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Mobile Phone Manufacturers are Frustrated

Reacting to one of those "either lead, follow, or get out of my way" frustrating moments of inaction, apparently mobile phone manufacturers are now ready to take a more proactive role in promoting value-added product capabilities, as the 'marketing challenged' service providers fail to stimulate market growth across key performance indicators.

Nokia's acquisition of Loudeye put it squarely at odds with its largest customers, but it is still the right move. According to Pyramid Research analyst Guy Zibi, he argues that Nokia can't grow if its model is inherently tied to carrier subsidies. The move also puts Nokia in a position to launch a cell/phone music player before Apple does.

"Nokia has to free itself from the shackles of cellular-only and become a strong electronics/multimedia manufacturer which just happens to have a strong foundation in mobile handsets," comments Zibi.

The company has made other moves in that direction, most notably a revamping of its U.S. distribution network to emphasize its own stores, and more investment in building brand equity in the U.S. market. "Mobile carriers -- not Nokia -- are swimming against the tide," states Zibi. "Their main, albeit vulnerable, leverage is handset subsidization."

Pyramid found that mobile carriers are unlikely to subsidize or even stock handsets that would cut them off the value chain. In markets such as the U.S. where handset manufacturers are extremely dependent on network operator brands, the leverage could be effective in the short term.

"Ultimately, mobile carriers would be denying their subscribers the opportunity to fully converge their handsets and portable music players," continues Zibi. "This could potentially create opportunities for those mobile carriers that would effectively encourage such convergence."

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