Second-Half Digital-Cordless Gains Seen
By Martha McDonald -- TWICE, 7/26/1999
The second-half buzz in home phones is digital, as 900MHz digital spread spectrum pricing drops well below $100 and suppliers introduce differentiating features and designs.
Nonetheless, 900MHz analog cordless sales are expected to remain strong in the second half, and at least two more companies -- Uniden and Thomson -- plan to enter the 2.4GHz cordless market during that time.
Meanwhile, retailers have positioned themselves to tap the second-half growth segments by paring down their selection of corded phones, answering machines, and leader-priced cordless phones, suppliers and analysts said.
What retailers are leaving in their selection, whether digital or analog, cordless or corded, is a wide variety of phones with Caller ID, which is scoring significant gains as phone carriers promote the service more aggressively and penetration reaches as much as 50% in some areas, suppliers said.
Meanwhile, the industry is eyeing the potential impact of a new brand due in the second half, IBM , which will be marketed by TT Systems.
The growing impact of digital cordless sales, however, is taken for granted. Most suppliers contend 900MHz cordless, especially 900MHz digital spread spectrum, will lead the sales pack.
"The second half will be about 900MHz, and in our case, GigaRange," said Panasonic national marketing manager John McNenney. The GigaRange line includes phones that transmit at 2.4GHz and receive at 900MHz, as well as new high-powered 900MHz digital spread-spectrum models.
"Digital spread spectrum is under $100 now and will be well below $100 in the second half," McNenney said. He anticipates overall telephone sales will exceed last year's sales by 15% to 20%, but dollar sales will be flat.
"If a retailer just concentrates on selling promotional prices, he won't anniversary last year's sales," McNenney stated. "The winners will be those who concentrate on value-added products, such as spread spectrum and Caller ID" -- which he described as "a hot feature in any format," and one that will appear on more than 30% of cordless phones sold this year.
As for 900MHz analog pricing, McNenney doesn't see it dropping any lower and pointed out that "900MHz analog is already under $30, and 25-channel pricing is under $20. How much lower can it go?"
Duane Smith, president of Telecom Tally, a market research firm based in Pomona, Calif., said, "There is still a robust [phone] market, but things aren't quite as exciting as last year when we had 25% growth."
Smith noted that certain retailers, particularly office supply stores and some department stores, are cutting their SKUs in telephones (corded, cordless, and answerers combined), while in consumer electronics stores, some are cutting back and others are not. Office stores may be cutting back 10% to 20%, dropping to two to five SKUs, while some department stores may be dropping as many as 30%, Smith said.
He expects 2.4GHz to have a bigger impact this year, while pointing out that it doesn't necessarily offer more range than 900MHz digital spread spectrum.
"However, there is a place for 2.4GHz," Smith said. "The real advantage is the multiple-handset capability in the DECT-like models [such as those from Siemens]. With household penetration at better than 80% for cordless phones, more and more households want more than one cordless phone. Then the next question is why can't these two phones talk to each other and switch calls between phones. That's when a DECT-like 2.4GHz phone makes sense. I think that will begin to happen toward the end of this year, or next year could be the beginning of that movement."
One vendor focusing on features and design is Uniden, which is shipping its new Harley Davidson 900MHz analog phone at a suggested $79.95 and a 900MHz line offering a feature called Long Distance Manager, which seeks out a low-rate long-distance carrier for each phone call. These are being offered at prices ranging from $69.95 to $89.95.
Caller ID is the feature most in demand, Uniden senior VP John Harris agreed, and 2.4GHz is gaining. In fact, Uniden has already announced plans to enter the 2.4GHz category later this year. "I suspect spread spectrum will continue making inroads, and 2.4GHz will follow."
At Thomson, business planning manger Lisa Castor sees a color trend and pointed to retailers, including Target, that are ordering phones to go with other decor items. "Consumers are willing to pay a little more for color and are looking for fun colors like gold, blue, green and translucent," she said.
Although the cordless market is "absolutely focused on 900MHz," she pointed out that Thomson kept three 25-channel models, starting at $19.99 for the basic model, stated Castor. "Demand is phenomenal. We will probably sell 2.5 million 25-channel units this year."
As for 900MHz pricing, Castor expects $24.99 analog models this year and possibly even $19.99 models, while digital spread spectrum will be at $69 and $79. "We do see a shift to digital spread spectrum," she said. And "we are seeing a trend to fully featured pieces with caller ID and answering machines."
Castor agreed with Smith about dealers cutting back on SKUs but said she hasn't seen any cutbacks in cordless: "Retailers are adding and readjusting SKUs in cordless, away from leader models to more 900MHz. Retailers are absolutely cutting back in the answerer category. We saw huge cutbacks last year. Most kept one or two SKUs in a leader product."
Another cutback area, Castor added, is leader cordless pieces, where, for example, "one retailer went from 16 leader cordless units, priced between $9.99 and $19.99, down to three pieces."
She also agreed that caller ID is a big feature this year and said headset phones are also popular. "Caller ID is huge," said Castor. "Soon it will be expected in a phone. The telephone companies have been promoting it, and that has really helped. Consumers are beginning to want caller ID in every room."
As for 2.4GHz, Castor said that Thomson will enter that category. "We are seeing a move to 2.4GHz and hope to have something by late this year," she said. "The consumer mind set is 2.4GHz. It doesn't really offer better distance, but it does offer better clarity, so we are taking our time to offer a product with both better distance and clarity."
Sony is focusing on high-powered digital spread-spectrum 900MHz in the second half, according to senior marketing manager Les Burger. "We don't see a real benefit to 2.4GHz. There is no real benefit in range." He said Sony offers new high-powered 900MHz models with new antennas that provide the same range as 2.4GHz models.
Twenty-five channel, meanwhile, "is really dying very quickly," he added, noting that Sony is offering one new model this summer at a suggested retail price of $29.99, and "this will be our last 25-channel model."
In corded, the growth is in the SOHO market, he said, so Sony is launching two four-line models in the second half. Like other marketers, he sees caller ID as a hot feature, noting that penetration is at 50% in some areas of the country.
Burger agreed that some retailers are cutting back SKUs, and said "most of the big guys are cutting back. They are trying to concentrate their assortments. Obviously, they are cutting back on 25-channel, and some have cut back in corded if they are not in the SOHO market."
At Casio PhoneMate, marketing VP Dennis Cox agreed that 900MHz is the predominant telephone product, and he noted that the industry sold about 31-32 million cordless phones last year. "We expect to sell another million or two units this year,'' said Cox, "but from the revenue standpoint, the growth will be very moderate because prices continue to move downward."
Cox said Casio PhoneMate is planning 2.4GHz but hasn't announced a timetable or products.
"Caller ID is certainly very popular," he added, noting that it accounts for about 25% of cordless sales. "In one region, caller ID penetration is in excess of 50% of households. There are still a few areas that are lagging [such as California], but they are promoting it and could catch up."
On other issues, suppliers say the confusion around the AT&T brand has provided an opportunity for them, and they acknowledge that e-commerce is becoming a factor in telephone sales.
"The AT&T sale creates an opportunity for other brands," said Panasonic's McNenney, "but that momentum started last year and is still going forward."
"Obviously, e-tailing is having some kind of impact," said Telecom Tally's Smith. "It is hard to judge. My guess it is a few percentage points of the market. E-sales is another form of mail order, and mail order in cordless phones accounts for 7% to 8% of sales, and that will probably go up a point or two over the next couple of years."
"Catalog stores have more reason to worry [about e-tailing] than over-the-counter stores," he added. "People shop online to find out what they want and what a good price is. But the majority of buyers still want to touch and feel."
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