21 November 2003 — PMN — The World Handset Forum represents something of a departure for IBC, the conference company best known for the huge industry gathering it hosts each year at the 3GSM Congress in Cannes. Instead of focusing on a large exhibition or a continuous stream of presentations, the Forum is designed to provide an interactive environment in which the audience can contribute on the same level as the speakers.
It is a format which has obviously had considerable appeal – attendance has exceeded expectations and the conference opened to a packed house at the Barcelona Palais of Congresses this morning. The first session was dedicated to a series of keynotes designed to provide a context for the debate and discussion which would dominate the rest of the day.
Intel’s Universal Communicator
Shane Wall, Director and General Manager of Intel’s Emerging Platforms Lab, delivered a speech on the experimental development of the Intel Universal Communicator project. This is not a formal product, but a vision of how Intel sees the wireless market evolving and the sort of device it believes its technology will be powering in the near future.
A key point of Wall’s presentation was that there will continue to be a diverse range of network environments through which mobile devices need to communicate – be they GPRS, CDMA, 802.11b or Bluetooth. Traditionally the industry has addressed this issue by having separate devices for separate networks, but Intel believes these will soon converge into one device capable of communicating over a wide range of networks. 802.11, a technology which Intel has evangelised more strongly than any other, is obviously a key part of this vision.
The challenge for the industry is to develop devices which address this growing technical complexity but maintain the simplicity of user experience. This means handsets operating on a powerful processor platform, with flexible radios capable of supporting several standards, seamless hand-off between different networks and interoperability with other digital devices – e.g. PCs and consumer electronics.
Wall believes this requires a new class of device, a broad range of new products for different user segments, but all capable of much greater connectivity than what we have today. His lab has developed a prototype, which currently supports GPRS and 802.11b in a single handset, and is being upgraded with the addition of GPS location technology and additional wireless standards in Spring 2004.
This new class of handset will have integrated antennas capable of transmitting over different networks simultaneously, software to handle network hand-off without user intervention and a set of rich media codecs.
Intel has invested heavily in researching the needs of the market and emerging trends. In particular, Wall’s Lab uses ethnography techniques, sending its researchers out into the community to get a real understanding of how people are using wireless, how the expect it to evolve in the future and how Intel can address those needs.
Based on the timescale Wall provided, I would expect to see Intel’s new prototype universal communicator heavily promoted at 3GSM 2004 in February. Obviously it is very much in Intel’s interest to see a proliferation of network standards and increased complexity in mobile device design. It has positioned itself very much at the high end of the mobile device market and needs to see demand for complex and rich features to make its processors and device platforms worthwhile for handset manufacturers.
Symbian’s future role
Marit Doving, who joined Symbian as EVP of Marketing earlier this year, presented immediately after Shane Wall. She clarified Symbian’s position in the market, something which has been the subject of debate over the last few months as Nokia has continued to exert its influence over the Symbian platform. According to Ms. Doving, Symbian is very clearly focused on the needs of its customers – the handset manufacturers – but also sees a role for itself in understanding the needs of network operators, enterprise customers and consumers.
On the development side, Symbian believes its job is to enable developer networks such as Nokia’s Series 60 community, Vodafone Live and Orange World to function effectively. This means providing a core level of compatibility, but leaving the day-to-day work of supporting individual developers to its operator and manufacturer partners. A key phrase she used was ‘flexibility without fragmentation’, i.e. enabling manufacturers to create a diverse range of products, but still maintaining a simple platform for developers.
She also addressed a question which has been asked a great deal in recent months – why should manufacturers continue to choose Symbian when there are a growing number of open OS available from other vendors, particularly those in the Java space (Aplix, Savaje, Esmertec etc…)? Doving’s argument was that Symbian provides a level of features unrivalled by any other OS vendor but can still maintain a low license cost because of the huge volumes it intends to address. She told delegates that it was no simple task to develop an OS with 7 million lines of code and 40,000 files – this complexity would prevent smaller players from creating something that can compete effectively with Symbian.
