Cellular: To 2010 And Beyond - Twice

Cellular: To 2010 And Beyond

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New York - Marketers and analysts expect modest growth in U.S. cellular sell-in this year, but the statistics belie the pace of change within the industry.

In 2009, the industry witnessed an unprecedented influx of new smartphones, the proliferation of smartphone OSs, the launch of 4G service, major gains in prepaid market share, and a growing assertiveness by the retail channel to take back market share.



 

 

What's next? TWICE asked key executives for their take on the coming year. The executives are Joe Cufari, VP, Advanced Devices Division at  Personal Communications Devices;  J. Mark Howell, president of Brightpoint Americas; Jason Mackenzie, VP of sales and marketing at HTC America; and Mark Louison, president of Nokia North America. Here's what they said:

2009-2010 SALES, PRODUCT OUTLOOK

TWICE:

What are your estimates for U.S. handset sell-in in 2009 and 2010, and what will drive growth?

Howell:

In 2009, we estimate handset sell-in reached 165 million units in North America, down approximately 7 percent versus 2008. We anticipate growth to return in 2010 with an estimated volume of 171 million units. The overall macroeconomic downturn drove much of the slide in 2009, as replacement cycles lengthened, and manufacturers did not launch as many handsets as in previous years. 2010 growth appears to be driven as much by the relative recovery of the economy as it is the introduction of any one handset or category of handsets. Our statistical source is the CIR Global Handset Model.

Mackenzie:

While HTC does not speak to the specific numbers region by region, we can say that HTC America has seen tremendous growth over the past year. We have launched more devices in the U.S. in 2009 than any prior year and continue to see increases in demand. We believe these increases represent further proof that consumers are looking for a unique customizable experience that fits them from their mobile device.

TWICE:

How did the mix of products sold in 2009 change, and what changes might we see in 2010?

Howell:

While data is not conclusive around all of these categories, there were a few important trends. First, smartphone market share continued to increase as a share of total devices sold. With the introduction of the Apple 3Gs, new RIM devices, new HTC product, and recently introduced Android devices, this is likely to continue into 2010. In addition, due to high subsidies on smartphones, the devices are more accessible to a larger market, taking share from standard feature phones.

Second, right behind smartphones are quick-messaging phones that have a QWERTY keyboard and facilitate quick text messaging and in some cases basic e-mail applications. Messaging is still the key feature on devices, and handsets with QWERTY keypads are found at all price points and virtually dominating the non-smartphone category. In 2010, we expect this category to remain fairly flat as new, cheaper smartphones are introduced, challenging market share in other segments.

Third, market share of feature phones, which we classify as handsets without a QWERTY keyboard, but have key features like picture messaging, Bluetooth, music/video download/playback, and Internet access, have dropped in overall market share in 2009 as more quick-messaging phones and lower priced smartphones began to dominate the market. In 2010, this category will again drop in share with the increase in the two above.

Cufari:

Sales of texting devices, smartphones and USB modems continued to be strong this year, and we are projecting the same for the coming year.  PCD recently announced our new Advanced Devices Division, which will encompass products such as netbooks, Mobile Internet Devices (MIDs) and other converged devices embedded with wireless communications. The division will expand PCD's current product portfolio for its carrier partners, create new opportunities for its global manufacturers, and strengthen PCD's position as a leading supplier of advanced communication devices.

Mackenzie:

HTC benefits by focusing 100 percent of our effort on the smartphone category, and this is not likely to change for us in the near future. While Windows Mobile based products remain the dominant part of the HTC portfolio, 2009 saw a strong increase in products utilizing Google's Android operating system. In 2008, HTC was the first manufacturer to bring the Android platform to market.

We anticipate Android to continue its strong growth in the mobile industry and also expect to see growing momentum for Windows Mobile in 2010.

We are constantly amazed by the innovation and sophistication that has driven the mobile industry. What once required a full computer can now be done with one hand from virtually anywhere. People can easily read and respond to their email, browse the Web, manage their calendars, stay connected to their loved ones, instant message, and so much more.

Louison:

Trends have shown that the smartphone market has grown very quickly over the past couple of years. That said, many market segments continue to grow as new form factors and features (including integrated services) are introduced. We expect to see a continuing mix of these products - feature phones, quick messaging devices, smartphones and mobile computers - to continue to be sold through the various sales channels.

