Cellular network providers, cellular equipment distributors, and
cellular equipment manufacturers are all intertwined with one another
in their efforts to serve the consumer, making their respective
relationships very strategic. Because cellular network providers also
act as cellular equipment distributors, and cellular equipment
distributors resell the services of cellular network providers, a
coopetition model effectively exists between them. Both types of
companies are seeking to serve the consumer directly, but each is
dependent upon the other to achieve success. Cellular equipment
distributors depend upon cellular network providers for having
cellular service to sell, and cellular network providers depend upon
cellular equipment distributors to serve more customers than they
could with their own sales infrastructure and to serve customers who
prefer to purchase from a distributor dealing in multiple brands of
service.
Since customers for cellular service almost always purchase their
cellular equipment from a distributor or network provider instead of
directly from the manufacturer, manufacturers are dependent upon
distributors and network providers for nearly all of their sales.
Particularly in the United States, where multiple wireless
communication standards exist, phones are generally not transferable
from one network provider to another, necessitating the purchase of a
new phone each time a network provider is selected.
Consumers are largely unaware of which carriers use which standards
and how their cellular equipment functions, so they are dependent upon
the network provider or distributor to provide them with guidance
regarding the appropriate phone for the service they are purchasing.
Optional features like messaging, games, and Internet access that are
not available on all phones, and whose standards also vary among
network providers, further complicate the purchasing decision. This
gives network providers and distributors a great deal of control over
what cellular equipment the consumer purchases. Furthermore, because
most cellular equipment is heavily subsidized by network providers and
distributors, consumers have a strong incentive to purchase cellular
equipment from network providers and distributors instead of obtaining
it directly from its manufacturer. Even though Europe does not have
the multiple standards problem of the United States that confronts
consumers, the different services supported by different phones still
gives European network providers and distributors significant control
over the equipment selected by consumers. In addition, European
network providers and distributors also heavily subsidize most
handsets, giving European consumers a strong incentive to purchase a
phone from a network provider or distributor instead of from the
manufacturer. In both locales, obtaining a phone and service
simultaneously is most convenient for the customer because service can
be activated and used very quickly once the purchase decision has been
made.
As wireless network providers have become well-known national and even
international brands, the relationship between the cellular equipment
manufacturer and network providers has begun to change. "Handset
giants such as Nokia Corp. and Motorola Inc. once held all the power
and influence -- and consumers sought them out." There were
relatively few brands of handsets available, and there were fewer
features differentiating between them other than size, appearance, and
which wireless networks they functioned with. Such characteristics
were readily understood and evaluated by consumers, who then felt
competent to make an equipment choice. However, marketing decisions
made by carriers and the availability of new services have decreased
the consumer's identification with phone manufacturer brands and left
them feeling less confident in their ability to make a decision about
equipment without guidance from their carrier.
For the last several years, Verizon, Sprint PCS, and AT&T Wireless
have deemphasized manufacturer's brand names on handsets while placing
their logos in prominent positions. The development of new functions
and capabilities, which has resulted in higher margins for wireless
network providers, has given wireless network providers much greater
desire to influence the development of handsets. Internet services,
games, and picture mail all require specialized phone functions that
must work well with the network provider's network. "As a result,
carriers increasingly are calling the shots, weighing in on everything
from a handset's look and functions to its price." This trend has
been particularly strong in the United States, which has lacked a
strong national champion as a result of the uneven performance of
Motorola, which has been late to the marketplace with popular products
like camera phones. "In Europe, users still seek out Nokia's phones,
but even there carriers are gaining influence."
The entry of Asian cellular equipment manufacturers is increasing the
dominance of the cellular network providers' brands. They are
especially popular with cellular network providers because of their
willingness to cooperate on design issues. For example, LG
Electronics sent about 50 engineers to the United States for several
weeks to work with Verizon to match its phone designs to the carrier's
requirements. LG permitted the carrier to dictate everything "...from
the location of buttons to how picture mail operates." In contrast,
Nokia has only recently began accepting design requirements from
carriers on even a limited basis, and Motorola initially refused to
position its logo on its phones according to Sprint's specifications.
However, given the fierce competition from Asian manufacturers,
Motorola has been forced to change its view and is expected to release
a cobranded phone whose keypad functions match Sprint's
specifications. European carriers are also trying to exert more
market power. "Such service providers as France's Orange and Vodafone
Group PLC, Europe's largest, aim to dilute Nokia's dominance and
promote other brands."
The carrier's efforts are leading to significant changes in cellular
equipment manufacturers' market shares. "Asian manufacturers' share
of the worldwide market jumped from 25.4% in 2002 to 28.3% in 2003,
while European makers' share fell from 52.6% to 51.4%, says researcher
Strategy Analytics. Motorola, meanwhile, has dropped from 16.9% to
14.5%, according to Gartner Inc." this trend appears to be continuing
in 2004. "In March 2003, phones made by traditional powers Nokia,
Motorola, and Sony Ericsson Mobile Communications totaled 60% of sales
at LetsTalk.com, a popular cellular web site. The year later, that
has fallen to 44%. Meanwhile, leading Asian manufacturers Samsung,
LG, and NEC have grabbed 43% of sales, up from 11% in March, 2003."
Pure cellular equipment distributors, because of their lack of control
over technical specifications of the carriers' networks, have much
less control over equipment manufacturers at the present time.
However, as traditional brick-and-mortar retailers like Wal-Mart and
Best Buy have moved into cellular service distribution, it is
conceivable that they will also begin to exert some degree of pressure
on manufacturers and wireless network providers for cobranding
opportunities of their own if they achieve a significant volume of
sales.
After many years of handset manufacturer dominance because of
fragmented cellular networks, consolidation among network providers to
form a handful of dominant national and international brands has
created a shift in market power. When combined with the entry of
aggressive Asian competitors into the cellular equipment manufacturing
market, traditional equipment manufacturing companies are having to
confront a dramatic change in the nature of their most strategic
business relationships. The entry of more manufacturers should result
in increased equipment choices for consumers and lower prices.
Increasingly, phone brands are an afterthought, and historically
dominant handset manufacturers will have to adapt accordingly if they
hope to maintain their market shares.
Sincerely,
Wonko
Source: "Cell Phones: Whose Calling the Shots?" By Roger O. Crockett
in Chicago, with Andy Reinhardt in Paris and Moon Ihlwan in Seoul,
BusinessWeek, April 26, 2004, pages 48-49 (available online at
http://www.businessweek.com/@@ag00UmQQJ1JhDg0A/premium/content/04_17/b3880060.htm?se=1)
note: may require subscription
Additional Reference: "Motorola's Brass Ring" by Roger O. Crockett,
BusinessWeek, April 21, 2004
http://www.businessweek.com/technology/content/apr2004/tc20040421_7085_tc024.htm |
