Smart Phone (3) Attitude of Telecom Operator

The forbidden fruit handed over by the Serpent - to eat it or not to eat it?

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[+] The complicated relation between the telecom operator and the handset market

Let's make one thing clear first: the core business of telecom operators is to sell phone numbers. No matter it is mobile or landline network, operators may collect money by just printing phone bills as long as they sell phone numbers along with the related tariff to consumers.

However, phone numbers and tariffs are invisible. Fortunately telecom operators can focus on different market segments according to the appearance and price of the handset which is more visible. Therefore, operators inevitably have to depend on the handset business to sell their phone numbers.

That, however, does not mean telecom operators have to be handset manufacturers or distributors themselves. In the former case, operators must make handsets themselves; while in the latter case, operators must procure handsets themselves and resell them to consumers.

The advantage of selling phone numbers is, as these are virtual products, there's no need to worry about the inventory. With handsets, however, it is a different situation. In addition to buying a lot of handsets with big money, there are also a lot of other headaches including inventories, marketing plans, maintenance and losses resulted from the depreciation of the phones.

In order to reach the scale of business, there occurs a room of existence for handset distributors. With their own stores or franchised outlets, they sell handsets together with the phone numbers of telecom operators. So both players have their own work to do, and telecom operators do not have to "raise cows to drink milk".

Since the main business of handset distributors is selling mobile phones, they could sell the phone numbers of any telecom operator at the same time and be loyal to none. Without an effective control over those distributors, it is hard for operators to extend their brands, which is especially bothering in the time of the mobile value added service.

[+] Distribution channel reform as a result of the development of the value added service

As traditional handsets are used for phone calls only, sales staff does not need to make detailed explanation. For the mobile Internet and other value added services, however, such explanation is necessary. But distributors would rather sell products that do not need much explanation to deal as soon as possible. That is why the value added services of telecom operators have been unable to infiltrate into distribution channels.

Yet it is a different case for the marketing of mobile phone numbers in Japan, where mobile Internet is a mature service. In order to market their mobile Internet service brands, telecom operators are directly involved in handset manufacturing and specification development. All the products of handset manufacturers are bought by telecom operators, who would then resell them at their own stores.

The advantage of that business model is, with tailor-made specifications especially for a telecom operator, handsets could be fully integrated with the services of content providers, allowing better user experience of value added services. In addition, by selling the products at their own stores, the operators could request their sales staff to provide more detailed explanation.

In Europe and the United States, where the mobile service is not so convenient as that in Japan, similar business model is employed. Telecom operators purchase handsets first and resell them at their own stores, instead of through distributors. Obviously, with the advent of 3G, the telecom operator will get involved in the handset manufacturing and distribution more deeply, or "be forced to raise cows".

Yet we should not forget that the core business of the telecom operator is always printing phone bills and collecting money (of course, there could be the issuance of prepaid cards, too). Should a great invention occur one day that make it impossible to increase the amount of payment on a phone bill, operators would loose their interest immediately.

[+] Smart Phone is threatening the business of telecom operators.

Driven by the high gross profit, handset manufacturers around the world vow to introduce more smart phone models. That is indeed a trend. Yet in the long term, a conflict of interest with telecom operators is inevitable.

Internet access, of course, is a must-have function of all smart phones. In the future, users might use their handsets to access the Internet and, whereby, to make VoIP calls. With the open architecture of the smart phone, anyone could write and install a VoIP program like Skype into his/her phone.

Everybody knows that VoIP is very cheap. Although currently, the mobile Internet accessing service is enabled through the GPRS network, the tariff which charges by packet is still high. Obviously, making VoIP calls through that way is not an economical choice. However, in Japan, the 3G mobile Internet service is charged by monthly fees, instead of packet. The Mobile VoIP now seems only a matter of time.

Even the revenue of mobile portals will be affected. In addition to the communication fees charged for mobile Internet service by packets, users should pay additional "content fees" for downloading pictures, ringtones or games. Operators would collect the fees through phone bills and then share them with content providers.

Currently, mobile portals are operated by telecom operators themselves. As handsets of specific models are bound with a portal, consumers will access the portal for most of the time. In that situation, content providers are vying to get into those portals to expose themselves in front of consumers.

The smart phone, however, is quite different. Take it as a PC with an open architecture: enter a URL address, and there you are. The portals of telecom operators are only one of the thousands of options. No more advantages of monopoly, content providers can now contact directly with users, instead of through telecom operators.

