ability to pinpoint your location. And anyone wanting to play interactive games, often touted as 3G's most likely "killer application," will be tempted by the handheld.

The uncertainty means the industry's big players are hedging their bets. Mobile-phone makers are developing their own PDAs, and a growing number of other companies are starting to eye the market. The Pocket PC handhelds launched this year by personal-computer market leaders Compaq and Hewlett-Packard have already dented Palm's market share. Sony, a small player in the handset business, recently started selling its own PDA. Keith Woolcock, head of technology research for Nomura International in London, believes the 3G market will witness a clash between the computer giants and the mobile-phone makers. "The phone manufacturers hold more of the aces," he says, citing their strong brand names, experience in a high-volume market and understanding of voice technology.

A separate battle is taking place over software. Palm hopes to use its iconic operating system to establish itself as the Microsoft of the mobile world. But then, so does Microsoft, which is trying to leverage its dominance of PC operating systems to break into the mobile equivalent: Compaq and H-P are already using a stripped-down version of Windows in their Pocket PCs. Microsoft's plans in the mobile world also involve taking a slice of phone-subscription revenue, potentially eating into the profits of both the network operators and the handset manufacturers. Which is exactly why Nokia and Ericsson are developing their own operating systems, through a company called Symbian. However tough the competition, the mobile-phone makers aren't about to throw in the towel without a fight.

Write to TIME at mail@web.timeasia.com