economic

ITALIAN STUDENTS:
Daniela Beccia
Manuel Graziani
Gaia Lucchesi
Alessia Massi
2003/2004

1 - Updating of the main changes of I.T. and mobile phone industry over the last 3 years (through the Italian Press)

Il settore dell'IT e quello della telefonia sono senza ombra di dubbio al centro dell'attenzione del mondo economico.

The attention of economic world is today focused on Information Technology and mobile phones.

Molti i punti di vista dai quali osservare tali settori:
- Tecnologia, risvolti produttivi e scelte strategiche
- Marketing
- Economia e politica industriale (integrazione verticale caratteristica del settore telefonia/integrazione orizzontale tipica del settore IT)
- Finanza (possibili evoluzioni dal punto di vista delle alleanze e degli assetti proprietari)

There are many points of view from which to look at these sectors:

- Technology, productive aspects and strategic choices;
- Marketing;
- Industrial economy and policy (vertical integration as a characteristic of the mobile phone field/horizontal integration typical of I.T. field);
- Finance (alliances and shareholding possible evolutions)

Mentre gli studenti delle quattro scuole partner di questo progetto Comenius dedicavano la loro attenzione al settore, queste le outlines emerse, almeno a giudicare da come la stampa specializzata del nostro Paese (Il sole 24 ore, Italia oggi) ne ha seguito le vicende.

This is how, while the students of four partners schools of this Comenius project were analysing the sector, the specialized press of our country (Il Sole 24 ore, Italia Oggi) followed the events.

What follows is a press review of some relevant Italian Newspaper:

11/7/2002 Italia Oggi - sezione marketing

Intera pagina dedicata al dominio Nokia sul mercato della telefonia mobile, evidenziando in particolare l'abbinamento tra le funzioni telefoniche e le caratteristiche dei pc palmari. Dal sondaggio proposto si riscontrava l'esistenza di 2 ben precise tipologie di utenti:
- utilizzatori della sola funzione "telefonica"
- utilizzatori che gradiscono altre funzionalità quali quelle dei palmari, le suoneri, i loghi, gli screen saver, la fotocamera
Il testo evidenzia inoltre il giudizio degli italiani sulla Nokia: commenti positivi sulle innovative funzioni, sulla ricezione, sul peso e sui prezzi. Critiche sull'aspetto estetico, sull'assistenza e l'eccessiva attenzione ai gadget.

11th July 2002 Italia oggi - Marketing pages

A hole page dedicated to Nokia's strong role on the mobile phone market. What is mainly stressed is the possibility to join mobile functions and pc characteristics.

The survey showed the existence of 2 precise types of users:
- users of the phone function only
- users that appreciate the other functions such as the features of the "palmari", rings, logos, screen savers and camera.
The text stresses besides the opinion of the Italians about Nokia: positive notes about the innovative functions, the "ricezione", the weight and prices. Criticism instead on the aesthetic aspect, assistance and gadgets.

18/1/2003 Il Sole 24 Ore - inserto Alf@ sezione imprese e soluzioni

Ampia trattazione sulle novità proposte dalla Nokia: la funzionalità dei terminali di nuova generazione si rivolgono ad ogni categoria di utente: c'è il mobile economico, quello per gli sportivi, per chi ama il design con altissima tecnologia ed innovativo. Proposta del N - Gage (miniconsole portatile per i videogames in collaborazione con SEGA - il colosso giapponese dei videogiochi- che consente a più utenti di sfidarsi. (Si rivelerà un flop)

18th January 2003 Il Sole 24 Ore @lfa insert

This article dealt widely with the innovations introduced by Nokia: there is a choice of economic mobile phones, such as the perfect one for sportsmen or even for people interested in innovative design and high technology.
Evidence to the N-Gage proposal (portable mini-console for video games in collaboration with Sega - the Japanese Colossus of video games - that allows different users to challenge each other). No commercial success for this attempt.

