The introduction of camera phones promises to boost the mobile phone sector's finances during the lucrative Christmas season, writes Jamie Smyth.

The mobile phone industry, which has been battered by spiralling debt levels and stagnating revenues, has reason to celebrate for the first time in a long time.

The introduction of camera phones and a new suite of multimedia services yesterday by Vodafone promises to boost the industry's finances during the lucrative Christmas season in the Republic, and across the whole of Europe.

Vodafone Live offers the company's 1.6 million subscribers in the Republic access to a vast range of games, ringtones and digital images. These can be downloaded onto a new generation of handsets that act as integrated gaming platforms and digital cameras, as well as traditional communicators.

It's about providing customers with new ways to communicate rather than the smart technology that underpins the services, says Mr Paul Donovan, managing director, Vodafone Ireland. He believes the new services will enable users to communicate "emotions" from their mobiles, and in the process, boost data revenues and promote the uptake of other data services such as WAP.

But it is the next generation of handset, which incorporates a built-in digital camera, that is likely to set pulses racing among the text generation of 12- to 26- year-olds, who sent half a billion text messages during the past quarter.

"Picture messaging is the start of a new phenomenon," says Mr Tadhg Cotter, programme manager for Vodafone Live. "People will use mobiles to take pictures of friends or even celebrities. They could use it to take pictures of a gift they want to buy a friend and then send a photo of the gift to the friend to see if it was OK. People will use them to capture the moment and text it to friends."

Although the quality of pictures taken by camera phones does not rival specialised digital cameras, it is good enough to view and store on online photo albums. Images can be edited and manipulated using editing software, which is already available on websites and will soon be available on handsets.

Vodafone will initially offer three handsets - the Panasonic and Nokia (reviewed below), and a Sharp device that has been integrated more closely with its Vodafone Live initiative. The Sharp will be slightly cheaper than the other handsets at €299 for contract and €549 per pre-pay device.

The high cost of handsets will restrict young users initially but most experts expect prices to fall substantially next year as economies of scale and competition kick in.

Analytics Global Wireless Practice, a global research firm, recently predicted that 16 million camera phones would be sold worldwide in 2002, but this would grow strongly to 147 million units in 2007. By 2007, sales of mobile camera phones would overtake digital still cameras, it said.

Cost will undoubtedly play a role for some time, with each picture message costing about 49 cents, substantially more than a text message, which can cost under 10 cents.

Users will also have to sign up for the latest high-speed network service called GPRS to send photos by multimedia messaging (MMS) to other mobiles, and make full use of the data services and downloading.

Some users have indicated that it may be cheaper to send pictures and photographs via e-mail rather than MMS but this would remove some of the spontaneity from the mobile experience. At first, early adopters of the new technology will probably have to rely on e-mailing photographs to people, due to the small number of handsets in circulation.

Mr Campbell Scott, product director with O2 - which will introduce its suite of multimedia services next week - says this won't be a big issue. "We believe it will be a natural evolution from SMS to MMS and there will definitely be a 'wow factor' when people see what is possible," he adds.

"One of the things we feel is important for widespread adoption is to provide good interconnect. Therefore, even if someone sends a picture message to a mobile without a camera, they will receive an SMS telling them to go to an internet site to view it."

Another potential problem is interoperability on picture messaging between different network operators. Currently a Vodafone user will not be able to send a picture to an O2 user, even if they both have camera phones. O2 and Vodafone are trying to connect their networks by Christmas but there is no guarantee it will work by then.

The rapid success of camera phones in Japan, and the Republic's youthful population, suggest picture messaging could be the next big thing. Certainly, the mobile manufacturers think so.

Panasonic, which introduced its GD87 handset in London last week, has bet its near-term future in Europe on the success of its camera phone rather than third-generation mobile technology - which will also require a new generation of handsets. It is a strong "killer function", said its head of European sales. The debt-laden mobile industry will hope he is right and revenues get a boost.