Consumers who sign up for Spotcast Communications Inc's mobile-phone servicein Hong Kong have the option to listen to a 10-second commercial in exchangefor one free minute of air time. And the deal seems to be a hit with manysubscribers.

Since Spotcast launched its Hong Kong mobile-phone service in December inpartnership with the Peoples Telephone Co of Hong Kong, the Silver Spring,Maryland, telecommunications company has garnered 80,000 subscribers.Spotcast said 60 per cent or about 48,000 of its subscribers have beenrepeat users of the optional advertising service.

The service is not for everyone. Spotcast says demand is highest among the16 to 29 year-old crowd, for whom the high cost of mobile-phone service canbe prohibitive.

The service can result in savings of 50 per cent to 60 per cent of aconsumer's total mobile-phone bill, because the average length of a mobilecall is only 1.7 minutes, the company says.

Spotcast Chief Executive Officer Marc Owensby, who founded the company withhis twin brother, Craig, and their sister, Lauren Wilson, in 1998, says theservice is "rather painless and harmless". That is because mobile-phonecallers have to opt in to use it, and privacy is guaranteed. In order to getthe ad, followed by their free minute, callers dial a three-digit codebefore dialing the number of the party they want to reach. If the user wantsto learn more about the advertised product, he or she is directed to pressa button on the keypad, and they will get a call back from the advertiserafter they complete their call.

The ads receive a 5 per cent response rate, Spotcast says.

Ideally, the ad is highly targeted, because to subscribe to the service theuser is asked to fill out a 22-question form that asks for information suchas age, gender, the kind of car you drive, your favorite sport and anyspecial health concerns. Advertisers can be local - since a mobile phone'slocation can be trakced - or national. In Hong Kong, advertisers includeTime Warner Inc.,s Warner Bros, stores, Nokia Corp. and Tricon GlobalRestaurants Inc's Pizza Hut.

"It looks for the best fir for your profile at the moment you are making forthe call", Owensby says, adding, "You might hear a Pizza Hut ad if it isbetween 11 and 1, especially if you are a person with kids or you have saidyou like that kind of food".

Eventually, Spotcast would like to offer rewards other than free air time,such as frequent-flier miles or some form of cyber currency.

Industry watchers say there are about a dozen other companies developingsimilar technology, and mobile-audio advertising is expected to heat up, asoperators look for ways to broaden their customer base. Spotcast's chiefcompetitor is Iquity Systems Inc l, the developer ofmobile-audio-advertising service GratisTel, which ahs 10 million subscribersworld-wide and a 9 per cent average ad response rate.

GratisTel has fielded criticism for its more-intrusive strategy of offeringfree phone calls in exchange for 10-second ad spots that interrupt thecaller's conversation every two minutes or so.

Joe Laszlo, a senior analyst with market-search firm Jupiter Communicationsin New York, says maybe GratisTel's ad model is not the mosteffective:"consumers are showing a fair amount of acceptance of usingadvertising to subsidize the cost of a conversation - so long as their phoneconversation is not interrupted every few minutes with an ad".

Spotcast, which is closely held, recently closed its first round of fundingfrom high-profile investors Kohlberg Kravis Roberts & Co and Tarrant VenturePartners, LP, a venture fund sponsored by Texas Pacific Group. The two firmspaid $7.5 million for a 20 per cent stake in the company, a Spotcastspokeswoman says.

The company says it expects revenue of $10 million to $30- million in 2000.Spotcast also says it ha signed a deal with a second mobile operator in HongKong, SmarTone Telecommunications Hondings Ltd. Spotcast plans to launch itsservice in Singapore and selected countries in Europe in a few months, andit says ads could be playing on mobile phones in the US by the end of theyear.

-- The Asian Wall Street Journal