17 febbraio 2003 Il Sole 24 Ore del lunedì - speciale Affari privati

Grande enfasi sulle novità proposte dai produttori, in particolare sull'introduzione del colore nei display

17th february 2003 Il Sole 24 Ore - Monday edition - Private Affairs section

Widely emphasized the new proposals of the producers, such as colour display

18/2/2003 Il Sole 24 Ore - sezione Mercati
Breve articolo sulla sfida tra la Microsoft ed i produttori di telefonini. Citato il caso Samsung, che avrebbe introdotto sul mercato un telefonino-computer con software Microsoft, sebbene abbia anche deciso di entrare nel capitale Symbian per promuovere la sua tecnologia contro la minaccia proveniente da Bill Gates.

18th February 2003 - Il Sole 24 Ore - Market section

Description of the challenge between Microsoft and Nokia: Samsung case is mentioned since it is supposed to have launched a mobile phone with Microsoft software, while buying Symbian shareholding to promote its technology agiainst Bill Gates threat.

9 giugno 2003 - Il Sole 24 Ore - sezione Economia Italiana

Inchiesta sulla fisionomia della popolazione attraverso le abitudini "telefoniche"

9th June 2003 - Il Sole 24 Ore - Italian Economy page

Reportage about Italian habits through mobile use survey.

6/11/2003 Il Sole 24 Ore - inserto Alf@ - imprese e soluzioni

La Nokia diffonde il cellulare multimediale: la televisione in tasca. Si potrà così ridare vigore ai vecchi mezzi di comunicazione. Forse tra 10 anni sarà tascabile uno strumento per accedere ad ogni tipo di media.

6th November 2003 - Il Sole 24 ore - @lfa insert

Nokia introduces multimedial mobile: pocket tv is the hit of the moment. In the future possibility to have a pocket instrument to link to any different media channel

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2 - Updating of the main changes of I.T. and mobile phone industry over the last 3 years (through the International Press)

While the Comenius project was in progress, the Italian students tried to follow also on the Internationl Press the signals about the fatal attraction existing between Microsoft and Nokia: the Titans of respective sectors.

On the Internet the main aspects seem to be focused by the three following artcles:

1. Alliance tactics in mobile software

A simple alliance map may tell quite a story. This map shows the most important alliances in an area where one of the fiercest alliance battles of the moment takes place: operating software for mobile handsets. It illustrates the tactics firms employ to get their technology to market. Microsoft has developed an operating system for handheld devices, which it would like to turn into the standard software, like Windows is on the pc. The manufacturers of handsets Nokia, Motorola, Sony Ericsson and Matsushita decided not to use Microsoft's software on their products. They feared that a powerful Microsoft would squeeze their profit margin. Instead they set up a joint venture called Symbian, which aimed to develop software developed by Psion into the standard for mobile handsets. Leader of the pack is Nokia. The joint venture was established in 1998. At a later date Siemens and Samsung joined this joint venture. These two companies however did not put all their eggs in one basket: Siemens also licensed the Microsoft software, whereas Samsung licensed Microsoft software and the software of another company active in this market: Palm. These two companies hedge their bets. Sendo is a company that first belonged to the Microsoft camp, but defected when it licensed Symbian software.
Nokia did not sit on its hands and developed a user interface for Symbian software that it licensed to Samsung, Matsushita, Sendo and Siemens. This increased Nokia's dominance in the Symbian alliance to such an extent, that instead of seeing Microsoft as the biggest threat, Motorola decided that now Nokia became too powerful. Motorola sold its shares in the Symbian joint venture to Nokia and Psion, making Nokia the largest shareholder in Symbian. Motorola did not sever all its ties with Symbian: it continued to license the Symbian software, but it also licensed Microsoft software. To be complete: it also uses the open source software of Linux for a part of its product portfolio.
One other company is interesting in this picture: HTC. This is a handset manufacturer. When Microsoft saw it could not sell its software via the easiest route to market, namely by selling to handset manufacturers, it entered into direct relationships with telecom operators like T-Mobile and Orange. Microsoft offered them handsets with their own brand and Microsoft software. As Microsoft does not produce handsets itself, it requires a partner to deliver the handsets and this is HTC. Motorola by now follows a similar strategy offering telecom companies handsets with their own brand.
In the battle for market dominance, alliance tactics are the key. By means of setting up an alliance group to counter a possible threat (Symbian vs. Microsoft), hedging risks (Siemens, Samsung, Motorola) and changing position in the alliance network (e.g. Motorola leaving Symbian), companies try to promote their own interests.

