VimpelCom to Launch Tiny Phone

APMoran holding a customizable Modu phone, which will be launched Oct. 1.
NEW YORK -- VimpelCom is one of three wireless carriers that will help an Israeli startup launch a tiny cell phone that pops into interchangeable "jackets" to become a bigger, smarter phone -- or into other gadgets to connect to the Internet.

The company, Modu, was set to announce on Thursday that it would launch the phone, also called Modu, on Oct. 1 with VimpelCom, as well as Telecom Italia, and Cellcom Israel, Italy's and Israel's largest carriers, respectively.

Apart from the possibilities for technological expansion, the Modu's jackets offer carriers the opportunity to target important markets. VimpelCom, Russia's second-largest wireless provider, 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 preloaded tunes, or have full keyboards for sending text messages. Universal Music Group said it was looking at making jackets that center on its artists.

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.

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 antennae 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 the Italian carrier was excited about the concept because it could make cell phones more like fashion, tempting consumers 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 coming in 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 industry.

The jacket is cheap to make, has almost no electronics and does not 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.

A shortcoming of the initial model is that it will use General Packet Radio Service, or GPRS, for data transfer. It is a widely deployed but slow technology, roughly equivalent to dial-up in speed.

Moran said the company was working on upgrading it to use High-Speed Download Packet Access, a third-generation technology. An upgraded Modu would work with jackets and mates designed for the first-generation unit, Moran said.