In addition, we continue to see the convergence of devices and services as an increasing trend. Consumers continue to want devices that can do many things in one, including the integration of services. Phenomenal hardware is no longer

the

deciding factor, but taken into account is what kind of access the device will allow the consumer to his/her social networks or ability to upload photos to his/her communities or the ability to download music over-the-air. The complete integration of services and devices into single solutions is a key purchasing consideration. It's this solution offering that we see as increasing in 2010 and Nokia is in the best position to deliver on this around the globe.

SMARTPHONE OUTLOOK

TWICE:

Will a majority of phones sold in the U.S. ever be smartphones? Which OS will dominate?

Howell:

Based upon the current growth rates in the industry and the rapid shift to application-capable handsets, we are probably only three or four years away from the smartphone gaining the majority share in the U.S.  The higher-end feature phone will continue to see its market-share erode as the smartphone incorporates more and more of the feature phone's selling points (high-end camera, media download and playback, and so on) while at the same time having its price to the consumer driven down. The feature phone is being squeezed out. 

From an OS perspective, the tea leaves appear a little harder to read. It would appear that Android is best-positioned to garner the majority share, based upon the strong backing of Google, the wide array of OEMs that have launched or have announced plans to launch handsets based upon the OS, as well as the strong consumer focus of the OS while also featuring solid enterprise tools. Android is also a solid number two in announced apps, and the number appears poised to rapidly grow as the developer community focuses more on the space.

 The RIM and Apple OS both have a strong growth trend as well, and both have a hard core of loyal adherents. The Apple app story is an incredibly strong one and would appear to provide them with a great avenue for both customer retention as well as further acquisition, while RIM's success comes primarily as a result of their industry-leading position as the email device of choice.

Windows appears to be too late to the game, with Mobile 10 still in the developmental stages and 6.5 not making a significant impact on the market, while Palm has introduced a strong OS (WebOS) that appears to be stuck in a position where they will not be able to garner significant developer mindshare to grow their application catalog at the same rate that Android will and Apple already has. 

Cufari:

As the costs of the smart phone devices continue to decline and the (data) pricing plans associated with smart phones becomes more advantageous for consumers, the trend will continue to push towards smart phones.

Apps will certainly be a major factor in which OS gains the most popularity. Consumers increasingly want to make the phones theirs with customization from the screen to the apps to the color and do on.

Mackenzie:

HTC believes there is no one device for all. Consumers are increasingly demanding phones that are intuitive and fit their lifestyles versus whether it fits into the smartphone category. This demand goes beyond features and applications and crosses platforms. You ask about proliferation of smartphones, but we would argue that the need for a category definition will dissipate faster as the line becomes blurred and all phones begin accessing information via the Internet. That's why we at HTC believe in offering unique platforms and intuitive user experiences like you see with HTC Sense. This experience is used as a philosophy for HTC design and is incorporated into all new devices, regardless of platform.

LOUISON: 

At Nokia, we don't believe that ‘one device fits all,' unlike some of our competitors. For that matter, we don't believe that the world is still a ‘device-centric' world. Mobile devices, such as feature phones, smartphones or mobile computers, are merely a gateway to the services consumers want to access. That could be access to their favorite social networking sites or a mapping service. This has been evident by the evolution of the mobile web and application/developer micro-economy. While smartphones continue to be a hot topic in many countries around the world and certainly in the U.S. and Canada, there are still many countries and regions that use mobile devices as fundamental communication tools. It is this global footprint and philosophy that determined we bring Ovi Store to not just our Symbian S60 smartphone portfolio but also our Series 40 portfolio - providing everyone with a Nokia device the ability to customize their device through various applications and content.

In regards to whether or not one OS will eventually garner a majority of the smartphones sold, that's already a reality. When you look at the global market share of smartphone operating systems, as of the third quarter of 2009, Symbian has 44 percent of the global smartphone operating system market share. The next largest OS was reported to have 20 percent of the market - significantly less than Symbian.

4H HANDSET OUTLOOK

TWICE:

When will 3G handsets with 4G LTE data or 4G Mobile WiMAX data be available?

