THE FINAL quarter of the year, which includes the lucrativeChristmas trading period, has, historically, provided the mobilephone industry with a boost.
While the industry should still see that seasonal uplift in thefinal three months of this year, sales of mobile phones for thefourth quarter and 2001 as a whole are unlikely to repeat the bumperyear that was 2000. For 2001, analysts reckon worldwide mobile phonesales will, at best, be more or less flat compared with 2000. Most,however, predict global handset sales could slump as much as 10 percent on last year's figure. Specifically in the UK, high streetmobile phone retailers reckon sales in the fourth quarter of thisyear could be 30-40 per cent beneath the levels seen last year. BenWood, European Telecoms Research director at Gartner, said: "There'sno way that the performance of last year [2000] can be repeated. It'sjust unachievable. It was an exceptional year."
Estimates for the number of handsets sold worldwide in 2001 nowrange from 370 million to 400 million units, with some 90 million to120 million handsets expected to be sold in the fourth quarter. MrWood added: "I have no doubt that Christmas is going to show itsusual seasonality but whether it will meet the expectations that havebeen set is questionable."
Last year, Gartner estimates some 413 million handsets were soldaround the world, a 46 per cent increase from the 283.5 millionphones it estimates were sold in the year 2000. In the final quarterof last year, it reckons around 125 million handsets were shipped.While the industry has now accepted that sales of mobile phones thisyear will be lucky to even come close to last year's number, it isworth pointing out that the latest estimates are a shadow of thepredictions that were around at the start of the year.
Eleven months ago, for example, Nokia believed 500 to 550 millionhandsets would be sold in 2001. After having repeatedly scaled backits forecasts, the Finnish mobile phone giant now believes the figurewill be close to 390 million units.
The reasons for this year's slowdown range from the generaleconomic problems to specific delays in the next generation ofservices such as GPRS, or 2.5G, which offers always-on internetaccess. Another reason is that the number of people who own a mobilephone in Western Europe, in particular, has risen dramatically in thelast couple of years. Gartner Dataquest estimates mobile phonepenetration in the UK in the third quarter of this year was as highas 77 per cent.
In addition, in the UK, the mobile phone operators stopped heavilysubsidising the pay-as-you-go or pre-paid mobile phone deals toconcentrate on increasing revenues from the more predictable andlucrative contract customers. Furthermore, mobile phone usersthemselves have been slower to replace handsets partly because offears of a slowing in the economy but also because they are awaitingbetter functionality.
For the UK market, in particular, these factors mean thereplacement handset market has suddenly become key with retailers andthe handset makers keen to offer more fashionable devices with betterfunctionality. On Monday, Nokia launched three new handsets includingits `7650' model, which doubles up as a digital camera so users cantake pictures and send them to other mobiles. Its recently launched`5510' model doubles up as a radio and digital music player.
The UK's mobile operators, meanwhile, are placing more emphasis onincreasing their average revenues per user [ARPU] by selling extraservices to existing customers.
John Allwood, an executive vice president at mobile phone operatorOrange, said: "What's more important to us is not really the issue ofwhich handset our customers choose but more what services we canprovide through the handset."
Consequently, in the run-up to Christmas, competition on the UKhigh street is likely to be fierce for those customers wanting toreplace existing handsets.
Nick Wood, managing director of The Link chain of mobile phoneshops, said he reckons the newer, smaller mobile phones includingmodels such as the Samsung A300 and the Motorola V50, will provepopular this Christmas as will fashion accessories and extra servicessuch as `football alert'.
"Overall, I think [UK mobile phone] connections will be down yearon year and they could be down by between 30 and 40 per cent [in Q4],if not more. Last year was buoyed by people buying handsets for thefirst time," he said, noting: "The market is still a large market.It's not all doom and gloom." While he thought fewer handsets wouldbe sold, he believed people would be prepared to spend more, saying:"Even on pre- pay, we're starting to see good levels of volume forphones of pounds 129 plus."
Others reckon text messaging will continue to grow and predictthat gaming on mobile phones will become fashionable as will mobilephones with colour screens. As for 2002, few analysts are willing tostick their necks out and forecast what might happen in the marketpurely because so many got it so wrong this year. Most agree,however, that the days of dramatic annual growth have evaporated andthat the industry is now stabilising and moving toward moreconservative growth rates. New growth will depend on replacementhandsets as well as new technology and services. GPRS, once billed asa growth driver for the market this year, will not really make itspresence felt until next year while 3G, its successor, is unlikely tomake an impact until 2003/2004.
The Link managing director said: "We are having to work a lotharder than ever to get our money. Last year was a fantastic year andone that probably won't be repeated for three, four or five yearsuntil you get to 3G. But that doesn't mean there isn't a good, solidmobile phones business in the meantime."
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