[+] Back to the standpoint of consumers

Concluded from the above, the smart phone will reduce, instead of increase the amount in a phones bill that telecom operators deliver to the subscribers. The mobile operator will face the challenge of the IT sector and gradually loose its monopoly status. Will the smart phone be the first gun to shoot for the liberation war?

Now that telecom operators are relying more and more heavily on and tightening their control over handsets. Is that a sweet poisonous pill? Shall they take it or not? Or is that a road leading to an unknown destination and rewarding those who follow the trend first with the favor of consumers? (
2005/01/30 - By Digitalwall.com - Way to
China Internet/Telecom )

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Smart Phone (3) Attitude of Telecom Operator - 2005/01/30

Smart Phone (2) Who is the User?

Are they business elites, computer addicts or common people? The sales channel varies.

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[+] Early adopters and late majorities

When the color handset first appeared in the market dominated then by black-and-white models, its price was awfully expensive. Of course, the volume of sale was low because few people could afford it. Today, black-and-white handsets are almost driven completely out of the market. With a few hundred dollars, you could select from a wide array of color models.

Handsets that enable the Internet accessing were expensive too at first. Today, it has become a built-in function of all handsets, no matter they are high, middle or low end. When it was first introduced to the market, a handset with a 3-mega-pixel built-in digital camera sold at a price beyond the reach of most people. Today, as models with millions of pixels are available, the 3-mega-pixel camera has become the built-in function of low-end products.

In the market, there are always a group of people that buy products which are the freshest and most expensive. In high-tech marketing theory, they are called early adopters. As those people are less sensitive to the price than common people are, manufacturers could get a fat profit by setting the price high above the cost very much.

Leading handset and IT product manufacturers have seen the attractive gross profit and steady market growth of the smart phone. But obviously, the market is still in a stage of early adopters. Once the current stage is over, it will be the end of the high gross profit.

We can summarize the development as follows: (1) cater for early adopters and enjoy the high profit margin; (2) the early adopter market is saturated, and the volume of sale appears to be a bottleneck; (3) introduce lower-end model for the mass market, in the hope of increasing the sale to make up for the loss of profit margin.

There have been historical cases where many products, such as PDA, are unable to break through the second stage. Even with the introduction of low-end models, such products cannot expand their markets, for they are not needed by mass consumers. Will smart phones be able to enter the mass market like the color handset did?

[+] Business elites and general consumers

The handset you use must have the calendar function, which you might never use, not to mention accessing the Internet with your handset. Let's increase the size of your screen, turn its desktop into Microsoft Windows, its calendar into Outlook and its browser into IE, will you start to use it then?

When it first appeared in the market, the smart phone was regarded as a mixture of the handset and PDA. Therefore, it was a wise strategy to focus on the business people, the prime users of PDA, as the target group of the smart phone. With their preference for multiple functions and convenience, those people might want an all-in-one device.

General consumers, however, do not have so many expectations for a handset. Many powerful functions that manufacturers brag about, for example, Word editing, are of little value to them. They usually just make phone calls, send short messages, take pictures, download images and ringtones, play games and MP3, seldom else.

If the smart phone follows the path of the PDA and ties itself with early adopters among the business people, its good days will end soon. Manufacturers need to focus more on entertainment functions that general consumers need. Therefore, audio/video will be a priority in the future.

From their appearance, smart phones could be divided into two categories: the PDA-like and the general handset-like. Currently, most manufacturers are making the former, because early adopters like their large screens and diversified functions (hence the larger size). However, most general consumers prefer the latter.

In others words, the smart phone must disguise themselves as the general handset to be able to infiltrate into the mass market. The ultimate reason for mass consumers to accept the smart phone would be the substantial drop in prices, which renders "smartness" as the standard function of every phone. As to those "smart" functions, how many of them will be actually used? Not many.

[+] Computer users and handset users

Generally, there are two types of smart phone manufacturer: the traditional handset manufacturer and the IT product manufacturer. Both have their own advantages. Consumers, on the other hand, have their own purchase channels. Should smart phones be sold in computer stores or handset stores?

Let's return to the start point, and look at the issue from the standpoints of the market stage and consumer identity. We can see that most of the existing early adopters are hardcore computer users and business people who, while being addicted, use computers to process files and contact others.

Therefore, IT product manufacturers are selling smart phones through computer distribution channels, which are expected to boost sales at a surprising speed. But very soon, once the early adopter market is saturated, the bottleneck will appear.

