Should vendors be one-stop shops or specialists? - Mobile World Live

Should vendors be one-stop shops or specialists?

09 SEP 2010

Are the days of one-stop shopping for mobile equipment drawing to a close? Today, success in the mobile infrastructure market is as much about providing network management services as it is about selling radio hardware, while a slick user-interface and a fashionable consumer brand remain key to success in the handset market. As mobile technology becomes increasingly available in off-the-shelf modules, a deep understanding of the technical quirks of both networks and devices doesn’t seem that important.

Certainly, the trend is towards specialisation in one or the other. Seeking focus, Ericsson, the leading vendor of mobile networks, has spun its device assets into two joint ventures, Sony-Ericsson and ST-Ericsson, while Nokia now seems likely to sell out of Nokia Siemens Networks in a bid to improve its overall profitability. Among the other leading western infrastructure vendors, Motorola is preparing to spin its handset business into a separate company, while Alcatel-Lucent is no longer a significant force in the handset market.

Although the leading Korean handset vendors, Samsung and LG Electronics, do supply some network infrastructure, in global terms, they are second tier players compared with the likes of Ericsson. Against this backdrop, the rapid market share gains made by the Chinese duo Huawei and ZTE, in both the mobile device and infrastructure markets, seem to run counter to the prevailing trends in the industry. For example, ZTE said last week it shipped 28 million handsets in the first half of 2010, 40 percent more than in the same period of 2009.

Is their success in both networks and devices just a quirk of state-directed Chinese industry, or are there still significant synergies to be had in the development of mobile devices and networks? Is selling both a source of significant competitive advantage?

The emergence of Apple, Research in Motion and HTC as leading smartphone suppliers suggests that computing competence is far more important than expertise in radio and modem technology at the high-end of the handset market. Having said that, RIM’s initial success was partly due to its early grasp of the limits of GPRS mobile networks. Moreover, various iPhone foibles, such as a short battery life, a tendency to hog network resources and the infamous antenna problems, seem to have been partly due to Apple’s failure to fine-tune the handset to work well with mobile networks.

Can the Chinese buck the trend?

Still, Steve Jobs won’t yet be losing any sleep about Huawei’s and ZTE’s device aspirations. The Chinese one-stop shops are still also-rans in the smartphone segment. Their main strengths today lie in supplying USB dongles and low-cost handsets. And in these segments there is still a case for supplying infrastructure and devices through one company. At the low-end of the handset market, strong relationships with mobile operators can be as important, if not more important, than a strong consumer brand. Vodafone, for example, sells very cheap phones made by ZTE under the Vodafone brand. If these handsets prove successful, ZTE’s relationship with Vodafone will likely deepen, giving the Chinese vendor a better chance of winning infrastructure contracts.

A close relationship with mobile operators is also important in the USB dongle segment, in which most modems are sold under the operators’ brands. Moreover, as USB dongles are typically the first devices to support new network technology, such as HSPA+ and LTE, a one-stop shop vendor is well-placed to ensure that the new modems and the new base stations will actually work together.

In essence, the broader mobile equipment market is really split into two segments – vendors seeking close relationships with mobile operators and vendors building strong consumer brands, partly in competition with operators. Doing both is tricky. Nokia Networks’ efforts to become a favoured strategic supplier to mobile operators never sat that comfortably with Nokia’s broader strategy of selling consumers both devices and services.

As Huawei and ZTE have shown, the one-stop-shop model can thrive up to a point. But the Chinese duo will probably find the going much tougher in the smartphone segment, where a strong consumer brand is more important than a tight relationship with mobile operators.


David Pringle

This article was first published on the GSMA’s Mobile World Live portal. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members


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