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Nokia backs away from CDMA

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Nokia CEO takes charge

This action is the second major decision to come since Olli-Pekka Kallasvuo took over the CEO role, following hard on the heels of the creation of the Siemens joint venture.

The brace of brave actions arouses confidence in the new CEO, who took the reins amid fears that he would prove too operationally focused and lacking in vision or strategic thinking. Instead, he is building on the extraordinarily far reaching strategy laid down by his predecessor Jorma Olilla, but with his own twist, and is clearly prepared to take a firm line on some areas where there has been doubt about Nokia's way forward.

One decision that needed to be taken was whether to exit the infrastructure market or expand activities, which has been clearly addressed with the Siemens move; another was the future of the troubled CDMA strategy, and again the action has been clear and logical.

Another area where Kallasvuo, like all CEOs of handset majors, must clarify his thinking is that of ultra-low cost handsets for emerging economies. These represent the best opportunity for volume growth and market share, but with an obvious threat to margins.

Nokia has more margin to play with than arch-rival Motorola, but is also more keen to preserve it at all costs, and to date has been less enthusiastic about sub-$50 handsets. It chose not to participate in either of the two Emerging Markets Handset competitions run by the GSM Assocation, both of which saw Motorola selected as provider of the ultra-low cost handset requested by an operator collective.

The Finnish vendor argued that its own drive to serve emerging markets, in conjunction with the downward price pressure brought about by market forces, would be sufficient to meet the cost requirements of developing marketoperators.

'3G for everyone'

Now Nokia is refining its approach to new economies. While Motorola remains the cheerleader for ultra-low cost GSM handsets, and aims to balance the impact on margins with increased sales of its premium models such as RAZR, Nokia is pinning its hopes on '3G for everyone'.

This initiative – which steals the thunder, and almost the name, of the recently announced GSM Association program '3G for all' - focuses on bringing down the cost of 3G for power users in emerging economies, and this offers Nokia the double benefit of increased presence in key growth target countries, such as Brazil, along with a less brutal effect on profits.

To support its new approach, Nokia has released the world's lowest cost W-CDMA phone, the 6151, priced at €240 before taxes and subsidies. This shows the Finnish company jumping the gun ahead of the GSMA development, which has no firm timescale, but will see a group of operators creating a specification and then inviting phonemakers to design a low cost unit to fit it.

Again, there is a political message behind this commercial decision by Nokia, just as with the Sanyo announcement. Nokia believes natural competition will decide pricing and uptake levels, and resents the intervention of the GSMA.

It seeks to demonstrate this by releasing low cost 3G models ahead of any collective effort, claiming costs will be driven down by volume as countries like China introduce 3G and develop an increasingly large middle class with greater income and data requirements (it also uses its argument to make another swipe at Qualcomm, claiming lack of volume and royalty charges combine to make CDMA handsets non-viable for developing world roll-outs).

Copyright © 2006, 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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