On the other hand, traditional handset manufacturers are also making multifunctional and large-screened smart phones, but sell them through telecom product distribution channels, which are not conventional to most early adopters. Therefore, the sale of those smart phones is less promising. Should the manufacturers make audio/video-oriented smart phones and "disguise them as general handsets", then it is a right strategy to sell them in the telecom distribution channels.

In addition to the desire of manufacturers to achieve continued good sales in a saturated market, the smart phone also bears the expectation from telecom operators to increase the revenue per subscriber, which might turn out to be a factor for change to the development of the smart phone. (
2005/01/23 - By Digitalwall.com - Way to
China Internet/Telecom )

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Smart Phone (2) Who is the User? - 2005/01/23

Smart Phone (1) Let's Begin with the Definition

Smart phone is a mobile phone with an open operating system.

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[+] Many mobile phones are not smart enough in fact.

Smart Phone is perhaps one of the most confusing concepts today. What kind of mobile phone can be called smart? In addition to the earliest concept: "Mobile Phone plus PDA", it has lately got involved with 3G, too. What is it all about?

The primary function of the mobile phone, or course, is communication. Back in the years of black-and-white screens, many mobile phones started to provide built-in convenient functions, such as the phonebook, calendar and even game. Yet nobody would call them smart phones.

As we move into the Internet and multimedia age, the phonebook, calendar and game grow to have their color versions. The mobile Internet access allows users to download pictures, ringtones, games and other multimedia contents. Camera phones enable users to take pictures and send them to friends. Those, however, are not smart phones, either.

Following that, handset manufacturers introduce another function: PTT (Push to Talk) through a GPRS network. Pressing down a button on your handset, then you are able to talk with a group of people. In addition, there are a number of other fad applications, including audio/video recording, MP3 playing and even TV remote controlling.

With so many functions, those phones are certainly "smart enough". Yet generally, they are not called smart phones. Instead, they are referred to as "Feature Phone". They are phones with special features.

[+] Smart Phone means open operating system

Usually, manufacturers do not put all functions into one model (unless it's a top-class model with very high cost and price). Therefore, there are handsets that can be used as cameras but cannot play MP3 music, or that have the PTT function but cannot take pictures.

After all, only a small number of people need, or could afford all-in-one handsets. As I said in the above discussion, "to endow a handset with a special feature" becomes a satisfactory option for both manufacturers and consumers. Hence the so-called feature phone comes into being.

Integrating all functions into one handset will certainly increase the manufacturing cost, as each model of feature phone will involve hardware modification. If a handset could be built like the computer and have a built-in operating system to enable all functions by adding software, isn't that much more convenient?

For example, by installing special software in the handset, we could have the PTT or MP3 function instantly. That kind of architecture needs a built-in operating system similar to Windows and software vendors willing to develop programs for the operating system.

That is the smart phone, an open architecture similar to the environment used in computers. With the feature phone, handset manufacturers do everything from software to hardware, leaving no opportunity for others. However, the smart phone would allow many software vendors to develop programs for the phone.

[+] Fiercely competitive operating system market

A straightforward idea is to move the operating system of Microsoft directly to the handset. In this case, then the handset would be powered by Microsoft Office immediately, can open and edit Word and Excel files, receive or send Emails and manage contact information and calendars with Outlook, and play MP3 music and movies with Media Player.

Want to use the handset as a TV remote controller? Just install a program, as long as your handset has an infrared communication port, it can then have such function. With regard to the method of installing software, you can connect your handset with a computer or download a program directly through a browser.

Such freedom of "playing with your handset as you like" is, perhaps, something beyond the experience of traditional handset users. For PDA users, however, that is a familiar experience. As the PDA market seems to be saturating, manufacturers are taking a path toward the smart phone.

Traditional handset manufacturers, of course, will not just sit there. An operating system is emerging to compete with Palm OS and Microsoft OS from PDA manufacturers. The smart phone operating system, Symbian, bears high market expectation.

Why is the smart phone so important? Just think: in the future, everybody would carry an all-in-one device, which could be used to make phone calls, access the Internet, remotely control appliances in a digital home, play music, take pictures, and even take the place of the credit card.

It would take years to realize such a vision. However, the smart phone market is regarded as a frontier of those future applications, although for manufacturers, it is now only an instinctive reaction to "migrate to a market with a larger gross profit". (
2005/01/16 - By Digitalwall.com - Way to
China Internet/Telecom )

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Smart Phone (1) Let's Begin with the Definition - 2005/01/16