Israeli startup to launch new tiny phone

"Modu" device pops into interchangeable "jackets" to become a bigger phone or an MP3, GPS gadget.

Modu 224.88 (photo credit: AP)
Modu 224.88
(photo credit: AP)
An Israeli startup has convinced wireless carriers in three countries to try a new concept: a tiny cell phone that pops into interchangeable "jackets" to become a bigger, smarter phone - or into other gadgets to connect them to the Internet. The company, Modu, was set to announce Thursday that it would launch the phone, also called Modu, on Oct. 1 with Telecom Italia SpA in Italy, OAA Vimpel Communications in Russia and Cellcom Israel Ltd. Telecom Italia Mobile and Cellcom are the largest carriers in their respective countries, while VimpelCom is the second-largest in Russia. The Modu is slightly smaller than the current iPod Nano and weighs 1.5 ounces. It has a small color screen and a limited keypad, which allows it to work as a rudimentary cell phone on its own. The jackets that will come with the Modu look like cell phones, with standard numeric keypads and other features like cameras. But they lack the antenna and chips that communicate with a wireless network, and this is where the Modu comes in - it pops into a slot, turning the jacket into a fully functional phone. Modu founder Dov Moran said in an interview that the Italian carrier is excited about the concept because it can make cell phones more like fashion, tempting consumer to update their looks every few months. "This allows you to make a summer collection and a winter collection," Moran said. "The carriers really are interested in having more and more customers coming through their stores, rather than signing up and coming every two years to sign a new contract and get a new phone," said Daniel Amir, a chip analyst at Lazard Capital Markets in San Francisco. He called the Modu a potential "game changer" in the cell-phone industry. The jacket is cheap to make, has almost no electronics, and doesn't need to be tested by the carrier to see that it conforms to its network standards. Moran estimates that carriers will be able to sell a Modu and two jackets as a bundle for about $280, a price that they can then subsidize down to free or almost free with a two-year contract. The jackets that will be available at launch in the other countries reflect the differences between them. The Russian carrier wants an emphasis on kids, who are the big growth market for cell phones there, so Modu is making jackets with cartoon themes for them. The Israeli carrier wanted a cell phone for soldiers, so Modu is making a rugged, green jacket with a built-in flashlight. Other jackets could focus on music, coming with pre-loaded tunes, or have full keyboards for texting. Universal Music Group said it is looking at making jackets that center on its artists. Modu hasn't had the time to talk to US carriers, Moran said. He expects them to be able to launch the phone in 2009 at the earliest. A shortcoming of the initial model is that it will use General Packet Radio Service, or GPRS, for data transfer. It's a widely deployed but slow technology, roughly equivalent to dial-up in speed. That will limit the Modu's usefulness, but Moran said the company is working on upgrading it to use High-Speed Download Packet Access, a "third-generation" technology used by AT&T Inc., among others. An upgraded Modu would work with jackets and mates designed for the first-generation unit, Moran said. Modu is also talking to consumer electronics companies like Magellan Navigation Inc., a California-based maker of Global Positioning System devices, and car-stereo maker Blaupunkt, a unit of Robert Bosch GmbH of Germany. The idea is to have consumer electronics companies build slots for the Modu into their devices to give them network connectivity. That could allow a GPS device to receive updates on traffic or map changes. A picture frame with a Modu slot and loud speakers could act as a music-playing, picture-showing charging station. Other cell-phone makers have been sniffing at the modular concept. Sony Ericsson has filed for a patent on a modular phone. But Modu appears to be furthest along in its plan, and has crucial support from large carriers. Among consumer electronics companies, the quest to get connected to cellular networks has mainly centered on building wireless technologies into the gadgets, usually in the form of Bluetooth radios that connect to cell phones. In a competing approach, some manufacturers are building full cellular modems into their devices. Inc.'s Kindle e-book reader contains a cellular broadband modem, for instance, and France's Parrot SA has built a cell phone into a photo frame so it can receive picture messages. Cell-phone manufacturers, on the other hand, have been encroaching on the consumer electronics space by building more and more features into their phones, like cameras and GPS locators. Moran, the founder of Modu, also founded M-Systems Ltd., which pioneered USB flash drives. The company was acquired by California-based SanDisk Corp. in 2006 for $1.6 billion.