NEW YORK -(Dow Jones)- AT&T Inc. unveiled on Monday a service that allows its subscribers to download music from Napster Inc. (NAPS) directly to their cellphones, keeping pace with services already offered by rival wireless carriers.
It represents a shift in AT&T's stance on mobile music to an "over-the-air" download model versus "sideloading," or transferring music from a computer to a phone through a physical connection.
The service, Napster Mobile, is an expansion of AT&T's foray into music. In July, it began a download service called eMusic, which catered to the independent scene.
"The important thing you have to look at is it's not a standalone offer," said Roger Entner, head of the communications practice for IAG Research. "It's another puzzle piece that hooks people into using their cellphone as a multimedia entertainment device."
The carrier is following in the footsteps of Verizon Wireless and Sprint Nextel Corp. (S), which have had similar services out for more than a year. The carriers look at data services as a growth opportunity, particularly as traditional voice revenue shrinks. Revenue from data is primarily made up of text messages, but music is a growing - albeit still small - contributor.
"To the extent that there are music aficionados who haven't engaged in our services, this gives us a great opportunity to drive the business," said Mark Collins, who heads up consumer data services for AT&T. "It's one part of our multipart strategy."
AT&T is charging $1.99 a track, or $7.49 for five of Napster's more than 4 million songs, which it boasts is larger than the other carriers' music libraries. The price is on par with the service offered by Verizon Wireless, which is jointly owned by Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD). Sprint, however, charges 99 cents after cutting the price of its downloads from $2.49 in March in an effort to spur demand.
While AT&T said this was a logical evolution in its music game plan, network capability had a lot to do with the timing of the decision. AT&T was behind Verizon Wireless and Sprint in building out its third-generation, or 3G, network. Only now does it have enough 3G coverage to offer the service.
The other major carrier, Deutsche Telekom AG's (DT) T-Mobile USA, is behind the others on its network upgrade and doesn't offer a download service.
AT&T doesn't believe it's at a disadvantage because it follows its rivals. " Absolutely not," Collins said when asked about whether AT&T was late to the game in this area. "This has been a nascent market that's just starting to gain momentum. We think we're entering it at just the right time."
Entner believes Verizon's peers helped pave the way. "It's still early," he said. "Yes, they're late to the game. But they let Sprint and Verizon develop the market, and now - they finally have a network in enough places - they can come out with the service."
Revenue from music downloads wouldn't make an impact until the middle of next year, Entner said. It will take longer to affect earnings, since the margins aren't attractive, he added.
Apple Inc. (AAPL), which is AT&T's partner in bringing out the ballyhooed iPhone, might have also nudged the carrier into this direction. Last month, it unveiled its iTunes Wi-Fi Music store, which allows iPhone and iPod Touch users to buy one of its 6 million songs for 99 cents wirelessly at a Wi-Fi hotspot. The feature highlighted AT&T's lack of a download service.
AT&T, however, insists the Apple news wasn't a factor. "It didn't have any impact on our internal time to market," Collins said. "These products take numbers of months to develop."
For Napster, the partnership represents a strengthening of its relationship with AT&T. In March, AT&T signed a deal to give its subscribers access to its library for one year. When customers buy a song, one copy is sent to the phone over the air, while an additional copy is sent to their computer, similar to the Verizon Wireless and Sprint setups.
AT&T will unveil a set of phones that will be able to use the service when it launches in November. Collins said the downloads would take 15 to 30 seconds, depending on signal strength.
In addition, AT&T launched MobiVJ, which streams music video channels, and VIP Access, which allows customers to search for artist biographies and discographies. Both services are currently available.