iPhone exception that proves the trend
THE WORLD’S NUMBER one cellphone manufacturer – Nokia – recently issued a downbeat report about the outlook for 2008 handset sales. The Finnish firm’s share price duly fell 10% on the news. Nokia sells two of every five cellphones worldwide and its negative outlook comes after years of record-breaking figures – last year more than 1bn were sold for the first time.
Nokia’s income warning concerned its struggling operation in the United States and the value of sales, not volumes, that’s still expected to increase this year by as much as 10%. However, longer-term threats to Nokia’s position and that of its main rivals – Samsung, Motorola, Sony Ericsson and LG – will come from an unexpected source: mobile network operators themselves.
Vodafone, the global operator with more than 200m subscribers in more than a dozen countries, is the best example of how operators threaten the position of the big handset brands. One in six phones that Vodafone sells now carries its own brand, and the British company plans to extend the share of its own branded handsets in future. Vodafone says sourcing its own branded cellphones is 20% to 30% cheaper than those from the big brands, thanks to zero marketing costs. And in India Vodafone’s handsets were the second biggest sellers last year. Though in South Africa the major brands still dominate, an increasing number of Vodafone-branded cellphones are finding their way into the market via 50%-owned Vodacom.
Vodafone isn’t alone in going its own brand route. In Asia, network-branded cellphones have always been a major part of the market – mostly at the low end and at entry level. And low-cost phones to first-time buyers should account for the bulk of phone sales this year. An increasing number of network operators – the larger ones, such as T-Mobile, Orange and China Mobile (the world’s largest operator, with more than 300m subscribers) that have bulk buying power – are trying to differentiate themselves from competitors by using branded mobile handsets. The operators simply put their logo on so-called white label handsets or, in the case with T-Mobile’s Sidekick phones in the US, build a complete model range.
Taiwan’s HTC – popular business phones in SA – manufactures a number of handsets under different brands. For example, in Germany T-Mobile markets HTC’s handsets using the name MDA, while Orange uses the name Orange SPV (sound, picture, video) for the same handset. HTC’s handsets are also sold by another European network called 02, using the Xphone.
Major manufacturers – including Nokia, Sony Ericsson and Motorola – prefer to co-brand their handsets with operators. But there’s a shift in power in the industry towards operators, at least in emerging markets. (Apple’s iPhone, soon to land in SA, could be the exception that proves the trend.)
Another factor that will influence the uptake of network branded cellphones is operating systems. There are more than 30 different operating systems used in mobile phones, with the big brands preferring their own or versions, open source Linux-based systems, Microsoft or Symbian, the Nokia-controlled system. Vodafone CEO Arun Sarin has repeatedly called for simplification and that four or five different OSs would be optimal.
The Open Handset Alliance (codenamed Android), a Google-sponsored project to create an open and interoperable phone OS that anyone can write applications for, could turn out to be the game changer. With the exception of the South Koreans, the major handset manufacturers have so far balked at joining the Open Handset Alliance, but the first cellphones based on Android should begin to appear in second half 2006. With cellphones increasingly able to access the Internet, the hardware becomes less of a consideration and services and applications gain in importance.
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