Mobiles send out a stronger signal

Nick Goodway12 April 2012

DON'T shout it so the rest of the carriage can hear, but there are signs the mobile phone industry is coming back to life. While global share prices have tanked in the past fortnight, those of Vodafone, the world's biggest mobile phone operator, have bounced from a low of 80 1/2p to 96 1/2p. That is a rise of 20% and even better against the 6% fall in the FTSE All Share index.

European investors are optimistic that the world's largest maker of mobile phones, Finland's Nokia, will today add to the good news that came out of America's Motorola on Tuesday. Its second-quarter profits before exceptional charges were considerably better than analysts had expected.

As chairman and chief executive Christopher Galvin put it: 'Over the last two years, Motorola has purposely restructured itself back to its size of the mid-1990s, prior to the excesses of the dot com and telecom booms.'

Broadly, that comment could be applied to the entire industry - handset and network equipment makers and operators. They have been through the mill and learnt from it.

From the end of the first quarter of 1999 to the end of the first quarter this year, global ownership of mobile phones grew from 296 million to 627 million. That could never continue.

For a start, penetration - the proportion of a population which owns mobile phones - has soared from less than half to 80%-plus in most Western and Asian nations. Only the very rich or perverse actually want to own more than one handset.

Also, operators have spent the past 18 months putting the squeeze on their less profitable and reliable

pre-paid customers in most markets. In removing subsidies on handsets they have withdrawn the cheapest phones and got people to sign long-term contracts.

In addition, after the hype over WAP (wireless application protocol), consumers have been understandably reluctant to commit themselves to new technology. Even GPRS (general packet radio switching) or 2 1/2G, has not taken off with some industry sources saying less than 1% of subscribers want it.

But there is a plus side. Phone operators have slashed capital spending. That means 3G (third generation) networks will arrive later than predicted but should cost less and, more importantly, should work. If European authorities bow to pressure and let operators swap or trade licences or bandwidth, the corporate result could be even better.

The weak will fail, so assets become cheaper, making the strong stronger. Typically, Vodafone will finally be able to fill in its Europe footprint once it, by whatever means, takes control of France's second-largest network SFR thanks to Vivendi Universal's woes.

Manufacturers and networks have tightened supply chains so that new phones appear quickly and old ones are not sold at huge discounts. Hence, Motorola's sales rose 5% though orders fell 11%.

The emergence of real competition among handset makers means consumer loyalty is again on the move. Motorola's market share rose from 17% to 18% last quarter on the back of models such as the V60.

Ericsson may have pulled out of manufacturing but its joint venture with Sony, the T68i, has captured the imagination, while Korea's Samsung has lifted its share of the UK market from under 1% to 12% in two years.

Nokia sticks with its short-term forecast for 40% of the world market, but its way forward in the fashion stakes remains the 7650 camera model.

The Japanese reckon they have this market captured. But for the entire industry, the next festive season will prove whether e-mailing photos from round the Christmas tree can be as popular as texting.

Texting puts mm02 on track

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