No short cuts

The pall that 2003 cast over the telecoms industry hasn t yet lifted, but the wireless sector looks poised to bust the gloom this year. We speak to Motorola s newly appointed general manager for Personal Communications Sector in Southeast Asia, Scott Durcshlag, to get a feel of what the new year holds for the company, and we also gauge the sentiments of other handset makers as they go into a year where next-generation services become more prominent.

Motorola

Scott Durchslag, corporate vice-president of Strategy and Business Development, for Motorola s Personal Communications Sector (PCS), recently took the helm at PCS s operations in Southeast Asia as general manager.

What are your goals for the handset unit?
We ve a lot of work to do in the region. We ve fallen behind, especially in Southeast Asia. There are a few things I want to achieve: to earn back the trust in customer relationship with operators, and to be there for them again in the same way that we used to be.

In all turnarounds, we ve got to make tough choices and the focus went into China. But we re coming out of that now, and the opportunity to rebuild it with the rest of Asia is there. We want to be there to make our customers successes in line with our own. If we re doing this well, everything [else] takes care of itself. We d like to see a significant increase or a doubling of our market share in Southeast Asia.

We re going to increase our investment in our branding, in our growth, in our engineering staff, but it ll be a multi-year journey. Bur first, we ve got to earn back the trust of operators. We really want to provide choices in a market that is dominated by Nokia. I m excited about our ability to achieve this when we re focused. For example, we took back market share in the US. Europe is still a challenge, but we showed that we could do it in China as well.

While tracking market share, margins, products are all important, at the end of the day, the thing we want to focus on is the real quality of the relationships with operators.

On those relationships, the old Motorola was about technology; the new Motorola needs to be about a consumer-experience driven company in partnership with operators. For example, our software architecture called JUIX (Java user interface experience) is coming more into our portfolio and is great for customisation.

Also, we re careful that we don t have our brand compete with the operators ; we should make the experience work for the operator. For instance, we could come up with regional looks , optimised designs for Vietnam, Thailand, or Singapore. So we can offer the right hardware architecture and be close to the consumer, but it means we bring a breath of choice for operators.

A lot of it is about listening having the ability to know what creates high ARPU, and how we manage the product lifecycle. You d be surprised at how much you can get out of listening. The key is simplicity and flexibility.

What is your view about 3G in the region you cover?
In 2004, you re looking largely at Singapore and Australia. Globally, 3G will take off in 2005. Technical issues for handsets are power management, the handoff between 2G and 3G networks, talk and standby times, and the intelligent use of backlight. We re not at the point where the power management for 3G phones is better than 2G phones.

In the market, nobody is quite there yet, especially when dealing with handoff issues between 2G and 3G networks. It s also very clear now we can t make enough of these handsets, but 2005 is the hockey curve uptake of 3G.

In the region, EDGE will still be very important, except for Singapore and Australia. Operators do intend to have full-blown EDGE deployments in Southeast Asia, depending on their capital investment.

In a 3G environment, call quality, network congestion, video delivery all present first mover advantage. Operators will have a window of opportunity, but they face unique technical challenges. These things aren t easy to resolve, but it becomes a key execution game.

The lessons we ve learnt from the field is that there re very hard technical problems. Most handsets are still single band, not dual-band. Also, the ability to supply 3G handsets is a challenge.

How well-equipped is Motorola to supply cellular operators with 3G phones in large quantities, and with features that they want?
We can do it now, with the A835. In fact, the output that we re creating with this is going up exponentially. Most of the backlog issues will by resolved by Q1 04. Issues such as component shortage, and product lead times will be resolved by H1 04. It s like turning a very large ship around; once we ve turned it past the critical point, it s full steam ahead.

A lot of Motorola people are dealing with it right now. There is a cost to not getting the handsets out on time it impacts synchronisation between vendors and operators. The lead times on 3G development is longer than 2G, but we still can cut it in half to go to market. We had phones that were developed in dozens of sites around the world.

