Wot R They Up 2?

Nokia launched a new phone called the N-Gage earlier this month aimed at a lucrative target. The wireless giant created a hybrid phone that doubles as a gaming device and an MP3 player to capture the imaginations—and the growing spending power—of teenagers. Quick to understand and embrace new technology, teens are the cellular industry’s fastest-growing user segment.

It was a marketplace waiting to happen. As far back as the pink Princess phones of the ’50s, teens and telephony have been inseparable. Until recently, expensive contracts and parental reluctance have kept wireless marketers focused on adults and business users. But growth within that segment has stagnated over the past few years. At the same time, parents who previously regarded cell phones as too costly and too disruptive in classrooms now see them as providing reassuring communication in troubling times.

“The age of entry into this category has dropped to early high school, around 13,” says Michael Wood, vp of Teenage Research Unlimited in Northbrook, Ill. “It originated with things like Columbine, 9/11, child abductions, the sniper attacks, all of which is creating a desire in America to be able to get in touch with family members. Adults are already equipped with that mechanism; now they want their kids to be, too.”

If the more sophisticated European cell phone industry is any indication, the teen category was ready to be tapped even without those frightening events. In Europe, 60 to 85 percent of those between 13 and 24 own cell phones, compared with only 25 percent of that age group in the United States, according to Virgin Mobile’s Warren, N.J., office. But by 2006, Nextel Communications in Reston, Va., expects 74 percent of U.S. teens and college students will have cell phones and wireless devices. To make sure that happens, marketers are introducing new products, pricing and service plans.

Nokia’s N-Gage console will let mobile gamers—a.k.a. teens—play individually or against other mobile phone users. The service, which Nokia is co-developing with T-Mobile International, will provide fingertip access to favorites from Sega of America and other game publishers. Nokia, a Finnish company whose U.S. operations are based in Irving, Texas, plans to start shipping the device by the fourth quarter.

Tantalizing figures point to bright prospects for companies targeting teens. The market for color-decorated faceplates, favored chiefly by teens, has already swelled to $1.7 billion annually. Ring-tone sales—users pay to replace tinny preprogrammed tones with their favorite tunes—were expected to hit $1.5 billion in Europe last year, according to Strand Consult, a Danish firm. In November, Sony Music Entertainment acquired the wireless entertainment company Run Tones and set up the Mobile Products Group to add new wireless products and services to existing offerings like ring tones and album previews.

The popularity of faceplates and tunes underscores the difference between young people and adults as cell phone users. Teens use their phones as fashion accessories, style statements, expressions of personality and badges of independence that are second only to a driver’s license. While their parents look to phones for communication and convenience—which led to PDA innovations from Palm and BlackBerry—teens see them more as entertainment tools.

That preference is behind sweeping changes in product development, creating convergence between the worlds of entertainment and mobile communication. In addition to specialized ring tones, cell phone companies are developing units with built-in MP3 players, digital cameras and downloadable games.

In the upcoming quarter, Wildseed, a Kirkland, Wash.-based startup led by a former Microsoft executive, plans to unveil an innovative wireless revamp that targets teens. Wildseed’s Smart Skins are removable faceplates with software that programs the phone to carry theme-related ring tones, screen savers, games, Web links, and design and color details. A Britney Spears phone, for example, would have a picture of Spears on the faceplate, offer her songs as options for the ring tone, use pictures of her as a screen saver and provide Web links to her favorite sites, which would be easily accessible via the phone. Following the Swatch model, Smart Skins will be priced competitively to encourage teens to buy several models to suit their changing moods.

“We’ve built the mechanism for packaging software for phones in a consumer-friendly way,” says G. Eric Engstrom, who co-invented the technology that inspired Microsoft’s Xbox. “It allows us to be more targeted in what we can offer. The user can refresh the theme of his or her phone just by changing the Smart Skin. Smart Skins can be manufactured and on the shelves within a matter of weeks. So the choices will change along with current trends and lifestyles.”

Might a Britney fan’s Smart Skin phone be inundated with promotions from concert promoters, record companies and the Spears fan club?

