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JUNE 26, 2006 Saturation already threatens in some markets. By James Belcher - Senior Analyst With over six billion potential callers, the worldwide market for mobile phones would seem safe from saturation. Yet the success of mobiles in developed countries means that the low-hanging fruit has been largely picked. Handset makers are eager to sell shiny new phones running on 3G networks, but the fact is that continued market growth depends on selling more basic handsets to new adopters, especially in emerging markets. Emerging markets may increase their customer base by 1.5 billion mobile users by 2012, according to a new study released by Frost & Sullivan. The firm says that the global mobile phone market is set to grow to 2 billion subscribers by the end of 2007, fueled by strong demand from developing economies in Asia and Latin America. They also say that worldwide revenue from mobile handsets will grow as well, hitting $164.3 billion in 2012.
To reach this goal, handset makers cannot rely on their current strategies in developed markets. Although advanced handset sales will rise as networks are upgraded, the trend in handset prices overall has been downward, according to market research firm iSuppli Corporation.
In fact, the percentage of subscribers receiving free handsets rises as handset markets become more developed, according to TNS Telecoms. The market research firm says that nearly 3 in 10 of all mobile phone subscribers in North America and developed Europe now get their handsets for free. This puts pressure on carriers to either offer simpler handsets or raise monthly fees, neither of which is attractive to users in established markets. In comparison, large but still expanding markets such as China and India have far fewer mobile subscribers using free handsets.
China is a great example of how handset makers and the carriers who sell their phones have to move beyond established markets to continue growth. The country will soon have over 500 million mobile subscribers, yet its urban markets are largely saturated. This leaves over 800 million potential subscribers, many in villages and smaller townships. Although the domestic handset industry in China is looking forward to selling higher-end 3G phones in the cities, the current reality is that the two major carriers China Mobile and China Unicom both are using low-cost handsets to attract new subscribers—especially in rural areas. The bottom line is that handset makers need to feed the mobile phone manufacturing beast they have created. The Telecommunications Industry Association notes that if all applications of new manufacturers to make mobile phones are approved, production capacity in China alone will rise by 2007 to 500 million phones per year. Long-term, this raises the specter of overcapacity, and handset makers will need to get back to basics to avoid it. Mobile videoconferencing and streaming audio may make headlines, but making simple phones for the masses will pay the bills. |
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