SOURCE: Oliver Wyman

June 14, 2007 11:59 ET

New Study on the Mobile Device Market Holds Implications for Device OEMs

NEW YORK, NY--(Marketwire - June 14, 2007) - Reuben Chaudhury, a director of Oliver Wyman's Communications, Media, and Technology practice, is available to discuss the findings of the firm's recent broad-based study on the mobile device market. Highlights of the study:

--  The mobile device market faces slowing growth and increased pressures on
--  Traditional mobile device vendor strategies of providing a broad
    portfolio of devices and driving margins through scale are running out of
--  While there will continue to be experiments in how vendors go to market,
    the role of the operator in bringing devices to market will not diminish in
    most regions around the world.
--  To address the changing market dynamics, vendors will need to explore
    alternate business designs. Specifically, four next-generation business
    designs hold promise: "400-pound Gorilla," "Low-Cost Provider," "Niche
    Hits/Beyond Voice," or "Device Surround."
Oliver Wyman recently completed a broad-based study to identify key Value Migration® trends for mobile devices. The study included in-depth workshops with senior executives at more than 20 operators around the world and assessed four areas:
--  Regional demand patterns for mobile devices, including investment
--  Relative power of operators, relative to vendors such as LG, Nokia,
    Motorola, Samsung and others
--  Operational implications (e.g., innovation cycle times, platform
--  Winning business designs and strategies for mobile device vendors
The $1 trillion mobile ecosystem is expected to see slower growth over the next three years, with the compound annual growth rate in the mobile device sector predicted to slow to roughly 5% between now and 2009. There are several factors behind this trend:
--  Emerging market growth is largely driven by the number of subscribers,
    but this does not equate to an equivalent growth in value.
--  There is a shift from net new acquisitions to a zero-sum battle for
    device market share in mature markets.
--  Moreover, traditional vendor business designs will continue to see
    increased margin pressures and poor valuations relative to content-focused
    business designs.
Based on this research, Oliver Wyman found that, contrary to conventional wisdom, the role of the operator in bringing devices to market likely will increase in markets:
--  In the mature markets of Western Europe, multiple distribution channels
    do place limits on the operator control of customers. However falling ASPs,
    high penetration, and the continued consolidation of purchasing will be
    reflected in growing operator power.
--  Operator consolidation and a desire to tightly control end-user access
    continues to result in higher operator power in most rapidly maturing
    markets (e.g., United States). Alternate device distribution models are
    unlikely to result in a significant threat to operator control of the
    customer experience. However, the potential threat of competition from
    cable companies could dramatically alter the balance of operator power.
--  While the rise of operator power is less certain in all high-growth,
    emerging markets, operators will still be the center of gravity in most
    markets. We expect to see a wave of operator consolidation as these markets
    mature, which will result in greater operator control over customer device
    choices. However, we believe it is highly unlikely that in the key markets
    of India and China, operator-controlled distribution will constitute more
    than half of the go-to-market routes.
The study suggests that the traditional business design of many mobile device vendors, which relies on a "full portfolio" and economies of scale, is threatened. To create profitable growth, vendors must explore alternate business designs:
--  The 400-pound Gorilla: This business design comes closest to the
    traditional "full portfolio" model and requires flawless execution across
    the supply chain, adoption of category management practices, and a
    competitive cost structure.
--  The Low-Cost Winner: This requires a "fast-follower" portfolio
    mentality, with a significantly advantaged cost structure. It is likely
    that a low-cost winner will sell its products under a white label and focus
    on the high-volume emerging market and the lower end of the device market
    in other geographies.
--  Niche Hits/Beyond Voice: A niche segment market leader business design
    is best suited to addressing the high-end device sector (in particular the
    touchstone video sector) and non-voice-centric mobile devices. Winning in
    this business design requires differentiated customer insight capabilities
    and superior portfolio management skills.
--  Device Surround: Vendors will focus on collaboration with operators by
    offering value-added applications and hosting services to differentiate
    their devices. Potential elements of the vendor value proposition could
    include proprietary experience-based solutions (rather than application
    enablers like messaging and location-based services), hosted applications,
    content aggregation and management, and risk sharing.
Oliver Wyman's research indicates that market volumes are unlikely to profitably support more than a single large vendor in each of these business designs. Mobile device vendors will need to act aggressively to stake out their positions in one or more of these business designs to avoid being cornered into a no-profit zone.

About Reuben Chaudhury

Reuben Chaudhury is a Director in Oliver Wyman's Communications, Media, and Technology practice. During the past 15 years, Mr. Chaudhury has consulted with leading communications solution providers and carriers around the world. Recently, he advised leading solution providers on the launch of new mobile applications and services units that currently generate in excess of $2 billion in revenues. Mr. Chaudhury is regularly quoted in the trade and business press on communications industry issues, and has been a speaker at numerous industry forums and conferences. Prior to joining Oliver Wyman, he held leadership positions at A.T. Kearney, Hewlett-Packard, and in the software industry.

About Oliver Wyman

Mercer Management Consulting, Mercer Oliver Wyman, and Mercer Delta Organizational Consulting have joined forces under the name Oliver Wyman, creating one of the world's leading management consultancies. Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. The firm works with clients to deliver sustained shareholder value growth. We help managers to anticipate changes in customer priorities and the competitive environment, and then design their businesses, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman has more than 35 years of experience serving Global 1000 clients. Our staff of 2,500 operates from offices in more than 40 cities in 16 countries.

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