An interesting point was made by a Sony Ericsson representative after her speech. He told Doving that developing a phone for the Symbian OS required a whole new level of testing and considerably more resources than for a more simple OS. Sony Ericsson has been forced to move to a PC-style model in which products are delivered on an incremental basis to address this problem.
This is something Symbian is aware of – indeed, Symbian CEO David Levin alluded to it as one of the major challenges facing the company during a keynote speech earlier this year. Most Symbian OS phones to-date have been somewhat experimental and aimed at specific niches. As manufacturers start targeting larger volumes, they’ll need to find a solution which enables them to develop Symbian OS phones at lower cost and in shorter timeframes.
Ericsson’s platform approach to reducing costs
This was a point raised in the presenation by Sandeep Chennakeshu, President of Ericsson Mobile Platforms and former CTO of Ericsson Mobile Phones and Sony Ericsson. Ericsson Mobile Platforms is focused on providing the building blocks for mobile handsets, helping manufacturers to decrease the level of internal resources they need to create new handsets.
He told delegates that the answer is to have a base platform which enables you to re-use applications and code across a wide range of devices. In an environment where hardware components are becoming increasingly standardised and the differentiation is being achieved through software, this is the only way to create value without massively increasing the burden of testing and development.
In terms of the actual platform design, Ericsson is looking at integrating two processors into a single platform – one for RF and one optimised for multimedia and applications. This is already the case in some smartphones, but Ericsson wants to see a much greater level of integration and a reduction in the number of parts in each handset. He pointed to the work on UMTS chipsets, which have already dropped to around the same level of power consumption and the same component count as GPRS, as evidence that this could be achieved.
China as the world centre of handset production
Another interesting perspective on this question of hardware integration and how it can help to reduce costs for handset manufacturers was provided by RTX Telecom. Jorgen Elbaek, CEO, explained how RTX works with many hardware manufacturers and network operators to create customised handsets and other products based on its core designs. In particular, it has been very active in China with the forthcoming TD-SCDMA 3G standard.
RTX is the only company in the world with a working prototype of a voice and data capable TD-SCDMA handset. Elbaek claims that RTX TD-SCDMA products will have 10 percent of the bill of materials (BOM) cost of a GSM handset.
He also spoke at some length about the trend towards China as a centre for handset development. According to RTX, some 40 percent of the world’s handsets were manufactured in China during 2003 and this could rise to 80 percent by 2005. However, he also sees signs that China is beginning to produce companies and engineers capable of developing their own mobile phone platforms, meaning that China will able to both design and manufacture products locally.
This could provide a major challenge for established manufacturers such as Ericsson and Motorola which thought they could address the ‘threat’ of Chinese competition by setting up technology licensing operations in addition to their own handset businesses.
These keynotes set the theme for some intense discussion during the first panel debate, which I had the pleasure of chairing. Before the panel was opened, Dave McQueen of ARC Group provided an overview of the way in which the handset value chain is evolving. His presentation illustrated an inceasingly complex value web, in which traditional relationships are being eroded and players are having to form entirely new partnerships to ensure their success.
Increasing complexity in the value chain
In particular, this is led by the growing trend towards operator customisation and operator branding of devices. McQueen cited Japan, a market which often provides a precursor to Western trends, was an example of an environment where operators were forming much more extensive partnerships throughout the value web – not just with device manufacturers, but OS providers, application developers and content companies.
Sitting on the panel were Robert Erlacher, Head of Terminals and Devices at Austrian network operator ONE, David Solana, Business Manager of Microsoft’s Mobile Devices Division, Orly Nesher, Senior Marketing Manager at the ODM Alphacell and Amir Einav, Head of the Handsets Business at software and services provider Comverse.
The audience participation was excellent, reflecting the enthusiasm for this new format. Several themes emerged from the debate, one of which was the question of return on investment for operators which sell customised and branded handsets. This is something virtually every operator in the world is looking at following the success of projects such as Vodafone Live and the Sharp GX10, Orange and the SPV, and the many examples from Japan.
Do operator-branded devices really produce ROI?
