Strand Consult: «Moment of truth» for handset players

John Strand, Strand Consult
12 Jan 2009

This will be the year where almost all the world's mobile operators will primarily focus on mobile broadband. This market will grow, but competition will be so tough that it will result in very low prices on most markets. These low prices will result in operators over time having five choices on how to continue to do business. Reducing SAC, reducing customers' consumption, launching a number of premium products, bundling services with a mobile broadband product and launching premium billing on mobile broadband.

Premium SMS will spread to the mobile broadband market and IP billing will become a natural part of first the mobile broadband and later traditional broadband markets. The first operators will launch these types of services during the first half of 2009 and these will subsequently spread across large parts of the world in 2010.

The current financial reality will result in demand decreasing and a great deal of the sales created in 2009 will primarily derive from the innovation that the industry must deliver. This will come from new and smart handsets and new and innovative services which will create a large part of the revenue on top of the basic products and services that customers purchase. Those that do not understand the importance of innovation will experience a decreasing demand for their products and services during 2009.

This will be the year where there is an extra large focus on cash flow. Some will have a positive cash flow they can take advantage of and some will have a negative cash flow and will one way or the other need to enter into some form of consolidation. 2009 will be the year where innovation is King and cash is King Kong.

Consumers will discontinue services and change behavior

If you look at how customers will behave during 2009 you will see that their main focus will be on value for money. Companies that can give customers value for money will be successful - those that focus on premium products that do not differentiate from their competitors will experience a tough year.

When customers experience a financial recession they become much more price-sensitive and this happens quickly. One of the areas where operators will quickly experience this will be the acceleration of customers migrating from fixed-line to mobile. We believe that this market development will be especially visible in countries like Spain and Germany.

In countries where mobile broadband penetration is over 10-15%, DSL providers will experience an increasing number of customers choosing a mobile broadband connection rather than a DSL connection. We believe this market will be concentrated around the singles and youth segment - segments that perceive mobile solutions as a natural technology in their daily lives.

The handset market will be divided between cheap basic handsets and new innovative products with smart designs. Today almost all sales are replacement sales, resulting in customers either choosing a cheap product with the functionality they require, or alternatively choosing a smart designer product with a high status symbol value. The market in-between these two types of products will be limited.

For many years it has been the operators that have been the handset manufacturers' best friends. In 2009 the customers will take over the handset market.

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