Howell:

With Verizon Wireless reaffirming its commitment to launching LTE in 2010 with a full rollout slated for 2013, and with AT&T planning a 2011 launch, we can assume voice and data units probably in mid-to-late 2011. WiMax units will most likely make their appearance late in the first half of 2010 as a best case and back half of the year worst-case. 

Cufari:

We will see handsets with LTE capabilities coming in the later part of 2010 and more into 2011. We'll see 4G WiMax devices by the end of 2010.

Mackenzie:

HTC expects to see 4G handsets coming to the U.S. in 2010. HTC is committed to innovation and already today has 4G products available overseas.

Louison:

LTE presents great opportunities and is the optimal migration path for all operators. Both telecom business models and technologies - GSM and CDMA EV-DO - are from the same family tree, and LTE is the natural evolution of these technologies.  In the United States, AT&T and Verizon Wireless have announced very aggressive timelines for when they will institute their 4G LTE networks, and Sprint has already begun instituting their 4G WiMAX network. Nokia is committed and focused on standardization and technology development to enable the start of commercial LTE deployment in 2010. We are aligned with the NGMN initiative, trials in 2009, and commercial deployment in 2010.

As these timelines become reality, we expect handsets with access for these networks to become readily available.              

TWICE:

There are two camps endorsing two different technologies for delivering voice over LTE? What do you see as the outcome?

Howell:

Brightpoint does not have a public position on this question. 

Cufari

:

LTE for the near future will focus on data, and the use and associated devices will be data-centric.

TWICE:

What is the potential of cellular handsets incorporating FLO TV and mobile ATSC?

Howell:

Mobile TV in the U.S. does not appear to be something that the public is demanding, if the results shown (or not shown) by the FLO offerings at AT&T and Verizon are any indication.  The mainstream U.S. consumer has spent the last several years being conditioned to a large-format, high-definition expectation when it comes to television, and a mobile handset is not going to provide that level of experience.  Additionally, in an environment where location-shifting of content is becoming more and more prevalent, the consumer is more likely to download a program to a device and view it on their schedule rather than rely on a FLO or ATSC network to deliver content.

Cufari:

The FLO TV market will greatly depend on the pervasiveness of the LTE roll out.  We will need to decide whether a consumer will just purchase an LTE modem and watch streaming video from Hulu, ABC.com and others, or do they want a specific device. Again this will come down to how many devices do we want or need to carry.  If my laptop gives me access to the streams I want, then I don't need a separate device to do this unless there is specific content I can't access, such as ESPN 360 content.

Mackenzie:

We see further demand for multimedia for smartphones. We believe this demand will only increase as both choice in content increases and mobile connections get faster. HTC also recently partnered with Qualcomm to introduce a standalone FLO TV device that is currently available through retailers like Amazon.com, Best Buy and Radio Shack.

TWICE:

What type of device can be disruptive in the next 12-18 months?

Cufari:

Two different devices will make an important impact on the markets. One is a simple asset-tracking device that allows for companies to keep tabs on everything from their fleets of vehicles to a utility understanding where its transformers are.  The whole smart-grid business is just starting to heat up, and with President Obama offering a significant amount of stimulus dollars, our utility infrastructure will get a much-needed upgrade.

 Keeping track of what assets are deployed where will be critical.  When you look at the sheer number of devices out in networks to be maintained, these devices could be sold in the millions.

 The other device is the touch tablet-style device. Certain devices showed consumers that they can truly customize their device based on their particular needs for games and other software.  To have a device that is slightly larger that can become our nav system while in  the car, portable DVD player when we travel, and an on-the-go email and text device that allows us to keep up with our Facebook and Twitter accounts can be very powerful.  Stay tuned.

EMBEDDED-WIRELESS POTENTIAL

TWICE:

Assess the U.S. potential for wireless-embedded netbooks, MIDs (mobile internet devices), and laptops.

Howell:

The netbook market appears to be on track to continue its growth in 2010, though many of the devices look to be moving away from the relatively underpowered Atom processors that we are currently seeing in the marketplace and will move to more powerful chipsets, such as Pinetrail, in order to provide a better overall user experience.  Many of the issues seen in 2009 with the netbook have been on the consumer-satisfaction side where the user expectation was not in line with the actual device performance.  More powerful chipsets are a first step in resolving this issue. As the netbook grows more powerful, the embedded notebook appears set to continue on the decline, as price continues to have a large say in share determination while the feature advantages that have previously been enjoyed by true notebooks are further eroded by the additions to the netbook platforms.