However, many smaller operators and even some of the larger ones, are still hesitant to commit to working with ODMs if it means they must foot the bill for branding, customer support, warranties and additional development costs. Amir Einav of Comverse and Orly Nesher of Alphacell, were obviously of the opinion that customised handsets certainly could provide a return on investment for operators, helping to generate significantly higher ARPU.
Microsoft’s Solana pointed to the Orange SPV, which has resulted in a 300 percent increased in data ARPU for the operator, as an example of how this ODM strategy, coupled with Microsoft’s platform, can make sense for the operator.
Moving to consumer electronics convergence
Another trend was the convergence with consumer electronics and which manufacturers were best positioned to address this. Clearly those with existing consumer electronics businesses of their own, i.e. Sony Ericsson, Samsung, Panasonic etc… are out in front here. This is another area where ODMs may find it hard to compete initially.
There seems to be a growing realisation in the industry that multimedia convergence is finally here. Wider macro trends such as digital music, increased access to home-based digital media tools and the emergence of interactive television mean that this has become a key issue for the mobile industry. This is a topic which needs a great deal more debate if the industry is to fully understand where the value is.
Unfortunately even the lengthy time slot we were provided for the panel debate was not enough to cover all of the questions provoked, but it was encouraging to see much of the discussion spilling over into the networking session afterwards. This is an event which is clearly addressing pent-up demand for an audience-focused conference and something we very much support at PMN.
The keynote address delivered by Bob Gilkes, CEO of Savaje, created something of a stir at the World Handset Forum this morning. Gilkes has been engaged in developing a Java-based OS for mobile devices for four years (Savaje was spun out of Lucent) and is focused on meeting the needs of network operators. Specifically, this means enabling operators to create their own branded user experience across a range of devices using a single base OS.
A new OS for the industry?
The Savaje solution is an OS architected from the ground up for mobile handsets and running Java efficiently. According to Gilkes, it delivers huge performance improvements versus existing mobile Java implementations where the Java applications are run in a Java virtual machine environment. The applications which are provided with the OS, such as browsing and e-mail, are written in pure Java and run in a J2SE (Java 2 Standard Edition) environment.
The strategic implications of this are significant. Gilkes claims that Savaje has been working with several of the world’s leading network operators for some time now and will launch its first products next year. These will be handsets manufactured to the network operators’ specification, running the Savaje OS and featuring a user interface and application set custom developed for each individual operator. Furthermore, the device will be supplied by a so-called Tier One manufacturer.
If and when this happens, it will be the most significant example of operator involvement in handset design the industry has yet seen. If, as Gilkes predicts, the support of leading operators enables Savaje to rapidly build volumes in the market, there could be major ramifications throughout the value chain.
My key concern with the Savaje proposition is the prospects for software and service development. If the Savaje OS allows each operator to create a totally customised user interface, developers will face a huge increase in the complexity of delivering their products. Although the base OS will remain constant, there will be a significant additional workload in creating versions of the application optimised for each operator interface.
The danger is that network operators, in their rush to create branded user experiences, will actually end up stifling innovation by increasing costs for developers. Without seamless interoperability, new applications and services will take much longer to get to market. Traditional content providers will also be less inclined to expand into the mobile environment without a standard interface specification.
This is what Nokia is trying to achieve with Series 60 – something that is obviously in its own interests – but also something that could benefit the whole industry. I hope that Savaje will provide more information on how it intends to address this issue of user interface fragmentation in the near future.
Achieving segmentation and differentiation
Yesterday Symbian talked about ‘flexibility without fragmentation’ and today’s debate has centred on this question of how to achieve broad differentiation without fragmenting the technology, harming interoperability efforts and adding cost to the manufacturing process. This is one of the biggest challenges the industry faces in the medium- to long-term.
Jens-Thomas Pietralla of Siemens, who sat on the panel entitled ‘New challenges in selling complex handsets’, spoke to me about these challenges later in the day. He drew parallels with the customisation options offered in the car industry, where manufacturers such as Ford use the same basic platforms for models as diverse as their low-end saloon Mondeo and prestige sports cars such as the Jaguar X-Type.
