Phone component suppliers now have a new set of customers: wireless carriers.
Recent shifts in the worldwide wireless industry have largely favored network operators. Wireless users-especially those in the United States-know the brands of their carriers, not necessarily the brands of the phones they carry. Thus, carriers represent the single most important distribution point for those wishing to sell phones.
Further, recent carrier consolidation-especially in the United States-has left a handful of carriers controlling most of the market. If Sprint Corp.’s merger with Nextel Communications Inc. is approved, the industry’s top three carriers will control around 80 percent of the wireless market.
The situation has served to cut into the power base of the world’s handset manufacturers. They must now bow to the whims of carriers if they want to get their phones into carrier stores. Indeed, manufacturers like HTC Corp. in Taiwan have forsworn their own brands in favor of carriers’ brands.
And as carriers gain more control over the industry, their authority over handset suppliers likely will continue to grow. The shift in power has given rise to a new sales strategy for those companies looking to sell technology to mobile-phone makers.
For example, AuthenTec sells fingerprint-scanning technology to mobile-phone makers. The offering allows phone users to protect information in their phones with swipes of their fingers and could open up security-sensitive applications like mobile banking. To score sales, AuthenTec Chief Executive Officer Scott Moody is pitching the company’s technology to both handset manufacturers and wireless carriers.
“More and more they (carriers) are certainly guiding” the development of mobile phones, Moody said.
To further AuthenTec’s sales, Moody said the company must create a “push and pull” between carriers and handset manufacturers. He said AuthenTec is trying to get phone makers to push its technology to carriers and to convince carriers to use their pull with handset makers to get them to install fingerprint scanners in their phones.
Moody’s sales strategy can be tracked back to NTT DoCoMo Inc. in Japan, which has often been hailed as a trendsetter in the wireless industry. DoCoMo tightly controls the development of its handsets, and the carrier’s brand typically overshadows those of its manufacturers. Indeed, DoCoMo’s requirements go all the way to the chip level-all of the carrier’s new 3G FOMA handsets feature Texas Instruments’ OMAP processors.
And DoCoMo might not be the only carrier that ultimately will require TI chips.
“We have expanded our relationships with carriers,” said Avner Goren, director of strategic marketing with TI’s cellular systems division. Goren declined to offer details on TI’s discussions with wireless carriers.
“Having the carriers understand our capability is important,” said Frank Ferro, director of marketing with chip vendor SyChip. Ferro said the company is working with carriers to try to get them to craft their chip specifications to mirror SyChip’s offerings.
“A good way to get speced in is to get the carrier to require your part,” explained Albert Lin with American Technology Research. “If the phone maker doesn’t seem interested, then they (phone component suppliers) can make the same pitch to carriers.”
Although most carriers won’t discuss their handset specifications, those in the industry agree that operator spec lists have grown in length and complexity. If a carrier becomes enamored with a particular technology like fingerprint scanning-a technology that could represent notable differentiation in an increasingly competitive market-that carrier then could require its handset suppliers to add the technology. Clearly, such a situation would bode well for that component supplier.
When listing his customers, AuthenTec’s Moody names LG Electronics Co. Ltd. and DoCoMo. When pressed, Moody explains that DoCoMo handset supplier Fujitsu is actually building phones using the company’s fingerprint scanner.
However, such a strategy could potentially backfire, upsetting the companies that build phones.
“I think phone makers don’t like it,” AmTech Research’s Lin said. “It takes away some of their power.”
Further, only the world’s largest carriers have the resources to evaluate new phone technology and add it to their handset specifications. Handset design is an expensive proposition, and most carriers have enough on their plates as it is.
Thus, selling phone components to carriers could represent a somewhat delicate strategy. The push and pull must be balanced to encourage rather than discourage sales.
