The slowness of 3G to start to deliver on its promises is well documented, and the operators have laid the blame firmly at the door of the handset makers. Many of their complaints were politically motivated, as part of the ongoing battle between phonemakers and cellcos to take the 3G driving seat. But now that UMTS and EV-DO networks are rolling out, commercial success will rely heavily on having handsets with the right functionality, usability and price.
Two factors will be critical – support for advanced new services such as television, without unacceptable trade-offs in price, battery life and unit size; and price points that can support 3G services in developing economies. Both of these factors are, in turn, dependent on the chipsets within the phones becoming smaller, allowing for simpler, more compact devices for price-sensitive markets, and leaving more room in the smartphone for advanced features such as hard drives.
The cost benefits derived from greater compactness are relevant for the whole sector, not just new economies. Handset makers, like cellcos, once dreamed that 3G’s advantages would enable them to charge high prices and increase their margins. In fact, 3G has proved almost as price-driven as other networks, partly be cause its data capabilities look far less shiny than they did five years ago, because users are becoming accustomed to Wi-Fi, with its broadband speeds and flat rate prices.
Last year we saw the UK’s first 3G operator, Hutchison’s 3, starting to compete primarily on the basis of low cost voice minutes and slashing the prices it charged subscribers for handsets. Now NTT DoCoMo of Japan has announced that it will seek to boost uptake of its 3G FOMA service by cutting handset costs by about Yen10,000.
These cheaper devices will not have all the features of the high end smartphones, but this indicates the need to shift the massive base of GSM and GPRS customers to the new networks. The majority of them find GPRS adequate for their data needs, and if they have heavy duty data requirements, will rely on Wi-Fi in a laptop or PDA. Therefore they need to be lured by different applications and, critically, by price.
Although smartphones are growing their base, at current price points they will remain a minority interest, and primarily a substitute for a business PDA rather than a consumer item. Hence the need to make the smartphone cheaper and simpler, without sacrificing its data and multimedia capabilities, to attract a broader user base and so drive the shift to 3G.
Smartphones account for less than three per cent of the global market, according to handset analysts Canalys, which estimates that 17.5m were shipped in 2004, up from 2003’s 8.2m. This was in a total cellphone market that grew by 32 per cent to 684m units, according to Strategy Analytics figures.
In this context, the high end phonemakers, which have set heavy store by high end, high margin smartphones, need to ensure they can deliver those products - which are key to differentiating them from hosts of low costs rivals – at lower cost. Nokia, in particular, is looking to overall smartphone growth to boost its fortunes. The Finnish giant is dominant in this nascent sector, with 66 per cent market share last year, but needs the volumes to be larger for this success significantly to affect its overall financial showing and its margins.
This will mean putting smartphone features into midrange phones, but retaining a high margin – and that will hinge on the new breed of highly integrated chipsets that enable sophisticated handsets to be created at lower cost. Nokia is relying on the new single-chip architecture from Texas Instruments, and now Freescale is demonstrating similar functionality, with its first customer, predictably, being former parent Motorola.
Motorola, like Nokia, needs to achieve a double whammy if its handset business is to sustain decent growth and margins against the challenge of the commodity manufacturers. It needs to lead in high performance smartphones while reducing costs so that these models can be pushed out to wider markets, and even developing economies, before the low cost, R&D-starved tier two manufacturers can catch up with giants in functionality.
Freescale has unveiled the first silicon in its promised Mobile Extreme Convergence (MXC) range, a highly integrated chip the size of a postage stamp for high end devices. Like TI, Freescale has freed up space on its platform not only for cameras and MP3 players but new modules such as Wi-Fi, GPS and, in future, WiMAX and UltraWideBand radios. MXC is primarily for mobile phones, but will also be targeted at wireless digital entertainment systems.
The basic principle of MXC, which was first announced in October 2003, is that modem processing is separated from applications processing. In the tiny chip, a digital signal processor handles communications, leaving the ARM Risc processor free for interface and function processing. This means that, in high end devices, there is room for additional application processors, while for low cost units, the app processor can be eliminated altogether, reducing costs. The separation of the two functions also means there is no need for shared memory, which carries corruption and security issues, since the two sides can communicate with a simple mailbox system.
Other advantages include power management flexibility, where one processor can be put to sleep when not in use. Another performance accelerator is the layer two cache, which reduces offchip memory access, a feature unique to MXC. The first device supports GSM and EDGE and claims to be 20-25 per cent cheaper than competing products because of the tighter integration, which also leaves space for additional functions, such as WiMAX, in future.
The launches by TI and Freescale show the large cellphone chipmakers spreading their architecture over two key bases. Not only are they giving handset designers more flexibility to incorporate multiple radios and new applications, but they are also reducing the bill of materials so that relatively sophisticated chips can be incorporated into low cost handsets. This dual advantage will put huge pressure on the chipmakers that specialize in lower end platforms. STMicro, which boasts Nokia as its largest customer, could be one affected in this way – the company said this week that it would not achieve a single-chip architecture until 2007.
Symbian and Nokia
The other factor that will be important in achieving a broader market for smartphones will be the operating system. Symbian OS, which is controlled by Nokia, is the dominant force, with 82 per cent of the current small smartphone sector, according to Canalys. Its latest release, version 9, announced this week, seeks to extend that achievement to midrange platforms too.
Symbian OSv9 will help enable advanced phones in higher volumes and lower cost, said the company. It will lower licensee development costs and accelerate the time to market for smaller models. Symbian OSv9 phones are already in development, with product launches anticipated during the second half of 2005.
Nokia’s senior vice president Urpo Karjalainen said this week that 25 per cent of the company’s new phones this year will be 3G models, with 40 new devices in total set to be unveiled, 10 of them for 3G. Karjalainen believes that Asia will continue to be the main focus of 3G growth despite recent European network launches.
“If you look at 3G in Asia, it started in Japan, less than two years ago, and it is only now, in 2004, that it has really started to take off. If you look outside of that, 3G has not really been in Asia Pacific, so, this year, 2005, definitely, will be the year when it will start,” he said. “We will see it in Singapore, Malaysia, we will see more launches in Australia, and then Hong Kong, Taiwan, all those countries are starting to go for 3G. It will happen this year.”
The new 3G phones will be targeted at more price sensitive markets too. “In terms of markets, what we call the new growth markets, India, Indonesia, Vietnam, Philippines, Thailand as well... definitely the new subscribers are coming from those countries,” said Karjalainen.
Copyright © 2004, Wireless Watch
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