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Handset frameworks strengthen cellcos

But they may outlive them, too

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We have seen many times how major mobile operators are seeking to reduce their costs and increase their differentiation by taking the driving seat in terms of handset design and procurement, working with low cost, unbranded manufacturers and sidelining the handset majors, in order to assert their own control and enhance their ability to customize and constantly adapt their handsets to attract customers.

The more of this differentiation that is done in software, preferably using low cost, reusable components, the better the operators’ objectives are fulfilled in terms of price efficiency and speed to market.

This has made two trends critical in the cellphone industry – the increasing use of pre-integrated, ready-to-go platforms created by the chipmakers, which require only minimal tweaking by the handset maker; and the rise of software platforms that provide standard components and programming interfaces to reduce programming complexity and allow handsets to be altered almost on the fly.

Some of these frameworks represent an attempt to draw the industry within a proprietary environment, such as Qualcomm Brew or the PC-style Microsoft .Net CF and Symbian Series 60. Others come from smaller, independent players seeking to punch above their weight by providing an open platform that meets the operators’ requirements and draws a broad measure of support from large players that wish to steer clear of the influence of Nokia or Microsoft. Two examples are the heavily cellco-backed Java-based SavaJe, and the ELIPS framework from French company Open-Plug.

Open-Plug ELIPS

At next month’s 3GSM conference in France, Open-Plug will unveil its Configurable Phone Initiative, with support from its key operator partner – France Telecom R&D/Orange – as well as Philips and others.

The initiative is designed to create a body of support for the ELIPS framework and will offer its members a full software development kit to developing and integrating applications on ELIPS-enabled phones, as well as access to the ELIPS component database of software components. As well as seeking to strengthen Open-Plug’s position in a competitive market, the initiative illustrates how the handset maker is being squeezed out of the handset design equation.

The role of frameworks

The software frameworks sit between the chipmaker and the software developer, providing both with the ability to package and reuse a great deal of work. It also allows for direct communication between the operator specifying the phone, and the developer, leaving the handset maker – often a low cost ODM (original design manufacturer), making unbranded phones and with little R&D resource of its own – merely doing the final assembly.

Although companies like Texas Instruments argue that the emerging smartphone platforms are too complex, at this stage, to be heavily pre-packaged, other types of handset can be assembled by mixing and matching preconfigured parts and software components, with the individuality being achieved quickly and cheaply through, basically, rearranging the order of those elements and creating branding through the interface and software.

Once this stage is achieved, the frameworks exist to, as Open-Plug’s head of sales and marketing Andreas Malzach puts it, “open a direct channel between the operator and the software developer” for clearer communication of requirements – rather than the usual process, whereby the operator passes a specification to the handset maker, which does not have the skill to implement it and so passes it on to the software house, with all the Chinese whispers that can ensue.

All the requirements for these handsets are driven by the operators, not the manufacturers themselves. This brings a raft of benefits to the cellcos – shorter time to market, greater control over their branding and features, lower bills to the handset makers since they are purchasing from ODMs, and the ability to tailor their phones to their particular customer base rather than offering a generic device.

As TI points out, this Lego-style approach is likely to be inadequate for the most cutting edge phones, which are complex to assemble and program, with their heavy business and multimedia functionality, and which still require significant R&D investment, since they are in their very early stages of evolution. So it is no surprise that Nokia and others are focusing more heavily on these smartphones, where they can still achieve differentiation and margin, and use their superior design resources to create a device whose desirability outweighs the cellcos’ wish to reduce their dependence on the phonemakers.

However, this entails the handset makers looking to a market that has good margins, but which is very small compared to the overall cellphone sector, and they are being forced both to reduce R&D costs (as Nokia did last week), and to form more collaborative relationships with the mobile carriers, rather than being able to dictate the agenda themselves.

The other alternative is to dismiss the basic cellphone market as one with crashing profits and get out altogether, or form joint ventures with low cost ODMs from Asia, as we expect an increasing number of tier one suppliers to do (see separate item). They are then left to focus on cutting edge designs that can be sold direct to business or media users under the manufacturer’s own brand, and on reasserting control via influence over software frameworks and standards, as Nokia is doing with Series 60.

The IP worm turns for cellcos

The apparent victory of the large cellcos in taking the driving seat in terms of handset design, pricing and process will be short lived however – because their market will change so dramatically.

The whole cellco-phonemaker political war of the past few years has centered on the operators’ need to attract and retain customers by establishing a strong brand for their networks, one that can outweigh the branding of the phone.

Through heavy marketing, clever interfaces and content partnerships, and new services – and distinctive handset designs to reflect all that – the larger cellcos have had a large degree of success at creating their own, highly branded environment, with Vodafone Live! the premier example.

The success of Live! may indicate a world where cellcos are more than bit carriers but instead providers of a whole consumer service with all the margins and customer ownership that brings. But that world is about to collapse in the face of IP-based services. Not only will these bring new mobile players into the field, some with their own powerful brands, but it will break down the walls of the operators’ walled gardens, making consumers increasingly impatient of any attempts to restrict their free access to content across the web.

“The operators are not at the end of their pain,” said Malzach. “With IP bandwidth operators cannot protect their market. The fixed line operators and the virtual operators like Virgin will offer IP-based services.” These companies will be the great beneficiaries of all the trends that have been sparked off by the major cellcos, towards faster time to market, lower costs and greater customization of handsets.

A virtual operator like Virgin has no investment in 3G infrastructure to protect, and a brand that is not dependent on mobile services. Therefore it will take advantage of low cost, attractive handsets and its existing brand to offer the most attractive services it can over the most efficient and low cost network it can lease. That will mean IP, and the rise of non-traditional providers, including content owners, seeking to run end-to-end services.

All this will cause yet more nightmares for the cellcos weighed down by the huge shackles of 3G, but will make the open software frameworks, and the ability to create and customize many new user experiences through software, even more important to differentiation than they are now.

Copyright © 2004, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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