A reshuffle for the group saw a change in the organisation, a reduction in sites, and this resulted in a customer-facing group that combined the product development and engineering teams. That s necessary to achieve the improvement, but not sufficient. However, the gap for product development is much less now than a year ago. Proof of that is in our product portfolio. Compare 2003 in products to the first half of 2004 it s an increase by an order of magnitude.

What do you consider as challenges for Motorola in 2004, and how do you intend to tackle these?
We are looking at customer partnering and at taking it to the new level. See us become more country-focused. A lot of stuff will be decentralised. More customer-facing people. Fewer back office people. We will be a more market-driven organisation. We ll also explore the real capabilities we have in the region, e.g. regional engineering, where we put a few engineers with operators to get the handset working well with the network (we didn t control that in the past).

For code development and marketing, we work closely with operators with an eye on ARPU. Take it in-house and develop the codes for the operator. We go to market with full marketing partnership, especially for smaller customers.

We want to be out there more visibly this year. It s both a global and regional issue. We want to invest in the brand, to support the higher-tier products that we re bringing to the market. We haven t been fully in the game in Southeast Asia, and we intend to stay and do as well as the rest of our regions.

Should you be concerned that some Asian manufacturers are finally getting their acts together, and are aggressively stealing market and mind share?
Yes. As they say, only the paranoid survive. If you take anything for granted, I think that s extremely arrogant.

However, there are so many new entrants and you d have to question their ability to build a brand, provide frontline customer care, account management, field services, and have appropriate distribution channels and know how to manage inventory lifecycles. Nokia, Samsung, and Motorola do this very well, but the other groups may not.

Can they cherry pick, grow and sustain their customer base? It won t be easy. I see about one or two emerging from that group, but not all will make it.

Technical expertise matters in times of transition, and not many of them can do it. Their investments must be on the scale of the major manufacturers, so you ve got to ask: are theirs are on the same scale, and can they get the same ROIs? Simply throwing money into technology is not a solution. It also takes time to develop.

Siemens
Clemens Jargon, senior vice-president and general manager, global product management, Information & Communication Mobile, Mobile Phones, Siemens, shares his thoughts following a recent announcement of their 3G phone for the European market.

What s your strategy for 2004?
Our main focus is always on the customer. We need to deliver a broad range of technology, and offer end-to-end solutions. That means on one hand, you need a very high performance network, high performance devices, and as well you need to offer solutions to the customers.

Constantly focusing on customers need, that is exactly our strategy and our vision. For example, we need to find out what the real benefit for the customer is, and what do the mass market require? What we re seeing currently is that markets are getting more and more segmented. The needs and requirements from customers in Europe are completely different to the Asian markets.

For Asian market, it is very important that the fun and fashion factor is part of the phone design. That s what we learnt personalisation, customisation, design, and fashion leadership are trends and vision that we have to fulfill in our mobile business. And that s exactly what we re doing.

Also, you will see us delivering phones of different form factors for each market. For example, the very small clamshell phones were developed for the Asian needs. Very soon, you will see newer clamshells coming in every quarter.

To fulfill Asian demand quickly, we built a development centre in Beijing, and we will increase the number of developers there. We can t do everything in US or Europe and bring these to Asia, because the customers needs are very different. Currently there are over 150 developers working at the Beijing centre, and we will increase that number.

Design is another important aspect of our selling point, and we believe design will be a key differentiator for us.

Sony Ericsson
Kazuo Nakai, corporate vice-president, head of Asia-Pacific region, Sony Ericsson, is realistic about the group s short-term ambitions, but long-term goals will be about market dominance.

How is the revamped unit doing?
Our longer term objective is to be number one in this industry. In the next 12 18 months, there are still other dominant players. [But] we re on the right track, and increasing volume and market share quite substantially, better than 2002.

The region is diversified, and we want to cater for every segment, from voice to high-end smart phone. We want to introduce value-added product in each market. For example, the T610 camera phone is doing well. This is a core product that we want to expand in the future. In the short term, I m looking at being a leader in imaging and connectivity.

