The great handset divide
By Timothy Sifert
Mobile handset manufacturers and local service providers continue to develop and import technologies to exact even greater revenues from - and provide more services for - high-end users, a crucial customer segment.
Yet, there is also a similarly aggressive, though less advertised, effort on the part of some handset manufacturers to develop and push lower-end reliable phones to more budget-minded customers - a strategy that is largely blamed for the country's low mobile penetration rate of 34%.
This pursuit, while eschewing many of the newer, more expensive technologies, is gathering momentum among handset manufacturers. Top-four handset providers Nokia, Motorola, Siemens and Samsung, as well as a host of smaller players, are all vying for a larger chunk of the growing, though undersaturated, mobile handset market.
The country's mobile services accounted for more than E2.9 billion in revenue last year. Analysts and industry professionals say that the country's low penetration rate is an impetus for developing new business strategies since it differs sharply from the high 84% mobile penetration rate in the Czech Republic and 65% in Hungary.
Next-generation "killer applications" certainly comprise most of the promotional buzz surrounding advertising-savvy phone makers. But part of the reason the penetration disparity is so high in the region is that lower-end users, those more amenable to basic voice services, have been slow to adopt mobile phones here.
One way to continue to succeed in the market, according to Nokia, the world's largest handset producer, is to meet this somewhat unrecognized and relatively untapped demand head on. As a result, the company is heavily promoting new handset technology. Kuba Pancewicz, managing director of Nokia Mobile Phones in Warsaw, prides himself on the company's new technologies, such as imaging capabilities, entertainment media and lucrative business services.
Nonetheless, even as handset makers are often measured by what new technologies they provide, pushing existing technologies is just as important, especially given the country's forlorn economy. That's a key component of any mobile phone provider's bottom line.
"Poland is not a primary target for this strategy," Pancewicz said, noting that there are many other countries with more dismal wireless markets. "Still, the penetration is low. We need to look at this layer of the country."
Globally, Nokia is now targeting what it considers to be "emerging markets," such as Russia, China and India, Pancewicz said. In these markets, the company is spinning its strategy to push lower cost handsets in conjunction with more inexpensive services from operators.
The Finnish telecom equipment company does not consider Poland an emerging market in telephony. Yet, its comparatively low penetration rate, considering its location, makes it a candidate for the company's emerging-markets strategy.
"The average value per customer (here) is coming down," Pancewicz said. "That's why the emerging market strategy could be good for Poland. There are different segments of the user-base." He added that there is a large element of the country that would benefit from a less expensive and limited suite of services.
Siemens follows a similar tack with its sales strategy here. Grzegorz Kania, the German company's GSM sales director in Warsaw, said that he tries to maintain a well-balanced portfolio of low-, medium- and high-end users.
"Of course, we are trying to focus on the low-end market," he said. At present low-end customers, mostly those who pay in advance for mobile services, represent 40% of Siemens' business in the country.
Kania added that Siemens does not believe that the handset market here will grow at a faster pace this year than last year when it added about five million new customers, contrary to other more positive outlooks for handset sales.
Partly for that reason, Siemens is looking to prop up its sales volume by pushing at least a couple of new handsets to the low-end market, which will be available in the next three months.
France's Alcatel is also devising a strategy for cheaper wares.
"This year we can see that our offer is extending for our cheaper phones," said Piotr Lewczuk, Alcatel's Warsaw-based product marketing and customer care manager.
Analysts also cheer this strategy especially due to the fact that a new trend in the country toward the development of mobile virtual network operators (MVNO) would help handset operators. In December, the country's telecom regulator, URTiP, granted MVNO licenses to allow companies to buy mobile services from incumbent providers and resell them to customers under other brands, a practice that has been employed by conglomerate Virgin in the U.K.
"Handset manufacturers should (thus) also be prepared to ship additional low-end terminals to match the uptake in new subscribers," said Eugene Popov, senior analyst at Pyramid Research in London.
Popov added that the expected MVNO market is one of the reasons his firm is bullish on the country's handset sector and telecom market as a whole. He said that he expects the market for handsets to grow from 13.8 million at the end of last year to roughly 16.8 million this year and to 24.8 million by 2007. Low-end users, owing to the current shallow penetration in this market, could play a crucial role in this growth, Popov said.
