Editor’s Note: Welcome to our Monday feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Compete’s Miro Kazakoff, Jupiter Research’s Julie Ask and iGR’s Iain Gillott.
A key trend to watch leading up to the CTIA Wireless 2007 show in Orlando, Fla., is how carriers and handset vendors are reacting in a world where an iPhone is even possible.
I’m getting jetlagged just thinking of another tradeshow: So far this year I’ve done CES, MacWorld and 3GSM (along with a healthy dose of other business travel). CES was a dud for mobile devices; everyone was waiting to see what was unveiled at MacWorld. 3GSM was the industry’s first response to the iPhone: Samsung rushed to get the F700 out (at least as a press release), LG showed off its Prada phone, and Sony Ericsson launched its first super-thin Walkman phone.
With just a few exceptions, the flood of handsets announced at 3GSM was entirely vendor-driven; in Europe, distribution can (sometimes) be considered separately from the product. That’s not the case in the U.S., and traditionally, CTIA is where we see devices built with and for U.S. carriers. Making handsets for the U.S. market is essentially a custom business; every U.S. carrier uses a different combination of technologies. (Don’t believe me? Just consider two specs: 3G network technology and runtime environment. Verizon Wireless uses BREW and EV-DO. Sprint uses Java and EV-DO. Cingular uses Java and HSDPA, but different frequencies than European HSDPA. T-Mobile uses Java and will eventually have HSDPA, but on different frequencies than even Cingular.)
Once they’re ordering custom devices, carriers can put in all sorts of self-serving requirements: proprietary user interfaces (to ease tech support), crippled PC connectivity (to boost over-the-air data usage rates), and missing multimedia accessories (to keep costs down).
Digital cameras have limited on-board storage and are sold with the expectation that additional storage will need to be purchased alongside the camera itself. Camera phones are sold like digital cameras with similarly limited on-board storage. That has worked out well; consumers understand the business model, and the first generation of VGA camera phones didn’t really require additional storage anyway. In contrast, digital music players are sold by capacity-with the most popular sizes 1 GB, 2 GB, 4 GB, and 30 GB. Most music phones are sold like digital cameras, with limited on-board storage, making them essentially useless. There is a disconnect here, and the only reason it has persisted this long is because U.S. carriers dictate phone design, and they are not actually interested in selling devices, per se. Handsets are just a necessary evil in the business of providing voice and data subscriptions.
With the market for new subscribers saturated, the device itself is becoming a draw, and carriers are starting to realize that offering hot devices pulls in subscribers from rivals. Over the past two years, the definition of a hot device was “thin and stylish,” so all a carrier had to do was point at a vendor’s mock up and say, “build me one of those, preferably with ties to my data service offerings.” However, now that practically every phone is thin and comes in three colors, some carriers are starting to push for better gadgets targeting specific customer segments.
Music phone Customer Segmentation:
–Interested: This consumer won’t pay extra for music functionality, but can be enticed to choose a specific handset based on the promise of music, even if it is questionable whether they’ll actually buy all the accessories needed to use it. Best Example: Sony Ericsson’s W300i, free with a two-year contract at Cingular.
–Committed: Anyone spending more than $50 on a phone in today’s market is committed to something more than basic voice, and providing the experience that justifies that additional spend is the key to success. Best Example: Nokia’s 5300 XpressMusic, $99 with a two-year contract at T-Mobile.
–Enthusiast: The user experience bar is set by mid-range dedicated MP3 players-in other words, the iPod nano. No music phone to date has provided enough storage, a good enough user experience, and a form factor competitive enough to satisfy music enthusiasts. Best Example: No one has successfully targeted music enthusiasts in the U.S. market thus far. Apple’s iPhone should jumpstart the category.
With that as background, the most interesting aspect of the iPhone is not its gorgeous touchscreen user interface, but how it breaks the standard design/distribution model that so strongly favors the carrier in the U.S. market. Apple flipped that process on its head: Cingular basically had no say in the iPhone other than offering to act as a distributor and provide the voice and data connectivity. Apple retained full control over design, software and pricing. Apple used this autonomy to build the iPhone that Steve Jobs and Jonathan Ives wanted: It provides a complete music solution set (including 4 or 8 GB of expensive embedded storage) and heavy reliance on a PC/Mac for music purchase and synchronization (apparently with no provision for over-the-air downloads or revenue sharing with Cingular on iTunes song downloads).
Apple certainly has a head start with its iPod economy, but the company doesn’t have a monopoly on understanding the basics of music phone packaging. For example, in late February, T-Mobile quietly launched the Nokia 5300 XpressMusic phone. (OK, the launch wasn’t exactly quiet-T-Mobile threw one of the loudest parties I’ve ever attended, and I had even come prepared with earplugs-but there was no press release or advertising blitz). The 5300 comes with a 1 GB microSD card, headphones, a jack to use your own headphones, stereo Bluetooth (A2DP) if you don’t like wires at all, a usable music user interface, dedicated music control buttons, a data cable, and a clear set of instructions on how to move music to the phone from your PC. It isn’t perfect, but it is one of the first complete music devices sold by a carrier ($99 with a two year contract).
I know of at least one product to be launched at CTIA that aims to duplicate this feat of selling consumers a complete music solution. It’s a trend I’ll be closely following at the show: how is the industry responding to device-centric consumers?
Questions or comments about this column? Please e-mail Avi at [email protected] or RCR Wireless News at [email protected]