DUBLIN, Ireland-The number of new phone manufacturers and the introduction of GSM (Global System for Mobile communications) handset design packages have lead to a proliferation of new handsets. However, there already have been casualties, and it seems inevitable that other manufacturers will be forced to leave the market with their pride dented.
The expense involved in developing products for different digital technologies is considerable and recently has led companies like Hagenuk Telecom and Siemens A.G. to change their mobile phone strategies.
Hagenuk launched a handset called the GlobalHandy in early 1997, but the company was taken over in February of this year; the new company, Hagenuk GmbH, decided the mobile phone did not fit in with its product range.
Meanwhile, Siemens has scaled back its CDMA (Code Division Multiple Access) development to focus on GSM handsets.
Northern Telecom Ltd. (Nortel) is another example, having withdrawn completely from the mobile phone business.
Nortel spokesman Chris French explained that developing the expertise is only part of the process of becoming a successful manufacturer. “We had developed some leading-edge technology, and a dual-band handset was due for launch later this year. However, while having a good research and development section is important, you still have to find your markets around the world.”
One of the problems burdening Nortel was a multiplicity of brands. In Italy, the United Kingdom and Spain the brand name was Nortel, in France the brand name was Matra, while in Germany the products went under the AEG brand.
“There was a strong case to be made for a single brand for GSM products that could be advertised around the world,” said French. “We were so fragmented that there were almost hybrids of the basic model being sold in various countries.”
In core markets such as the United Kingdom, Nortel struggled to establish its brand in the consumer market, even though it was widely known in the corporate sector through the company’s involvement in network infrastructure. A massive investment would have been required to establish a presence on the “high street.”
The decision eventually was taken to focus on its core activity of network infrastructure development.
“Many other companies are looking to re-focus,” said French. “However, we had enjoyed considerable success in the U.K. (where the company formed a successful alliance with network operator One 2 One) and proved that it isn’t necessary to invest millions in brand building if you can get the product into a boxed package with network endorsement.”
One option for continuing in the phone business was to find a company with a strong brand name that did not have the technological expertise, and Nortel spoke to several companies. Finally, Nokia emerged as a buyer-but it was only interested in the research and development division.
French also underlined the importance of sales channels. “Dealers will always want to stock the product that is easiest to sell. There is only room for so many manufacturers, but through mergers and partnerships, and substantial investment, relatively unknown companies can become leading players.”
The difficulties faced by Hagenuk and Nortel have not prevented at least two companies from developing GSM design packages for companies looking to produce mobile phones.
Lucent Technologies Microelectronics Group launched a GSM handset design package in late July that it claims will reduce development time by around 60 percent. Several companies in the Asia-Pacific already have launched plans to use this package, including Taiwan-based GVC Corp.
“With the GSM market growing so rapidly, we can’t wait two years to enter the market with a fully equipped handset,” said David Su, GVC’s Wireless Communications Business Unit general manager.
Steve Lawrenson, Lucent’s GSM development director for Europe, explained that the company identified several types of customers, such as companies that want to concentrate on designing the handset at a fairly detailed level while purchasing chipset products or derivatives from other developers.
Perhaps the most potentially lucrative customer profile is the company with a strong manufacturing base. “These companies want the phone designed for them and then use their manufacturing operations to enter the market,” said Lawrenson.
Companies with powerful manufacturing capabilities tend to be based in the Far East, often in China or Taiwan. Given the inevitable rapid expansion of the Chinese market-145 percent during the last 12 months-these companies can gain a significant advantage over their competitors.
Lawrenson said there are two reasons why Lucent has launched its product. First, he said, “We have been designing the silicon for these phones since 1989, and we are now at least as adept as any of the major phone manufacturers in designing the phones.”
The second factor is that markets such as China are exploding, and there could be as many as 350 million GSM subscribers worldwide by 2003.
Many countries with little or no land-based telecommunications infrastructure are moving almost directly to wireless solutions, French explained. “Many developing economies could not sustain the cost of installing fixed-line infrastructure. Wireless networks are much less expensive.”
In the past, companies looking to enter the mobile phone market would simply brand a handset made by another company. Lucent believes its GSM solution offers companies the chance to control their market approach. “The package we supply can contain all the silicon, software and interfaces together with various added-value features,” said Lawrenson. “It offers customers an efficient route into volume manufacturing.”
Lawrenson believes there is more than enough potential left in the market for new manufacturers. “Not only are there millions of new subscribers to be captured, but what is less widely understood is that phones are replaced regularly as people demand more features. The installed base is now so big that if every user changed their phone every two years, the volume would at least equal the level of new subscribers.”
In a similar announcement, CommQuest Technologies in June introduced its own GSM design package and claimed it was the industry’s first genuine turnkey solution. An early customer was Audiovox Communications Corp., which has sold more than 10 million analog handsets but saw the need to move to digital technology.
