Although the average consumer still sees their mobile phone as a necessity, they are unwilling to pay any more than they need to during these slow economic times. As a result, mobile operators continue to see a steady decline in their business.

By Mike Green, European Correspondent, Wireless Design and Development

Research from Gartner shows that the smartphone, which many had put their hopes on for being the saviour of the stagnating mobile market, may already be losing much of its potency. In the last quarter the global smartphone business marked its lowest growth level to date. The sector currently has just under 37 million users worldwide, but the number is only up by 11.5% during the same period last year — hardly impressive considering it should have moved out of the earlier adopter phase by now.

"The current economic climate is negatively impacting sales of higher end devices" says Roberta Cozza, the research firm's Principal Analyst. "Going forward, we should expect the smartphone device market to continue to grow but at a slower pace. Although leading mobile operators are subsidising more smartphones, to reach lower prices they tie the device to two year contracts with monthly data plan rates which remain too expensive for the mainstream user."

Although Finland's cell phone leviathan Nokia retained the smartphone top spot, with 42% market share (followed some way behind by Blackberry with 16%), as expected it is Apple that is really making the serious running, seeing a 320% growth in its smartphone sales with its iPhone offerings while its two main competitors saw flat or slightly receding market share figures. "Nokia is feeling the pressure from increased competition," Cozza explains. "Its lack of a commercial touch-screen device in its smartphone portfolio has prevented it from capitalising from consumer demand for this feature. The recently announced N97 is a much needed evolution for the n9x series of products. It is unfortunate that the device will not be available before the first half of 2009."

Though Nokia sold close to 118 million cell phones in the last three months, and it still holds the largest chunk of the market (at 38%), signs are not that favourable
Rick Simonson is the chief financial officer of Nokia. The latest version of Nokia's mobile mapping and navigation service which includes high-resolution aerial images, 3D landmarks for 216 cities and terrain maps as well as an enhanced route overview function.
moving into 2009. The geographical growth regions, such as Asia and Latin America, are likely to be impacted by the global downturn, and the lack of disposable income here in Europe (where the mobiles are already at saturation level) is likely to mean that consumers will delay replacement of their current models for as long as possible. Just a couple of weeks ago the firm's CFO, Rick Simonson, outlined plans for cost reductions, based on his expectations that the overall mobile market will shrink by around 5% in 2009. "Nokia's highly variable, low fixed-cost business model allows us to scale to a declining market," he confirmed. "We are also acting on all fronts to reduce our costs beyond what may be attributable solely to the scalable aspects of the business model; moving to reduce cost of goods sold even further, reduce operational expenditure appropriately, and scale back capital expenditure."

In October Apple announced healthy quarterly results, with 7.9 billion revenues, and an increase in profit margins (rising to just shy of 35%). With more than 12 million iPhones already on the streets, it will be interesting to see how many more devices its sales have tallied up over the Christmas period.

The Lund-based Scando-Japanese combine Sony-Ericsson's most recent financials saw only a slight drop in handsets shipped (approximately 0.2%), but a huge fall in its operating margins (at 9%) compared to this time last year. It would appear that this was mainly due to increasing commoditisation of its products, and the lack of a compelling smartphone option in its product range.

The Eagerly awaited N97 — which Nokia hopes to take on Apple
The French handset manufacturer Sagem has now been demoted to little more than an also ran. Its poor showing in 2008, with a 30% slump in its half year sales revenue, prompted parent company Safran to implement restructuring and sell it off in pieces (with its software units going to Purple Labs and much of the rest being bought up by Sofinova Partners).

Some feel that the handset is becoming a bit of a millstone around many of the mobile operators' necks. They can no longer afford to subsidise the cost of the hardware in their customers' subscriptions. This is reflected in the fact that all the major European players, such as T-Mobile (part of Deutsche Telecom), O2 (a spin off of the BT Group, but now owned by Telefonica) and 3 Mobile offer simplified ‘no frills' packages where they just provide the SIM card and the user takes care of acquiring the handset themselves.

The average consumer clearly still sees their mobile phone as a necessity, but nobody is willing to pay more than they absolutely need to for it, especially in these austere times. As a result, mobile operators are seeing continued erosion of their business. The price tag that firms can put on voice and data services is declining at a steady pace. In the meantime, the uptake of new services that might counterbalance this has at best been sluggish.

It is possible that they will need the handset manufacturers, such as Nokia, to give them the sort of features that can stop this rot. At its recent Nokia World event, the firm unveiled the latest version of its mobile mapping and navigation service, with the intent of supplanting the established Google Earth desktop offering. It contains high-resolution aerial images, 3D landmarks for 216 cities and terrain maps, as well as an enhanced route overview function. At the same time, it released new instant messenger applications. Though bringing these features out of the PC and putting them in the hands of people on the move is an improvement, it is unlikely that operators will be able to charge much of a premium for them (as everyone is used to getting them for free on their PC back home). So far no clear business model has emerged with which the mobile industry can reverse the trend of deflating subscription fees. It could be a long time yet before the ‘Big Chill' that currently grips the cell phone sector begins to thaw.

Editor's Note:
Mike Green is a European Correspondent for Wireless Design & Development. Mike has several years of editorial experience including Editor in Chief of Electronic Product News where he was responsible for the entire magazine's content including the monthly edition, supplements and on-line product offerings. Mike has authored several articles which have been published in the UK, France, Russia, Israel, China, Japan and the United States for a variety of different magazines. In late 2007 he had his first book published entitled "The Nearly Men." His second book entitled "World's in Collision" is due out in early 2009.