Reality bites

Nokia has been projecting a positive aura over the last few months, an aura which achieved its richest glow with the launch of the Lumia smartphone range towards the end of last year. Response to the new flagships was net positive and a massive brand campaign has since been hammering home the message that Nokia is back.

April 13, 2012

10 Min Read
Reality bites

By The Informer

Nokia has been projecting a positive aura over the last few months, an aura which achieved its richest glow with the launch of the Lumia smartphone range towards the end of last year. Response to the new flagships was net positive and a massive brand campaign has since been hammering home the message that Nokia is back.

But money talks and brand campaigns walk, so they say, and the Finnish vendor offered a reality jolt this week with the news that it is expecting to report a loss for the first two quarters of 2012. The firm said, in the roundabout way that firms like to deliver gloomy financial news, that the Q112 operating margin for its Devices & Services unit was “approximately negative three per cent,” which is approximately three per cent worse than was anticipated. Q2 will be similar or more approximately negative, it added.

Continuing the doublespeak, the statement added that Nokia’s Q2 could be affected by “timing, ramp-up, and consumer demand related to new products.” This may or may not mean that the phones are late, Nokia can’t build them at volume and nobody wants them. It added that “competitive industry dynamics” have damaged net sales for the Mobile Phones and Smart Devices units, particularly in MEA, India and China.

If competitive industry dynamics are harming your sales, it means you’re struggling to compete. And the fact that Nokia highlighted key emerging markets suggests that its lower end product is still being trumped by cheaper handsets from Asian vendors. Nokia’s stated strategy is to catch the upgrade wave in emerging markets with its Asha range and create a new generation of loyalists who will one day move onto its smartphone products. This aim appears, by the firm’s own admission, to be seriously challenged.

Stephen Elop, architect of Nokia’s renewed bombast, said the results were disappointing but reflected a company that is still “in the midst of transition”. This is a fair point and, on the upside, the Smart Devices margin is running at around 16 per cent. The firm reckons it will have shifted 12 million smartphones in Q1, once the counting’s done, but the ASP is just €220, so there’s not a lot of room for manoeuvre if those pesky competitive dynamics don’t ease up.

On the back of these results, Bloomberg called some analysts as part of a “News Survey” and asked them if they thought Samsung might have overtaken Nokia as the leading handset vendor in the world during Q1 this year. The analysts conceded that it was possible, leading to the headline “Samsung Probably Overtook Nokia in Phone Handset Sales”.

Now, call the Informer an old stickler, but the inclusion of the word “probably” in a headline such as this rather takes the story out of the news realm. It’s like some journalistic version of cyber-squatting, covering the bases of possible outcomes in the hope of future profit, in this case enabling the writer to triumphantly proclaim “I said this would probably happen!” if and when the event that is predicted as possible does indeed come to pass.

It certainly opens the door for a great deal more stories that are similar in nature. If, like the Informer, you subscribe to the philosophical belief that anything is possible and that precedent is useful only as an indicator of likelihood, then the world is your news oyster.

You might like to report that Microsoft will probably invest a few billion in Research in Motion; certainly there’s a persistent rumour doing the rounds. RIM can’t shake its black cloud at the moment, although that was given some shocking perspective this week when one of its senior channel managers in the UK died from injuries he received after being stabbed on April 3rd at a London party thrown by the company to mark the launch of its new messenger product.

Sony is another handset vendor looking to effect a turnaround and this week it announced that it is to cut 10,000 jobs as part of a streamlining designed to refocus it on core product lines, including smartphones. A journey of a thousand miles begins with a single step, and the firm had to first concede that it expects to lose $6.4bn for the twelve months to March 31st this year.

It tried to cheer itself up with the launch of a touchscreen watch that connects to the wearer’s Android device via Bluetooth, offering updates on things like incoming calls and text messages. Sony said that a number of apps specific to the watch are also available in Android’s Play store.

For anyone who grew up in the 80s and regularly tuned in to KnightRider, the idea of a watch that can be used to control other things retains considerable fundamental cool, despite the show now being so obviously crap. So, too, does the idea of a sentient, talking ’82 TransAm. Oddly the third leg of this televisual stool, Michael Knight/David Hasselhoff, is no longer so appealing, neither as an idea nor in reality.

Back to Android, though, and the Informer discovered to his chagrin this week that he is being charged for OTA updates to the OS. Last weekend a system message popped up on the Informer’s Samsung Nexus S asking if he wanted to upgrade to Ice Cream Sandwich. The update was made following the yes-click and, shortly after installation, the Informer received a text message from O2 saying that he had now exceeded his monthly data allowance.

The update was 211MB and the Informer has a monthly 500MB limit. Having used almost half of this just upgrading his OS—an upgrade controlled by the operator—the Informer found himself throttled! Some people like being throttled, but this is a family weekly wireless round up, so we won’t go there. But the Informer does not like being throttled and was pretty irritated to find that he was given no option to delay or divert the upgrade to save some of the data for which he pays O2 every month.

The only upside is that, this being O2’s network in central London, the Informer didn’t really notice that he was being throttled, because the data rates he usually gets are so poor. It was only when he tried to use the uplink that it became deeply frustrating, as nothing would move. It raises an interesting question over whether users should have to foot the bill for their OS upgrades. It certainly feels unreasonable from a consumer’s perspective.

