Telenor's - Ericsson

the future of devices strategy
The value−driving role of
devices – and what to expect
The driving forces in the wireless device industry have changed dramatically. In the new era now taking shape, services
will be available anywhere, and everything and anything will be connected – in ever simpler ways. Telecom players
should watch out for what this simplification could do to their value chains.
54 EBR #3 2010
▶ THE EARLY DAYS of the wireless device industry
were dominated by firms with a
strong telecom heritage such as Ericsson,
Motorola, Nokia and Siemens. When 2g networks
were being rolled out in the 1990s, the
focus of development was on securing voice
and sms interoperability. Handsets were typically
marketed on technical features such
as the ability to cover more than one frequency
band.
The vertically integrated key players controlled
not only the design, production and
marketing of mobile phones, but also the
mobile communications infrastructure.
They invested large sums in research and development
to improve the performance and
reduce the size of mobile phones, evolving
their products way beyond suitcase-sized devices
with limited appeal for a very narrow
base of business and professional users.
As was the case with the first pcs, software,
hardware and operating systems were
all produced in-house, and assembled in proprietary
architectures. Beyond the use of
core applications, there was no interaction
or value creation between the consumer and
the device manufacturer or operator after
the point of sale.
Mobile-phone sales soared in the late
1990s. By 2000 the mobile phone had become
a mass-market product in Western
countries and vendors’ focus shifted from
radio performance and size to product design
and entertainment. A never-ending
stream of new features and standards were
now added, and handset vendors found
themselves caught in a hardware-driven hypercompetitive
race.
The value chain started to unbundle with
the entry of new players that didn’t have all
technology in-house. Adding to the overall
complexity of the picture was the growing
need for multimedia software features. The
mobile phone had developed from a voice
and SMS engineering piece to a multi-application
“Swiss Army knife” designed to entertain
its user with mp3, games, wap, fm
radio, downloadable ringtones, digital cameras
and the like.
The value creation was still mainly
pre-loaded onto the device, which added to
consumers’ negativity towards 3g, following
its introduction in 2001, as they didn’t
really know what to do with it. However,
some operators did attempt to improve
post point-of-sale value creation, ntt
docomo’s iMode service being the most
successful example.
THE RED THREAD
High-speed packet data and 3g had started
to gain traction in the wireless domain, and
fixed internet usage had shifted from static
data consumption to intensive interaction
with others (Web 2.0). The focus for phones
also began to move from entertainment
towards connecting the user to the internet
and thus extending the possibilities for
value creation.
Mobile broadband for pcs and smartphones
are two segments that have since
experienced rapid growth, with the pc
industry influencing the wireless device industry
in several ways. The focus has shifted
from a list of features to operating
systems, applications and user experience.
Operating systems for smartphones have
become the new battleground. The old view
of the smartphone as a productivity enhancement
tool has been replaced by a lifestyle
focus and the incorporation of popular
Web 2.0 applications. The importance of
ecosystems has also risen as products have
become increasingly linked to value contributors
outside the single company domain.
The value chain has continued to be transformed,
with more clearly defined roles for
handset vendors and chipset suppliers, but
integration has varied depending on the
device segment targeted, with less flexibility
in the lower segments and a more modular
approach (as with pcs) in the high-end
segments. The handset vendors have
integrated vertically upwards in the value
chain, and phones now come with services
(for example, Nokia and Ovi, Apple and
iTunes, Android and Marketplace, rim
and BlackBerry App World, Sony Ericsson
and PlayNow+, Amazon Kindle and
Amazon Services), bypassing and, in some
cases, competing with the operators’
service offerings.