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Evolving the Value Creation of Mobile Providers

The worldwide mobile phone market demonstrated continued growth during the first quarter of 2007. According to IDC's Worldwide Quarterly Mobile Phone Tracker, vendors shipped 256.4 million units, a year-on-year increase of 10 percent for the first quarter of 2007.

However, the shipments were 13.8 percent lower than the record shipments in the previous quarter. That said, the decline was expected owing to the seasonality of the sector. The first quarter of 2007 marks the onset of slower growth in the mobile phone market -- a significant change from the growth exhibited each quarter during all of 2006.

Year on year growth during each of those quarters topped 20 percent, significantly higher than the 10 percent growth posted at the start of 2007. This reflects IDC's expectation that as more subscribers are added to the network, fewer new subscribers are left to be added.

Consequently, mobile phone shipments increasingly move from being new handsets for first-time users to replacement handsets for seasoned users, and overall growth will continue, but at a slower rate. Let's consider the implications.

"The increase in worldwide phone shipments was driven, in part, by new subscribers in emerging markets and, in part, by replacement sales in mature markets," notes Ramon Llamas, research analyst with IDC's Mobile Devices Technology and Trends group. "Since basic voice connectivity and affordability are often the key components of demand in emerging markets, device vendors, appropriately, seek to supply low-cost handsets in these markets, which, in turn, has the unfortunate effect of dragging down device ASPs."

To stem the decline in ASPs, device vendors are taking steps to rationalize platforms, improve supply chain logistics, and relocate production to low-cost regions.

"While rankings did not change among the top five vendors, some interesting trends have begun to unfold," says Ryan Reith, research analyst for IDC. "Samsung was able to benefit from Motorola's misfortunes by recording a positive sequential growth in the first quarter, which is uncommon given the effects of seasonality on this industry. While Motorola announced plans to revamp growth, the sudden shift in momentum demonstrates how competitive this industry is and how innovation on product development is essential."

I believe that the whole mobile communication and entertainment services value chain has learned from the development of high-end smartphones and the need to introduce low-end basic models for emerging markets. But, it's not enough. In future, refining the process of user segmentation, while adapting to the need for greater customization, will become even more apparent.

I can anticipate a scenario where mobile device form factors are routinely designed to fit primary applications, and all devices are inherently capable of the full spectrum of feature possibilities. However, upon activation, each device will be configurable -- at the point of sale -- to adapt to the individual lifestyle and interest requirements of the subscriber.

By providing all customers the ability to personalize the user experience, mobile service providers will enable seasoned users to extract the maximum value from their device and associated service options. They know what they want, so let them choose. The implementation could include a guided configurator software package that enables retail employees and/or subscribers to answer qualifying questions -- regarding application needs and preferences.

Clearly, silicon component and device manufacturers already have the technology to create this adaptable platform, so that's not the gating factor. That said, instead of creating the environment that will accommodate the multitude of configuration permutations, device designers attempt to second-guess what seasoned consumers want. The result is apparent in retail displays: too many similar devices from different manufacturers complicate -- rather than simplify -- the purchase process.

Moreover, the typical feature-centric menu structure merely adds to consumer frustration, as devices and service options multiply with each new product generation. I'll blame mass-market thinking as the root cause of this dilemma -- it's the mistaken marketer belief that there's a set of one-size-fits-all configurations that are suitable to placate average users.

My point: we need to raise the bar of expectations from appeasing customers, to delighting customers. Furthermore, I'm suggesting that understanding the difference between these two states is the key to addressing the business development dynamics of saturated markets with more sophisticated consumer requirements.

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