Siemens’ own 55 series, which comes in two versions – one with a slider mechanism and one without – are essentially the same device, but they sell at very different price points. The model with the slider has managed to achieve prestige differentiation using the same technology platform. Pietralla expects Siemens to build out its portfolio using this technique, with several base designs and a multitude of different design options. This may also include the introduction of separate brands for different user segments.
This is something Siemens has already done with Xelibri, its range of fashion phones. Xelibri is an experimental business for Siemens, but Pietralla was clear that Siemens is actively considering the question of how it can create aspirational brand values for its handsets in a number of different segments.
Pietralla was joined on the panel debate by Ran Mokady of Pogo Mobile Solutions, which focused on creating user-centred mobile software, and Cedric Nicolas of French i-Mode operator Bouygues. The session was introduced and chaired by Rikard Steiber of Digiscope and provoked some of the liveliest exchanges of the World Handset Forum.
Understanding and selling to the consumer
Steiber’s presentation discussed the need to really understand customer beaviour before you can start selling advanced devices in significant quantities. Much of the debate centred around the question of how the value-added services which are enabled by these devices can be effectively presented to users. Digiscope has conducted research which found that most European customers spend an average of 12 minutes buying a new mobile handset, of which 8 minutes is dedicated to the hardware and 4 minutes in dedicated to the tariff – no time is currently allotted to explaining the range of services available on a particular handset.
Steiber argued that if manufacturers can better understand the segments they are addressing then they may be able to build new businesses selling applications and services to these customers themselves. Of course, Cedric Nicolas of Bouygues was understandably hesitant to agree to such a model and I believe it is unlikely the manufacturers will ever be anything more than enablers of compelling services. The key is to work with partners to integrate innovative services and applications with device hardware to create a compelling overall user experience.
The panel was in agreement that manufacturers, retailers and operators have a ‘window of opportunity’ which lasts for about 10 days after the user purchases a handset, during which they can convince that user to buy additional applications and services. If the user hasn’t tried one of the additional services within that time period, it is unlikely they ever will.
Going back to this subject of brand aspirations (and this was a topic which was widely discussed during the event), it appears that network operators are starting to soften their approach to controlling the brand experience. Nicolas told delegates that Bouygues certainly wasn’t seeking to do away with handset brands and that they could be a valuable part of the overall user experience, especially when combined with particular content and services.
Operators soften their approach to brand control
Pietralla confirmed this, saying that Siemens would seek to represent the ‘tangible’ in the brand relationship, while the operator would represent the ‘intangible’. Again, much of it comes down to the needs of individual segments. Mokady cited the example of Hutchison 3G, which has managed to build subscriber volumes in the UK almost entirely on the strength of its voice pricing – the poor quality handsets have not prevented users from buying the service. In contrast, Nokia’s ultra high-end handset company – Vertu – manages to sell USD 20,000 handsets without any mention of a particular network operator.
This is an industry which loves analogies and metaphors. Today I have heard countless references to the watch industry, the automotive industry and the television business. While some of these do provide valuable lessons for the handset community, I think it is also important to remember that mobility is a fundamentally different concept which requires radically new solutions. Certainly we should look to other industries for guidance, but the unqiue properties of the mobile environment must be of foremost concern.
It is refreshing to see companies like Intel and Siemens investing in a diverse range of market research, from talking to people within the industry to employing psychologists and sociologists with little or no experience of the telecoms business. This is something I would like to see a great deal more of and is the only way this industry will be able to maintain strong growth in the future.
The closing sessions of the World Handset Forum and additional discussions I had during the course of the event emphasised several trends for me. Firstly, the handset industry is going to see a significant increase in segmentation of user needs, while at the same time implementing a convergence of access technologies. Handset vendors will seek to use this segmentation to increase margins by offering device portfolios built on common platforms but customised to target particular niches.
