Will US carriers do away with handset subsidies?

As we all know the US mobile handset market (and most markets worldwide too), is very heavily subsidized by the carriers. That is what allows us the consumer to buy a $500 phone for $199.  The carriers have a vested interest in subsidizing the handset, that’s what keeps the customers (both new and old) coming in and paying higher monthly fees. The handset makers too have an interest in getting their handsets out to the consumers cheaply as it impacts their bottom line directly. But all this is at a cost. In Q3 2008, AT&T had to take nearly $1 billion hit to its bottom line due to iPhone subsidies, and that is just for one phone. Surely, the execs at the carriers would be sorely tempted to get rid of these subsidies to improve their bottom line and also reduce the huge debt they carry (nearly 50 to 70% of their assets).

However, before they do, they need to look at the Japanese mobile industry. That should certainly give them a pause. In January 2007, Softbank introduced its ‘White Plan’ which did away with subsidies for the handset in exchange for lower monthly fees. The other two carriers, DoCoMo and KDDI quickly followed suit. Since then, the handset sales in Japan have been down nearly 30%, according to Jeita, the Japanese electronics association. The average handset lifetime has also increased to 3 years.

Also, the Japanese carriers already have a healthy source of revenue other than fees, namely the charges they collect for allowing users to charge their purchases to the phone. In US, there is already a move towards building an alternate source of revenue, namely the application stores for the smartphones. However, those are primarily owned by the handset maker, not the carriers. Carriers have been slow to adopt this strategy and have had limited success with the stores they have launched.

It has to be very tempting for the US carriers to follow suit as DoCoMo is reported to announce an increase in operating profit by 20% due to reduction in subsidies for the period April-Dec 2008. However, if the US carriers followed their Japanese brethren, I believe the handset sales will be down more than 30%, more likely around 44%.

AT&T grumbling about the $900 million subsidies in its conference calls and report was not just a CEO’s vent, it was a balloon floated to test the waters. While the market and  handset makers are not ready to see the subsidies go the way of dodo anytime soon, investors are chomping at the bit for that 10cents per share increase to their portfolio. There is a strong likelihood that US carriers will get rid of the subsidies, especially on the high-end phones in two to three years, if not sooner.

Nokia warns of falling markets in coming quarters

Nokia, like Intel and Qualcomm before it, today announced that it was cutting its estimate for 2008 from 1.26 billion handsets sold to 1.24 billion handsets. In Q4 2008, Nokia anticipates it will sell 330 million handsets, well below the analysts estimate of 346 million. It also warned that 2009 is going to be lower than what it had estimated earlier.

As I have been saying for a while now, the economy is hurting a lot of sectors, including mobile. It remains to be seen which companies survive this downturn.

Hutchison to enter mobile handset market

Hutchison Wampoa, the Hong Kong based conglomerate, is set to enter the mobile handset market. The parent of the 3 network will launch a new company called Inq to design and manufacture handsets. The company has good pedigree as it leverages the work done for Skypephone under the 3 network and is led by Hutchison veteran and former group handset chief Frank Meehan.

Initially, the new company will emphasise data services on its handsets with features like Facebook, Skype calling, and instant messaging. The company has five to six handsets in the pipeline with the first handset to debut next month on the 3 network. The handsets are expected to cost between £50 and £80 after subsidies.

[Via Mobile Today]

Gartner: Worldwide sales of smartphones grew 15.7%

Gartner, today followed up with a press release reporting that the smartphones sales grew 15.7% in Q2 2008 over Q2, 2007. This amounts to 32.2m units sold in Q2. This is pretty much in line with what other research companies have recently reported and also what Nokia said in its forecast for Q3. Here is the breakup of sales according to Gartner:

Company	2Q08 Sales	2Q08 Market Share (%)	2Q07 Sales	2Q07 Market Share (%)	2Q08- 2Q07 Growth (%)
Nokia	15,297,900	47.5	14,151,689	50.8	8.1
Research In Motion	5,594,159	17.4	2,471,200	8.9	126.4
HTC	1,330,825	4.1	605,900	2.2	119.6
Sharp	1,328,090	4.1	2,275,401	8.2	-41.6
Fujitsu	1,071,490	3.3	877,955	3.2	22.0
Others	7,598,711	23.6	7,472,441	26.8	1.7
Total	32,221,175	100.0	27,854,586	100.0	15.7

What is interesting is that Samsung and LG do not make it on this list considering that they are 2nd and 3rd mobile phone makers worldwide.

All you LiMo fans, rejoice

New York Times is reporting today that the LiMo foundation now has 21 handsets based on Linux available to consumers worldwide. There were 7 recent addition, including the Motozine ZN5 from Motorola which is the only one available in US. The remaining 6 are launched in Japan and run on the 3G network. These phones have advanced GPS that can be used by pedestrians for directions as well as security features that make mobile banking safer. In addition, these phones also have user profiles which recognize the owner of the phone and shutdown if someone other than the owner tries to install software that is at odds with the owner’s profile.