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SEPTEMBER 7, 2004
By Andy Reinhardt Nokia's Goal: Cell-Phone Planet Its strategy for creating a ubiquitous wireless market stresses emerging countries -- and rock-bottom handset and service prices The biggest-selling electronic product in the world is mobile phones. Analysts estimate that consumers from Canada to China will snap up more than 600 million handsets this year -- five times the number of TVs or personal computers expected to sell. Yet, for all of the mobile phone's success, only about one-fifth of the people on the planet now have one. Nokia (NOK ), the world's top handset seller and a leading provider of the equipment that powers mobile networks, wants to see those numbers rise. The Helsinki-based company has kicked off a campaign to expand the mobile communications market -- and by extension, its own business -- from 1.4 billion users today to 2 billion by 2007. That kind of growth will put mobile well ahead of fixed-line telephony and buttress Nokia's position as one of Europe's top technology companies. Yet with mobile-phone penetration already above 60% in much of the developed world, most of the growth will have to come from emerging economies. Nokia figures 80% of new mobile customers between now and 2007 will come from Russia, Eastern Europe, China, India, Brazil, Africa, and the Middle East. That translates into the ambitious goal of adding nearly a half-billion new subscribers from such countries in the next three years. "The developing world is a tremendous growth opportunity for both networks and phones," says Jussi Wäre, vice-president of global marketing at Nokia. CUT COSTS IN HALF. To attract those customers -- many of them far less wealthy than North Americans or Western Europeans -- Nokia has to reduce the cost of both mobile phones and service. Subscribers in rich countries pay, on average, $30 per month for mobile service. In poorer countries, operators have to make a profit on monthly revenues as low as $5 to $10 per customer. "It won't be possible for us to reach 2 billion users if we're not able to change the cost structure," Wäre says. The goal: to cut it roughly in half, he says. While Nokia will certainly benefit from dramatic growth in the mobile market, the emerging economies of the countries it's targeting stand to benefit as well. Studies consistently find a strong link between "teledensity" -- the penetration of phone service -- and economic growth. For poor people, especially those in rural areas who are unlikely to get wired anytime soon, mobile service can shorten distances, open up new business opportunities, and even improve health care. Nokia isn't alone in pursuing opportunities in the developing world. Paris-based Alcatel (ALA ) constantly redesigns its mobile equipment to strip out cost and add flexibility -- and as a result, enjoys market share in Africa and Latin America that's considerably higher than in the rest of the world. Ambitious Chinese equipment makers such as Huawei and ZTE also are targeting the developing world with less-expensive network gear. But Nokia has gone further than any company in pulling together a complete package of equipment, software, and services aimed specifically at less-wealthy countries. STYLE COUNTS. Its first order of business: bringing out a selection of lower-cost handsets. Nokia has delivered four simple voice-and-texting models that retail for $100 or less. In places where operators subsidize the cost of phones in exchange for a service contract, these models are cheap enough to be given away for free to new customers. But despite being simple, they're not bland. For instance, Nokia offers removable faceplates to appeal to a variety of tastes, and the latest models feature color screens. "Customers in the developing world don't need all the bells and whistles, but at the same time, they don't want phones that are cheap and nasty," says Carolina Milanese, handsets analyst with market researcher Gartner in Egham, England. Indeed, some status-conscious buyers in China, Russia, and elsewhere opt instead for top-of-the-line models with built-in cameras, polyphonic ring tones, and support for downloadable Java software applets. A bigger challenge, however, is lowering the price of service, according to Matti Alahuhta, chief strategy officer at Nokia. That's why Nokia's Networks division, which represents 20% of the company's $37 billion in annual revenues, has rolled out its "Mobile Entry" program, which delivers cheaper network equipment as well as tools that allow carriers to offer less expensive service.
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