Lots of things do, which is why global churn has hit its highest ever level at 44 per cent for 2011, according to Strategy Analytics. The average mobile customer switches service provider every 27 months, more than twice as frequently as they did a decade ago, the firm said this week.

Among the more fickle consumers in the prepaid market, churn has increased dramatically, as promotional SIM activity in developing markets has made customer loyalty virtually obsolete in some countries.

Strategy Analytics said that average prepaid customer lifetimes have halved over the last five years, to only 17 months. By contrast, average postpaid customer lifetimes of 67 months have improved from the depths of the global recession in 2008/09, since customers show an increased propensity for upgrading with their current provider instead of switching to better deals elsewhere.

But with smartphone subsidies stretching operator resources, the postpaid market is where churn is more expensive to manage and the researcher notes that operators are finally looking at new device purchasing models, like instalment plans or leasing, that can alleviate pressure. But of course, consumers have become ‘addicted’ to the subsidised handset model, and the researcher notes that it will be difficult to change this.

Looking at the rise in churn levels on a more granular basis, statistics from Informa Telecoms & Media show that prepaid churn levels for operators worldwide, rise from 5.52 per cent at the end of 2010 to 6.33 per cent at the end of 2011. Postpaid churn is much more stable, at 1.4 per cent at the end of both 2010 and 2011, with blended churn at 3.8 per cent end-2011, up from 3.4 per cent end-2011.

That’s a global ‘Oh No!’ for the industry, so here’s a global ‘Yay!’: Ovum reckons that operator revenues – fixed and mobile – exceeded $1.91tn in 2011, up from $1.79tn in 2010. The firm added that while carrier capex also rose in 2011, late-year economic jitters depressed growth rates.

Economic worries caused budget cuts in the final part of the year, which affected service provider capex. Overall for 2011, capex grew nine per cent to $306bn, due to double-digit percentage growth in the first three quarters, however, capex declined by one per cent year-on-year in 4Q11.

The top ten spenders were AT&T and Verizon from North America, China’s three big carriers, NTT, and four European operators with multinational operations: DT, Telefonica, Vodafone, and Orange. Principal analyst Matt Walker said that things continue to look cautiously positive: “Signs have emerged in 2012 of a slowly improving economy, and further improvement should help reach the revenue goal and capex growth targets of three and six per cent respectively,” he said.

Let’s go and have a look at India now, where some players just want out. In the wake of the recent 2G licensing scandal, S Tel and Etisalat have announced the closure of their operations, and advised their users to find someone else to carry their traffic. But the Indian regulator, TRAI, has told them – along with Loop Telecom – that they must continue offering services until June 2nd this year.

Meanwhile Bharti Airtel’s going nowhere, and has announced India’s first LTE service, in Kolkata. In 2010, Airtel won BWA license spectrum in Kolkata, Karnataka, Punjab and Maharashtra and is currently working towards rolling out LTE networks in these territories as well.

Naturally the service will be dongle-only, with the dongles supplied by ZTE, which is also rolling out the 4G network and managing it for Airtel’s Kolkata operations.

In other LTE news, Nokia Siemens Networks has found its way to the top of the ABI 2012 LTE base station vendor matrix, above Huawei and Ericsson in second and third, and Alcatel Lucent in fourth. The matrix aims to measure overall leadership in LTE networks, and tracks sales as well as contributions to IP. “Nokia Siemens Networks was number one in our implementation score on the back of their impressive number of LTE/RAN contract wins and they were also number one in our score for innovation thanks to the extension of their Liquid Radio roadmap to now encompass Flexi Zone,” the firm said.

NSN also announced a contract win with StarHub in Singapore, that will see it deploy LTE infrastructure in re-farmed 1800MHz spectrum. The firm said it expects the first phase of the network to go live by the end of this year.

In other spectrum news, the Australian Communications and Media Authority (ACMA), has issued draft guidelines as it prepares to allocate spectrum for its digital dividend auction. The regulator is selling spectrum licences for blocks in the 700 MHz and 2.5 GHz bands in the biggest spectrum sale to be held in the country in a decade.

The 700Mhz spectrum will be sold in nine 10MHz blocks and will cover the entire country, while the 2.5Ghz spectrum will be sold in 14 lots broken into 11 regional blocks.

Stakeholders have until Wednesday, 9 May 2012, to submit their responses to the draft rules. A further discussion paper will be published in the second quarter of this year, which will focus on licence commencement matters, including when the spectrum will become available.

Finally this week, the Informer noticed as he printed something from the website of UK newspaper The Guardian that Kodak is sponsoring the site’s print function. Kodak, in 2012, is a printing firm and not as it was in the Informer’s youth, the gateway by which many people entered the world of photography. Kodak is now in Chapter 11, while Instagram, the digital photo sharing platform that encourages users to add filters to mobile phone images making them look like they were taken on old Kodak point and shoot camera, has been valued at $1bn by the acquisition team at Facebook. That’s the difference between actual faded memories and pretend faded memories.

Take care

The Informer

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