The mobile environment, while fundamentally different to other digital environments, is also becoming increasingly linked to a virtual eco-system of media, computing and other communications technologies. The challenge for handset manufacturers to effectively integrate with this eco-system and ensure the mobile device is positioned at its centre. Gus Desbarats, Chairman of Alloy Product Design and a panellist at the World Handset Forum, provided an insight into the scale of this opportunity when he identified one of the key challenges for consumer electronics companies: creating a suite of media and communications devices (e.g. TV, PC, audio system, games console and mobile handset) which offered a truly integrated brand and user experience.
This drive for vendor differentiation means that we as an industry need to pay even more attention to the ever present question of interoperability. Global handset manufacturers and platform providers need to use their market influence responsibly to ensure developers can create innovative new services and provide them to the widest possible audience at the lowest possible cost.
Yuval Dovev of Commil provided a contextual view of the mobile handset’s place in the wider digital infrastructure. Commil is focused on providing an answer to one of the most immediate challenges of communications integration – fixed/mobile convergence. PMN has discussed this previously, referring to the market opportunity for a single company to handle the billing relationship for fixed voice, broadband internet and mobile telephony.
Commil is working on a project for British Telecom to create a ‘mobile environment within the home’. BT discovered that it is losing some GBP 1 billion in revenue each year because people are using mobile phones rather than fixed line phones when they are at home. Commil’s solution is to connect mobile devices to the fixed infrastructure using Bluetooth, allowing users to take advantage of lower calling costs and use a single device for calls regardless of their location.
It relies on the Bluetooth cordless telephony profile, which Dovev believes most handset manufacturers have been hesitant to include on their handsets because of pressure from wireless network operators which are aware of the potential revenue loss. Commil is lobbying manufacturers for its inclusion, backed by the support of fixed operators such as BT. Dovev believes BT will launch the service commercially in April 2004.
The final panel session of the day, chaired by Sofia Svanteson of user experience consultancy Ocean Observations, was dedicated to other emerging technologies. Svanteson, who has worked on usability projects for Samsung, Motorola and Orange, was joined by Ari Strum of camera phone module producer Transchip, Robert Fransson of personal mobile gateway pioneer IXI, Neil Owen of audio technology company NXT and Alain Rodermann of VC firm Sofinnova.
Justin Staines of the pen input specialist Wacom provided an introduction for the panel, discussing cutting edge handset enabling technologies such as Proton Exchange Membrance Fuel Cells (PEMFC). This is a battery technology which offers five times the power of existing Lithium Polymer solutions and should be available commercially by 2005. Casio is currently the leading pioneer of PEMFC.
NXT also described it audio innovations, which allow handset manufacturers to use the tiny air gap between layers of the screen as a speaker. This enables handset manufacturers to do away with the existing speaker component of their handset and allows users to hear voice calls simply by placing their ear against the screen.
There was also discussion of the camera phone as a revolutionary technology which has not yet been fully recognised. Both Ari Strum and Alain Rodermann discussed this idea, saying that many potential applications of the camera phone had not even been realised yet. Rodermann’s firm has invested in a company which creates camera lenses from a liquid mixture of oil and water. Focusing is achieved by applying an electrical current to the liquid. The result is a high quality lens at less than a fifth the price of a mechanically focused lens.
Encouragingly, however, even during this session on cutting edge technology, the debate was tempered by the realisation that usability and consumer orientation were key to success. The representative from NXT described this neatly by saying the next revolution would be an approach rather than a specific technology.
Perhaps the last word should go to Ms. Svanteson, who reminded the departing delegates: “Beautiful things work better.” It is a fitting conclusion to a conference which has highlighted the challenge the handset industry will face as it tries to elevate the mobile device to the level of an aspirational product while maintaining a simplicity of user experience.
I know that many of PMN’s Executive Subscribers attended the event and it was a pleasure to meet with you and learn more about your businesses. I would greatly value your feedback on any aspect of the World Handset Forum and these reports. Similarly, if you were unable to attend the event in person but have been using these reports to monitor developments, I would welcome your comments – firstname.lastname@example.org.