FEATURE SMARTPHONES
The launch in October of Huawei’s first own-branded Android smartphone, the Vision, offers the perfect illustration: It simply wasn’t clear what a consumer would see in the Vision that set it apart from the alternatives from Samsung, Sony Ericsson, HTC and the rest of the Android collective.
This is now changing to a more “aligned” ap- proach, hence the cut in numbers, which will happen mostly at the low end. At Vodafone, where the device portfolio is currently at the kind of size that Telefónica is targeting, the drive is to reduce the range still further, says Peter Becker-Pennrich, global di- rector of terminals marketing. Becker-Pennrich says that Vodafone plans to “go down in size quite a bit” in 2012. And a similar strategy seems likely at Orange and Deutsche Telekom, which have announced plans to align procure- ment of handsets. Orange currently ranges around 100 handset models per quarter, according to Patrick Remy, the firm’s senior vice president for devices. Remy says portfolio management needs to take into account the fact that too much choice can confuse consumers, but Dan Adams, a partner at Accenture who focuses on device strategy, points out that there is also a key financial driver. “The research that we’ve carried out into the prices that manufacturers charge operators shows that, until you hit between 500,000 – 750,000 units, you don’t reach a manufacturer’s best price,” he says. “So operators have to set their portfolio so that a good chunk of it gets over that number per device. If they don’t, they’ll be paying more than the competition and, while they might have a better range of handsets that’s more adjusted to the local market, consumers are not going to pay more for a handset they can get cheaper elsewhere.” Vodafone spends $8bn on handsets annual-
Jim Balsille (left) and Mike Lazaridis (right) 24
ly, according to Becker-Pennrich, including af- filiates and partner markets, which translates into 60 - 70 million units a year. Telefónica’s Simon Lee-Smith says annual device spend is around $6bn, which buys some 50 million devices. Patrick Remy doesn’t want to say how much he spends at Orange, but indicates that he buys in the region of 30 million units an- nually. With those kind of shipment numbers, it’s easy to see why—according to Accenture’s calculations—the range of devices on offer needs to be carefully restricted. The worry for vendors is that a cut in the number of devices on offer might translate into a cut in the number of suppliers. At Vodafone just eight suppliers deliver 98 per cent of the volume, and Becker-Pennrich says that he “would expect the number of suppli- ers to become less.” Telefónica has around a dozen “key vendors” of which half are deemed “strategic suppliers” that are able to deliver breadth and depth. A reduction in the number
of suppliers is not a goal, says Lee-Smith, but the firm expects “natural consolidation”. None of this paints a rosy picture for hand-
set vendors and, mindful of the importance of the carriers in getting to market, they don’t want to ruffle any feathers. Apple aside, which in terms of operator relationships is in a shot-calling class of its own, the vendors seem universally keen to portray themselves as the operators’ friends and supporters. Sony Ericsson’s global head of sales, Kristian Tear, is a deferential case in point: “We have no ambition to replace opera-
tors,” he says. “They have acquired expensive licences, built out infrastructure and—to a large extent—they facilitate the development of mobile phones and mobile broadband. So we try to work together with them.” As if to reinforce the message, Simon Lee-Smith offers a thinly veiled warning to handset manufacturers when he says that the vendors which don’t recognise the “end to end value chain of devices”—for which read the interests of the operators in that value chain— “rarely do well.” There are some vendors, he says, without naming names, whose interest wanes once the operator has bought their product. How to sell this product onto the consumer is the operators’ problem, as far as these players are concerned—a position which doesn’t win much favour with Lee-Smith. “That’s a very myopic view,” he says, “and
we won’t support those vendors.” In truth, though, the handset vendors don’t
need threats to motivate them. For most of them a new reality is dawning in which, despite their protestations to the contrary, differentiation is becoming increasingly difficult. The launch in October of Huawei’s first own-branded Android smartphone, the Vision, offers the perfect illus- tration: It simply wasn’t clear what a consumer would see in the Vision that set it apart from the alternatives from Samsung, Sony Ericsson, HTC and the rest of the Android collective. Peter Becker-Pennrich argues that, while there are actually differences between the handsets from the various players, the customer percep- tion is that differentiation between them is minimal. Consumers typically gravitate towards the large brands, he says, making it very hard for the chasing pack to pitch any kind of USP. “What happens at the beginning of the
innovation cycle, typically, is that whoever owns that innovation is able to capitalise on it and build a brand value,” he says. “Later on, as the innovation cycle flattens out and more people can do it—and price goes through
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