According to recently published research from Telephia, there are now 23.5 million mobile subscribers in the U.S. who have phones with integrated music players, but only a tiny portion of these users are downloading music over the air.

The low adoption rate of over the air (OTA) music services could be an opportunity for Apple. Its newly introduced iPhone takes an alternative approach to loading music. It is designed to easily sync music with a computer.
The number of consumers with music-enabled phones is up five times from the same period in 2005 and nearly 20 percent of the new phones purchased in Q3 2006 were music capable. Many of these subscribers report loading music on to their phones via their PC, but only a small number have actually downloaded music over the air (OTA) from a wireless carrier music store.

In Q3 2006, a little over two million subscribers, about 8.5 percent of those with capable phones, reported any purchases of music via OTA downloads (see Table 1).

“It is still early days in the market for OTA music purchasing and carriers are experimenting with pricing models and working to improve the user experience,” said Kevin Burden, Senior Manager — Mobile Devices, Telephia.

Mobile phones with integrated music players have been in the U.S. market for more than two years and have gone through substantial improvements in memory capacity, file format capability and sound quality. Nearly all of the major device manufacturers are featuring music-capable phones as an important part of their current product portfolios.
Mobile operators have launched their music stores much more recently and OTA purchasing is still not available on all the major carriers. Sprint was the first major U.S. operator to launch its music store in October 2005, followed quickly by Verizon Wireless in January 2006. Subscribers on these carrier networks represent the majority of the two million OTA downloaders. Music phones and OTA music stores were the focus of much of the advertising spend from carriers during the holiday season. Of the more than $3.5 billion of carrier advertising dollars that was spent in 2006, $234.3 million or 6.7 percent, promoted music phones and music download services.

“If we see the widely anticipated product launch announcement from Apple this week it could greatly accelerate adoption of music phones and OTA purchasing,” added Burden. “By building on its loyal iPod user base and ability to deliver a seamless music purchasing experience, Apple could make a huge impact on the market for music phones.”