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Alcatel To Tap Into Carriers’ Subsidy Fatigue

CTIA 2013 Las Vegas — Alcatel One Touch has an in-depth plan to build its U.S. smartphone share over the next 12 months.

The strategy will include providing affordable smartphones with high-end industrial design, practical high-technology features, and wholesale prices that will enable carriers to reduce their handset subsidies, said Steve Cistulli, the brand’s senior VP for the North American market.

The company’s focus on low- to mid-tier Android smartphones during the period will also appeal to feature-phone owners who want to step up to smartphones but are intimidated by price and by “too many features,” he added.

Cistulli and Aja Schmit, senior manager of North America product strategy, came to the CTIA convention to outline Alcatel’s strategy to transition to a focus on smartphones from low-end prepaid feature phones.

Only about 30 percent of Alcatel phones currently available to U.S. consumers through carriers and MVNOs are smartphones, but Cistulli hopes to grow that to around 40 to 50 percent by year’s end and to 60 percent by the end of 2014.

The TCL-owned brand, which entered the U.S. market in 2007, will leverage its strategy to expand distribution to more carriers, MVNOs and big-box retailers as well as entice existing service-provider customers to expand their Alcatel portfolio, Cistulli said. The goal is to become one of the top 10 handset vendors in U.S. by unit shipments in calendar 2013, he said. Globally, the company ranks seventh and is targeting fifth place in the next year.

Alcatel’s current customers include AT&T, T-Mobile, U.S. Cellular and MVNO TracFone.

The company sees great potential among carriers that want to reduce their handset-subsidy expenses. “The subsidies paid to the top two [handset] vendors is so disproportionate that carriers are creating new business models,” including offering unsubsidized handsets with 24-month financing programs, he said.

Though consumer demand is strong for products from the top two smartphone vendors, carriers can help promote other handset options by better marketing other brands at the point of sale or by creating incentives such as offering more data at the same monthly price with the purchase of select phones, Cistulli said.

To help carriers diversify their business models, Alcatel has developed a portfolio of smartphones that Cistulli said offer “high technology and high style at an affordable price to carriers.”

The company’s smartphones include thin models with industrial designs that consumers “expect to see in high-end phones,” he said. The brand is also focusing on practical features such as a durable scratch-resistant Dragtontail glass displays, antivirus software, and an interior nano-coating to protect interior components from moisture, thus making phones  last longer, he said. Cistulli also pointed to a proprietary calculator in which users can handwrite their math problems, from simple addition to sine and cosine functions, on a smartphone display.

The Chinese company can achieve its design and price goals because it proactively designs phones from the ground up to hit affordable wholesale prices, Cistulli contended.  Leading smartphones vendors, in contrast, have a more difficult time achieving these price points because they “start from high-end products and go to lower price points,” he contended.

Alcatel’s ability to manufacture in China “does not play a piece in this [achieving affordable prices],” he said, because many of Alcatel’s competitors also make phones in China, and Alcatel’s manufacturing occurs not just in China but also in other countries.

Using its design skills, Alcatel can design smartphones with HSPA+42 and possibly LTE technology, 1080p displays, quad-core processors, high-end designs, durable glass displays, and interior nano coating for sale at $99 under traditional postpaid subsidy models, Cistulli said.

“My goal in the next six months is to help carriers understand our value proposition,” Cistulli continued.

To reach its market-share goals, the company will focus exclusively on Android OS phones for at least the next 18 months, he noted. The company is also focusing mainly on GSM/HSPA+ phones, including models with HSPA+42 technology.

Although offering HSPA+ instead of LTE is “a way” to keep phones affordable for now, “when we do LTE phones, the goal is to be the most affordable,” Cistulli said. It’s not certain if the company will offer LTE phones in the U.S. later this year or wait until 2014, he noted.

The company offers a few CDMA phones and plans in the latter part of 2014 to expand its CDMA portfolio, which would be of interest to carriers such as Verizon and Sprint.

In the meantime, to build its share, the company has been advertising in print, digital, and out-of-home media and snagged a smartphone product placement in the Iron Man 3 movie.

After building up its distribution, the company will consider complementary marketing programs such as TV ads and sponsorships in the latter part of 2014, Cistulli said.