Technology | Media | Telecommunications

Tuesday, December 30, 2008

Main Source of Telecom Growth Hits a Wall

The mobile phone market will experience a significant downturn in shipments in 2009. According to IDC, total mobile phone volumes will be 1.9 percent lower in 2009 than 2008 levels, the first downturn in annual shipment volumes since 2001 -- when shipments declined 2.3 percent.

Over the past several years, the mobile phone market has enjoyed double-digit annual growth due to an increased emphasis on emerging markets. However, emerging market growth has been steadily slowing as these markets mature. IDC now expects worldwide growth to be just 7.1 percent in 2008 before slipping into negative growth in 2009.

In recent months, a number of major industry players -- including component suppliers, handset makers, and mobile service providers -- have announced their concerns about handset volumes in 2009. Most have indicated that they expect a year-over-year decrease due to the flagging global economy.

"Nokia's announcement was the first sign of troubles to come," said Ryan Reith, senior analyst with IDC's Mobile Phone Tracker.

"However, the real concerns set in with announcements from the chipset vendors who supply the industry. Qualcomm, Texas Instruments, and MediaTek are among some of the suppliers announcing reductions in manufacturing for the upcoming year. There is a lot of uncertainty about how the markets will fare and inventory levels will be more of a focus point then ever before."

The economic crunch has also affected consumer behavior, particularly consumer plans to purchase new electronic devices. With less disposable income available and other expenses competing for attention, consumers may choose to hold on to their current devices rather than replace or upgrade them at the next possible opportunity, usually when a service contract expires.

As long as the device functions properly, consumers may put off the replacement decision until more funds are available. This shift in demand will reduce the need for devices from handset vendors, much in the same way that the shift in supply will reduce the availability of devices from handset vendors.

IDC does not expect the downturn in mobile phone shipments to stretch past 2009. By 2010, they predict that the worldwide mobile phone market will show signs of improvement as economic recovery plans will have taken effect.

With more disposable income in hand, consumers should feel more comfortable buying a new handset, especially if the opportunity to purchase was delayed. Beyond that, further growth is expected, but at a slower pace compared to the strong double-digit growth experienced in the years prior to the decline.

Additionally, not all segments of the mobile phone market are expected to decline. IDC expects converged mobile devices -- commonly referred to as smartphones -- to grow 8.9 percent worldwide in 2009.

This contrasts sharply against the negative growth expected for the entire mobile phone market. Beyond 2009, growth will return to double-digit territory, faster than the overall mobile phone market.

Converged mobile devices remain a much sought-after option for many consumers. Users have come to realize what these devices can do beyond voice telephony, especially when it comes to running applications.

Take a look at how gaming, mapping and location, entertainment, news, and social networking applications for converged mobile devices have taken off, allowing users to do much more than just make phone calls. In response, handset vendors have been building their product and applications portfolios to catch this wave of opportunity.

Lower prices are also making converged mobile devices an attractive choice for consumers. It was not long ago that these devices cost well above the $200 price point with a two year contract. As prices have come down in recent quarters, these devices have become competitive alternatives to traditional mobile phones.

As the Great Recession of 2009 begins to take shape, questions remain about whether or not the main source of telecom industry growth can recover in time to avoid a dramatic contraction of service providers in all the leading saturated markets.