The 54 million total music users in the EU5 countries represent a 10 percent increase in the past year.

Spain led the way with 30 percent of mobile users listening to music from their handsets followed by Germany with 25.8 percent. The U.K. falls slightly behind the average in the EU5 with 22.6 percent penetration of mobile users. Listening to music on mobile phones was least popular in France and Italy, with 21 percent of both markets engaged in this activity. The U.S., in contrast, lags behind all EU5 countries with only 13.2 percent of the mobile population using phones to listen to music.

Germany led in all EU5 countries in downloading music directly to mobile handsets with more than 1 million mobile music downloaders in March, while also having the fastest growth rate at 102 percent. Italy ranked as the second fastest growing market (up 92 percent) followed by France (up 50 percent).  Growth in the EU5 countries significantly outpaced the U.S., which grew just 10 percent to 4 million users.

"Despite rapid growth in mobile music downloaders in Europe, the total addressable market in the EU5 is still quite small. However we see a significant untapped advertising opportunity for music publishers and promoters. People who listen to music on their phones are more likely to browse the Internet and almost half own smartphones," says Alistair Hill, senior analyst at comScore.

"The high penetration of smartphones and likelihood to browse shows how ideal this audience is for targeted mobile advertising. The mobile channel offers an opportunity to get in front of consumers at one of their primary access points for music consumption."

The mobile phone company has signed an agreement with Carphone Warehouse to sell the first model. Nokia said its Comes with Music service will provide users unlimited access to all of the Nokia Music store for one year and that users will be able to keep all downloaded tracks even after a year is over.

Sony BMG, Universal and Warner Music Group have signed deals with Nokia to offer their songs on the service, bringing the three largest music labels to its music offering.

Carphone Warehouse will be the exclusive UK retailer offering the Nokia 5310 XpressMusic "Comes With Music" edition.

Nokia said it will announce more details about its music service on October 2, and said Carphone Warehouse would start taking pre-orders for the nearly year-old 5310 model today but did not say when sales would start or release pricing details.

"We believe that Comes With Music will transform the way people enjoy music," said Tero Ojanper, Executive Vice President and Head of the Nokia Entertainment and Communities business

"With unlimited music access for a year, you can enjoy your favorite artists or delve into new genres without having to worry about individual track or album purchases."

The company’s mobile communications division provides operating systems for mobile devices based on the Windows Mobile platform. Microsoft’s partners include Samsung Electronics, Motorola, High Tech Computer and Asustek Computer.

"One thing that Apple has leveraged on is the music scenario, and I think that that is something the operators and ourselves are partnering on, just to make sure that consumers can use live music in the best way," Andy Lees, senior vice president of Microsoft’s Mobile Communications Business told Reuters.

Microsoft rivals include Apple’s iPhone, Research in Motion’s Blackberry, Palm and Nokia.

Lees said music in mobiles was a big business opportunity with people buying 10 times as many music-enabled mobile phones as iPods.

Windows Mobile users manage their music through the Windows Media Player program on their mobiles, similar to the one that operates on their desktops.

In the first quarter of this year, Microsoft shipped 4.3 million units of its Windows Mobile software, an increase of 1.9 million units from the same quarter a year-ago. Apple sold a total of 1.7 million iPhones in the same period, according to research firm IDC.

IDC estimates sales of Windows Mobile smartphones will double that of the iPhone over the next four years. Microsoft says global unit sales of its Windows Mobile software will grow at least 50 percent annually in fiscal years 2008 and 2009.

Mobile music currently accounts for 13 percent of global recorded music revenue. "Alongside online, mobile music is essential to the future of the music industry," says Understanding & Solutions Consultant, David Sidebottom.

"Japan, closely followed by the USA, has the most efficient mobile music landscape: both countries have a concentrated operator base and a large pool of potential subscribers, providing economies of scale for the music companies."

In the fragmented European market, some operators have become less aggressive because they can’t make money directly from selling full track downloads, but that opens the door for third party service providers.

"Looking to emerging markets, mobile could become the number one platform for
music, where packaged CDs haven’t gained traction due to piracy and lack of hardware ownership," said Sidebottom.

"Both China and India are showing large revenue gains, which are being driven by strong mobile subscriber growth and the status associated with music-related personalized mobile products."

eMusic is the second largest music download company after iTunes. They have more than 300,000 subscribers and 2.7 million tracks, which are from independent labels.

AT&T will charge users $7.49 for downloading five songs Users can download an additional copy of a song from their PC at no extra charge.

"We think there are customers that are ready for eMusic, but they haven’t heard of it yet," said David Pakman, the president and chief executive of eMusic. "We’ve focused on making this easy to use."

Sprint charges its mobile customers 99 cents per download, which is a bargain compared to AT&T’s new service. Verizon Wireless charges $1.99 for each song downloaded which is twice as much as Sprint and more expensive than AT&T’s charge of $1.50 per download.

"We know that we have a lot of customers in the segment that eMusic is trying to reach," said Mark Collins, a vice-president at AT&T.

The music downloads will be available on mobile phones from Samsung and Nokia. AT&T is the service provider for Apple’s iPhone, but eMusic will not be available on the device.

Only five percent of consumers say they have downloaded music from their PC to their mobile and just two percent report downloading over the air. Around 27.9 million U.S. consumers will have music phones by the end of this year, the music feature of the phone will remain largely unused. 

Mobile carriers face difficulties such as resistance to high price points for over the air downloads and the number of existing mobile devices already in use.

"While the iPhone could raise consumer awareness of, and interest in, music phones from other manufacturers and mobile operators, it is more likely to attract a unique market segment, hard for competitors to emulate," said Joe Laszlo, Research Director at JupiterResearch.

"Apple fans and status seekers will rush out for a first generation iPhone; music fans will probably wait a while."

To increase usage of music phones, carriers, handset makers and the music industry will have to do more to make the case that music integrated into handsets offers benefits for the consumer.

"Despite strong industry interest in music on mobile phones, adoption remains in its earliest stages," said David Schatsky, President of JupiterResearch.

"It isn’t the type of activity that can be forced into the marketplace, but it is something that should be nurtured in those who have already embraced it."

The music option on cell phones has gained in popularity with users of all ages with 63 percent of multimedia cell phone users having listened to music on their phones. More than 50 percent have downloaded 20 or more songs, and 89 percent have downloaded four songs or more to their phones.

Music phone users have a variety of choices for buying and downloading music to their cell phones but only 14 percent download directly from their carrier. Sixty-seven percent said they had used a computer to transfer music files to their cell phones from CDs or the Internet.

"Our survey results indicate that consumers are listening to music from their own collection, so virtually any music phone can meet their needs" said Delly Tamer, CEO of LetsTalk. "Customers are making the most of their music phones with cables and memory cards. The industry needs to offer customers a more compelling reason to download songs directly and easily to their cell phones — better prices, easier navigation, faster speeds, exclusive songs, or all of the above."

When questioned about their interest in Apple’s iPhone consumers had mixed feelings. Eighteen percent said they plan to buy the iPhone when it becomes available this summer while 52 percent said they did not have plans to buy the iPhone and another 31 percent where "not sure".

Tamer adds, "Given the suggested price of the iPhone and that it’s the first cell phone from Apple, 48 percent of consumers expressing interest in purchasing this product when it becomes available is impressive. We also believe that this number will likely grow larger as Apple continues to emphasize the many exciting user interface innovations it offers; to be seen primarily as an upgraded music phone would not do full justice to the power of this new device."