Mobile Industry Winners and Losers, 2010

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With this rapid growth in mobile broadband and smartphones, OSPs are reaching a significant number of mobile users. In 2009 we have seen OSP services becoming more and more popular; the 80 million mobile users of Facebook represent a good example of the trend.

The U.S. is leading the way. North Americans are getting their revenge for being left behind in mobile infrastructure. When the smartphone game suddenly becomes a matter of Internet technology, software, and working with a developer community, the North American vendors leverage their intellectual property lead. This is why we see Nokia (NOK) and Sony Ericsson losing their grip on their market to Google (GOOG), Apple, and Research In Motion (RIMM). Operators and European handset vendors will need to address this fundamental market shift and adapt to the game's new rules. North American device and software vendors will dominate the global smartphone segment from 2010 onward.

Operators can upgrade inexpensively

The mobile infrastructure market has had a very competitive decade, something we have witnessed firsthand as sourcing advisor to operators around the world. The new guard at Nokia Siemens Networks (NSN) has changed strategy and is now bidding as aggressively as Huawei and Ericsson (ERIC). The market has thus gone from very competitive to ultracompetitive.

The winners, in the short term at least, are operators. GSM and W-CDMA networks can be upgraded to brand new, high-capacity, multistandard networks, including LTE, at prices that previously amounted to mere down payments for comparable deals.

How long can this go on? Not more than a year, in our opinion. The number of global infrastructure players will be reduced to three during 2010. Ericsson and Huawei are strong candidates for two of the seats, while the third slot will be filled by either Alcatel-Lucent (ALU), NSN, China's ZTE, or a combination. Two of them have already gone through painful mergers this decade. Better luck next time?

What of the global operator community? Currently, the sector is healthy, at least for the top two players in each market. We could argue that this is not remarkable, given the oligopoly created by spectrum-licensing regimes and other high barriers to entry. The challenge for operators is how to achieve growth. Take away their emerging market assets, and it becomes evident that revenue and margin pressures have been increasing throughout this decade.

In the same time frame, there have been numerous product and application launches from operators trying to build revenue streams from services other than voice and messaging. The result, in most cases, is negligible revenue.

The average operator reaches 30% of the mobile users in any single market. Differentiation hasn't worked, so unless they seek scale through cooperation, they are competing on an unequal footing with the online service providers, who have a global market. In 2010, OSPs will start competing for operators' core revenue segments—voice and messaging—and the OSPs will win, emerging as the leading service and application providers for mobile users.

We'll expand on these predictions over the year ahead. Meanwhile, mark our words. A year from now, we'll revisit to see how right or wrong we were.

Bengt Nordström is the co-founder and CEO of Stockholm-based telecommunications consultancy Northstream.

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