I hope to be in the top three in two years and to do better worldwide, because we have a strong foundation in products such as clam shell phones, and in strong emerging markets such as India.

There is a strong brand image coming out of Sony and we d want to capitalise on that. We have a stronger channel network and dedicated employees.

I see [greater] collaboration with Sony Music/Pictures in the next 12 months. The design of new phones has a stronger Sony influence. We ll also be adopting games made popular by Sony. Lots more games will be introduced, as well as accessories like the game pad.

As for 3G, we re at the test stage with SingTel and at least a dozen other operators globally. We ve got no plans to introduce CDMA phones into the rest of Asia, except in Japan, for the time being.

Nokia
Soren Petersen, senior vice-president and general manager, CDMA Business unit, Nokia Mobile Phones, notes the challenges of breaking into the CDMA handset market.

How much of a change is it to play in the CDMA field?
In 2000, we put a large investment into CDMA to build a global presence. We hired a lot of people in the past three years to tap the demand of CDMA market. We used our own chipset and built our own handset.

It takes one to one-and-a-half years to make a handset, and in 2003, they ve all begun to come online. We launched 7 8 terminals, depending on different bands. We more than doubled market share in Q4 03, at a run rate of very close to 20%. The full rate would be about the mid-teens.

Our long term strategic target is to capture 25% of the global CDMA market, and by the end of 2005, we hope to achieve the number one position for handsets. No one is a real global player. In my view, the CDMA handset distribution model is not sustainable.

The No.1 and 2 players will make money, but it will be difficult for the rest. However, the trend is very good right now for Nokia CDMA phones. The challenge for Nokia is that the CDMA industry is very poorly specified.

Roaming is a problem, and excessive testing is done [for new entrants] which makes the system more expensive even if you work with a Qualcomm chipset.

You ll see 10 20 CDMA models in total for 2004, with 5 7 new models. There s good pace in launching of products. By the end of 2004, we ll see a full broad competitive portfolio from Nokia. Our market share is growing and we re selling higher-end phones now.

Samsung
Chung Ihnchul, vice-president, sales & marketing group Asia/Middle East, Mobile Communications Division, Samsung, shares its plan to grow market share.

How do you plan to set Samsung s mobile phones apart?
The average price of a Samsung phone is 50% higher than others, for two reasons. First, we are focussing on the medium- to high-end market, not the mass market, and secondly, while we may offer similar phone features as the rest, we put a premium on design.

The niche premium market was created by Samsung, with design superiority in mind. Emotional benefits are valuable, where sometimes, design is more important than the features, so we intend to maintain the fashion creator image.

That s the difference between Samsung and, say, Nokia.
Nokia uses one platform and makes slight variations to its software modules and design, such as in the 7 series. At Samsung, we innovate in design and killer apps. Even operators find lower churn rate and high output, and the phones keep their value.

ZTE
Xie Daxiong, vice-president and general manager, CDMA Division, ZTE, believes customising applications will propel its handset business.

What can we expect from your mobile phone unit?
For high-end CDMA phones, you ll see more features incorporated into these handsets, such as colour screens, cameras, bigger memory chips. We ll keep the low-end CDMA simple, with a basic SMS functionality.

We attach great importance to applications and services, and for different customer groups, we divide handsets and applications according to their needs. For example, we can develop digital trunking system (push to talk) on CDMA handsets. This is our advantage we have the infrastructure and the experience with network systems. In the next 2 3 years, operators will attach more importance to industry applications.

Our strategy is the same for CDMA and GSM. In China, our CDMA handsets account for about 10 15% of the market, but we re not like Samsung as we re also in the low-end segment. For 2004, you will see a commercial launch our CDMA IP-based 3G system. We will focus on applications based on CDMA. For GSM, we re ready to commercialise our UMTS system and provide similar service as we do for CDMA.