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he wireless industry has watched since 2001 as Sony Corp. and L.M. Ericsson joined forces to tackle the handset market. Sony Ericsson Mobile Communications focused on profitability first and has attained fourth place in global handset-vendor rankings. The JV’s financial success has been reflected in a series of industry-leading quarterly earnings reports, not to mention its growing importance as a revenue producer for both parent companies. In the Americas, the company posted a 46% growth rate in net revenue, year-on-year, in the first quarter. Najmi Jarwala, president of Sony Ericsson Mobile Communications Inc.-USA, has led the company’s North American operations since October 2005. He arrived with more than 15 years of experience in the telecom industry, combining a doctorate in electrical engineering with extensive experience in engineering, supply chain, network operations, handsets and management, much of it for the former AT&T Wireless. He spoke with RCR Wireless News recently about a range of issues.
What is the nature of your work with the U.S.’s top-tier carriers to meet the challenge here?
The U.S., being 60% CDMA, is definitely challenging. We align with our carrier customers’ needs in the Americas via three dimensions: technology, form factors and broadening our portfolio.
It’s difficult for a vendor to get products placed unless you support the carriers in their choice of technology, their drive to manage costs and in their pursuit of ARPU by getting applications to consumers. In the second half of this year, we’ll bring our first HSDPA products to market. From then on, we’ll have a portfolio that’s entirely 3G-enabled.
We have excelled in the bar, or stick, form factor with innovations like the ‘dual-active,’ with the phone on one side and camera on the other. In this part of the world, the clamshell and slider tend to dominate. So we’ve worked to ensure that our U.S. portfolio is dominated by sliders and clamshells to align with consumer preferences and carrier needs.
In terms of broadening our portfolio, over the past 18 months and through next year, we are bringing out a portfolio that will align with all customer segments, all price points, for a fully competitive range of products.
How does Sony Ericsson approach the pursuit of a potential blockbuster handset vs. developing that broad portfolio? Are these complementary strategies?
You want to hit the ball out of the park. But you also want to hit singles all the time. A portfolio must be broad and balanced. Yet you need those iconic products to drive the brand and present your value proposition. At the value end, you must meet the need of consumers who just want a high-quality phone and don’t need bells and whistles. That’s a very broad range. We go through a detailed segmentation process to map our value propositions to market segments. We’ll continue to broaden the range of our iconic Walkman and CyberShot devices so we can deliver access to them at mass market price points.
How do you balance serving the carriers’ needs with the pursuit of alternative channels, where you can sell more directly to the consumer?
As a handset provider we tend to have a broader range of devices available than any one carrier is able to offer. In a global market, we get a lot of pull from consumers. Why don’t we bring this or that device to their market? On a case-by-case basis, where it makes sense, we do provide those devices to various markets through Sony Style stores and Sonystyle.com. Those channels enable us to offer a range of devices, including enterprise devices, which may or may not be placed at the carriers.
Any shifts in the U.S. market that play to Sony Ericsson’s strengths?
The industry is maturing. We’re reaching or surpassing 80% penetration in the U.S. The emphasis is shifting to retaining your customers. The handset business is then driven by upgrades. Consumers want something new. That helps us.
Meanwhile, the networks are evolving: wireless broadband is now a reality. The emphasis on handsets and their value proposition to the consumer becomes a bigger part of the carriers’ overall strategy-that’s a huge advantage for us. Data ARPU is increasingly a larger part of the revenue stream for carriers and obviously applications that drive that are becoming more important.
And structural changes are taking place in the industry. The cable companies have their eye on this domain. Today Sony Ericsson can only address the 40% of this market that’s GSM. These structural changes on the horizon could expand our addressable market.
How will the iPhone impact your company? Will Sony Ericsson compete directly with it?
Sony Ericsson helped pioneer the convergence of music and imaging in the wireless industry. Our Walkman and CyberShot brands brought instant recognition to what else mobile handsets could do besides making calls. I think that’s something the iPhone can build on.
We have reflected internally on your second point. As a company, we don’t have that fast-follower DNA. We don’t go head-to-head on specific handsets. We try to bring unique designs to the consumer. We are bringing the K850 and other iconic devices that push the envelope on the convergence of music and imaging.
The iPhone brings increased attention to convergence and all the new and wonderful things we can actually do with these handsets. The iPhone’s pricing may help convince the consumer that it’s OK to pay for that capability. Assigning proper value would allow us to bring more innovation to the marketplace and allow carriers to bring those devices to the market, which would be a huge advantage for Sony Ericsson.
Do you see fundamental shifts coming in the subsidy model? Any changes in the carriers’ perspectives on selling phones closer to their actual value?
Reducing the subsidy is good for everyone. It helps the carriers with their cost structure. It allows handset manufacturers to get more value for the innovations they are investing in. Consumers become more aware of the value they’re receiving and will more fully utilize the functionality packed into these handsets.
Will this one event-the iPhone launch-do that? That’s to be determined. I’d like to discuss that subject a year from today to see what actually happened. Will the price remain high or come down? Or are the changes limited to this one device and the rest of the industry continues to evolve as it has been evolving? There are a variety of possibilities and it will be fascinating to see them unfold.