 The U.S. mobile operator is already a viable source of the netbook/notebook, and would appear to be well positioned to grow their volumes in 2010, as they are best suited in the sales cycle to offer the wireless subsidies that have driven some of the growth of this category.

The market for MIDs appears much harder to quantify, and the indication appears to be that they will not garner significant market share, particularly when large-screen handsets with powerful browsers such as iPhone and Droid appear to satisfy many, if not all, of the sales points of the MID. 

Cufari:

In 2009, PCD launched its Advanced Devices Division to address this sector of products.

The netbook market is growing at a rapid pace and will continue in 2010.  MIDs and tablets (touch- based devices) will become available soon and will drive sales of these devices. The newest OS's available are very touch-centric, so our use will evolve into these new interfaces as these new systems continue to develop. Tablet-style computers (with screen sizes greater than 7 inches with a touch interface) will become very popular in 2010.

Louison:

We foresee a future where devices, like netbooks and MIDs, will seamlessly communicate with smartphones and mobile computers, syncing information and offering the same experiences - whether on a 3-inch, 10-inch or 23-inch screen.

Globally, we believe the overall market [for all netbooks, mini PCs and mini laptops] is around 30 million devices annually. As a new player in this specific market, we are taking it o market by market and look forward to the opportunities this area represents.

TWICE:

Assess the potential for other types of cellular-embedded consumer electronics. Will WiFi-embedded CE products satisfy most consumers?

Howell:

The growth of the eReader market shows there is demand for wirelessly enabled products, provided the application is desirable enough.  The wireless aspect of the eReader is not the selling point of the device and, in many cases, the WiFi radio is sufficient for a majority of the planned wireless usage of the device. The launch of Android 2.0 with its turn-by-turn navigation, along with the launch of iPhone Nav applications, shows that the lifecycle of the traditional, stand-alone PND is nearing its end, and the only route towards extending this life is through wireless enablement of the units to allow for real-time features such as traffic avoidance, on-call services, along with the addition of location-specific advertising to allow for these devices and services to be delivered at a very low cost.

 In many cases, however, the WiFi radio in a device will satisfy the majority of the consumer needs due to the proliferation of WiFi networks coupled with the relatively static nature of much of the CE that is being contemplated for wireless-enablement.

Cufari:

The challenges are many, including cost of the device, rate plans from the carrier, and technology that allows devices to fill multiple roles; for example, a tablet that is also an eReader (via a Kindle-software-type of download, and navigation on a phone via Google's Android app).  The potential for these devices is very large. If you were to combine the portable nav, eReader, and netbook/tablet marketa all into one device, you can see where this will head.

TWICE:

Will handset makers enter the eReader market or leave that to others?

Howell:

The eReader appears to be the "next big thing" in the wireless market, but the focus is already rapidly shifting away from the hardware and onto the software, as the iPhone has already shown itself to be a viable delivery platform for electronic printed media. The large-screen Android handsets, such as Droid, appear poised to follow-suit with the Android devices potentially enjoying the benefits of integration with the Google book-catalog initiative.  The launch of a Sony (as opposed to Sony Ericsson) eReader seems to indicate that the category, while making use of wireless networks, is much more focused on the media aspect of delivery, and OEMs that have the option will tag their devices with their CE brands as opposed to their traditional wireless brands.

Cufari:

 Many manufactures are figuring out their strategies right now.  With Kindle putting its software out there for download, the need for an application-specific device gets diminished for a carrier.

Mackenzie:

As consumers are increasingly adopting multimedia content as a standard part of a smartphone offering, it is entirely likely that you will see handset makers work to converge ereader functionality. This is what makes this time so exciting is that at the end of the day, we are providing devices that our customers can't live without. By nature of this, convergence of devices is always going to be a discussion, and it all intersects with wireless.

Louison:

All consumer electronics industries are colliding. We're seeing it now with the computer and handset industries. Fueling this collision is the application and content micro-economies that we've seen escalate in the past few years. Through advancements in hardware technology (processor speeds, memory capacity, etc) and application storefronts, industry collision has occurred rapidly, and we expect to see many more industries begin converging in similar manners.

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