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Dec. 17, 2008

Since its inception, the mobile and wireless handset segment has been pretty much dominated by proprietary (read: commercial) operating systems (OS).

OSs are what makes cell phones, mobile Internet devices (MID) and other wireless applications work today.

However, the global financial meltdown we've been witnessing since late September is both accelerating existing challenges and even creating new ones for most wireless operators and carriers.

Mobile service providers are now experiencing an increase in their capital and operational expenditures, while at the same time, the average revenue per user (ARPU) is under great pressure as a result of "extended" consumer and corporate budgets.

As mobile players are feeling the squeeze, they have already started reducing handset subsidy budgets by some degree, and are either postponing or cancelling handset upgrades altogether in an effort to cut operating costs to a more reasonable level.

As you might expect, these measures are making a big impact on the rest of the value system. Wireless handset makers, component suppliers, wireless carriers and, let's not forget consumers are all being affected at the same time.

After many long years of very strong growth in the wireless segment, industry analysts are now predicting that mobile handset demand will seriously decrease in the fourth quarter of this year, and through the first half of next year.

But the situation can't be all that bad. Overall, the smartphone sector, pushed by devices such as Apple’s iPhone and RIM's BlackBerry units is still experiencing significant growth. Informa Telecom predicts that revenues from smartphone sales will represent almost 56 percent of the total market value in North America, Western Europe and Japan.

Overall smartphone sales in emerging markets are also expanding. Informa predicts these markets will make up about 59.8 percent of global wireless handset market value in less than four years from now.

In an effort to improve ARPU, wireless operators have started turning their focus to non-voice services, with mobile broadband becoming an additional revenue stream for them. The challenge here is to reinvent business models by lowering costs and monetizing new service-based revenue streams across all segments.

Equally, mobile handset vendors can no longer rely only on mobile phone sales to sustain growth. They will have to look at content creation and service offerings.

For example, Nokia is forecasting service revenues of a little less than $2.8 billion in two years from now. Product differentiation will increasingly shift from hardware to software, with innovation being led by consumers and delivered by third-party developers with the support of mobile network operators and original equipment manufacturers.

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Source: Informa Telecom.