“We don’t want to encourage spam, particularly to minors,” says Cindy Smith, vp of marketing for Wildseed. “We’ve spoken to people—like the record labels—about this. Obviously you have a consumer who’s receptive to that information and wants to know about it. But we prefer the Amazon model, where they’ll say, ‘If you like this, you’ll like that.’ “

Carriers have also been aggressive in cultivating younger users. Last year the U.K.’s Virgin Mobile, in partnership with Sprint PCS in Overland Park, Kan., moved into the U.S., wooing teens with a straightforward pay-as-you-go, no-credit-check, no-contract plan. “No one has ever paid attention to kids before, and calling plans are complicated and prohibitively expensive,” says Vince Engel, executive creative director at Virgin Mobile agency Leagas Delaney in San Francisco.

“One of our young art directors signed up for a $29 [cellular contract] plan, and when he got his first bill, it was $58,” notes Engel. “We found that teen users are becoming very skeptical of these plans. With Virgin, it’s simple. They buy a phone and know how many minutes they have upfront and know it’s up to them to add minutes.”

Virgin includes targeted applications such as a “rescue ring,” which users can deploy to get out of such awkward situations as a bad date.

In November, Boost Mobile in Irvine, Calif., joined the pay-as-you-go chase for teen customers. In association with business phone provider Nextel and Motorola, Boost offers service that includes a walkie-talkie option for its most price-sensitive subscribers. Participants get unlimited use for $1 a day, with a range of about 250 miles. Boost’s founders, who launched the company two years ago in Australia, describe themselves as “a collection of surfers, skaters, boarders, motocross freaks, DJs, clubbers and techies.”

Company CEO and founder Peter Adderton says he wants Boost to become the Pepsi or Coke of the wireless world. “Mobile phones are the central hub of an active lifestyle,” he says. “The first thing a kid does when he wakes up is he rings friends to say, ‘We’re going skating or boarding.’ Voicemail becomes the hub of their social life. In a club when they can’t hear because of the music, they send text messages.”

American companies have traditionally viewed prepaid plans solely as an option for consumers with credit problems, preferring to keep customers locked into long-term contracts. Now American companies are using family-enticement plans to lure both parents and their kids. Sprint, for example, is offering a “500 minutes to share” two-year contract and throwing in two free phones to new subscribers.

Carriers are also providing incentives to teen consumers through exclusive-content agreements. Befitting its rock ‘n’ roll image, Virgin Mobile has teamed with MTV Networks to allow its users to interact with MTV programs—for example, to vote on songs they want to hear on the network. Plans for an MTV-branded phone are also in the works.

Verizon, which has become aggressive in its game offerings, has introduced three games based on The Lord of the Rings movies. AT&T Wireless, teaming up with American Idol, encourages teens to use their cell phones to text-message votes and other opinions to the show. In return they get free behind-the-scenes text messages about the show.

In the ad campaign supporting the American Idol promotion, AT&T Wireless urges fans to text-message their friends about the program. Text messaging has proved wildly popular among European and Asian teens, who have created their own abbreviated language for the purpose. The practice is becoming popular here as more teens get phones and use text-messaging as a lower-cost alternative to voice communications. Almost 100 million messages are now sent each month in America compared with 1.4 billion a month in a country like the U.K., which has a substantially smaller user base. But the Wireless World Forum, a London-based research firm that focuses on telecommunications, expects North America to catch up and pass the 1 billion-a-month mark by 2004.

Given the difficulty of pecking out messages on tiny phone keypads, it’s not likely adults will become a big part of that phenomenon. But as with so many things associated with teens and their trend-driven lifestyles, it’s hard to forecast how many of the current product innovations will be assimilated into the general population.

“With things like cameras in cell phones, the jury is still out on whether it will just be a novelty, like a modern-day Polaroid,” says Scott Foreman, group account director on T-Mobile at Publicis, Seattle. “In the future, I think we’ll have more of these things as standard options. But I think content is still king, and that’s where future development lies.”