2. The Register: biting the hand that feeds IT

Microsoft's masterplan to screw phone partner - full details
By Andrew Orlowski in San Francisco ([email protected])
Published Monday 6th January 2003 10:07 GMT
If Microsoft's extended family of lawyers was thinking it could now kick back and anticipate a kind of extended Spring Break for the rest of this Bush administration, the pre-Xmas filing by British phone company Sendo could yet be the cause of a few unexpected late nights.
Sendo's 27-page filing in a Texas court - disclosed here for the first time - is a rich litany of double dealing, betrayal and larceny - if the dramatic (and at times apoplectic) allegations can be believed.
Until November, Sendo was Microsoft's flagship phone OEM. It then announced that its four-times-delayed Z100 Stinger phone would be canned, and threw its lot in with Nokia, terminating the Microsoft agreement.

Formally, Sendo is throwing the book at Microsoft. The handset manufacturer, created in 1999 with some of the best Philips and Motorola talent, was to be Microsoft's "go to market partner" for the Stinger smartphone platform, and even received an equity investment from Redmond, and it's now very, very angry.
The claim alleges - are you ready to start counting? - misappropriation of trade secrets, common law misappropriation, conversion, unfair competition, fraud, breach of fiduciary duty, two counts of negligent misrepresentation, two counts of breach of contract, fraudulent inducement and tortious interference. Phew.
If Sendo's case progresses, it's likely to add new stars to the litigation firmament - one which has already brought us phrases such as "cut off the air supply", "knife the baby" and faked videotape evidence, and the most likely star in this turn should be one Marc Brown, who simultaneously served as a Sendo director while being employed by Microsoft. More on Marc in a moment.
The case alleges a "Master Plan" to swindle the Brum-based startup out of its trade secrets. Sendo says it delivered a unique industry insight to Microsoft through this partnership, insight that the industry (as represented by Nokia, Ericsson, Motorola and the Japanese manufacturers) weren't themselves willing to share.
But it was never a partnership of equals, alleges Sendo, and after promising that StinkerOS was ready in the middle of last year, Microsoft used the delays to uncover Sendo's integration secrets and carrier relationships, and then cut off their air supply, using this knowledge to promote its new sweetheart, the Orange SPV instead.
Sendo's tale
Here's how it runs.
In February 2001, Microsoft and Sendo formalize and publicly announce their partnership, and Microsoft buys $12m of Sendo shares, and a seat on the board. Microsoft promises to ship its part of the deal, the "code complete" StingerOS to the manufacturer by June. That's good, because Sendo had planned to ship the first phones in August and December.
Both parties are delighted. Sendo has been operating for less than two years, and the deal gives it an opportunity to be first to market with a phone that has Microsoft massive marketing budget behind it. Microsoft is pleased: although it has been toting its software to cellphone manufacturers for several years, Sendo is the first OEM to bite. As it dryly notes in its filing:
"Microsoft had been unable to successfully access the wireless market because the handset manufacturers would not use their software."
Only summer comes, and the code isn't ready. It isn't ready in the autumn, either, and this starts to play hell with Sendo's budgets. December rolls round, and according to Sendo, bugfixes that carriers have requested are being refused by Microsoft. Sendo is in a cash crisis, and a call to VCs is spurned. So Sendo asks Microsoft for a further cash injection, which is declined:
"Microsoft refused with the full knowledge that this refusal would push Sendo to insolvency", claims Sendo in the filing.
How did it know? Well, meet Marc Brown, who was by now acting in his capacity as a Sendo board member while continuing his day job as the director of Microsoft's corporate development and strategy group.
At this point Brown suggests that Microsoft convert the share deal into a loan, repayable in three stages, and in February (last year), Sendo agrees. Stinker still hasn't shipped, so Sendo can't sell a phone. Microsoft refuses to pay Sendo some capital that was scheduled under the earlier agreement, Sendo alleges, and by spring the relationship has deteriorated to the level of legal threats.
However on the surface, all appeared to be cordial, and at a board meeting in May last year Brown pledged that Microsoft was "not working with anyone else as an 'initial go to market partner'".
This we now know to be false.
From May onwards, says Sendo, Microsoft aggressively demanded technical meetings which extracted valuable technical and commercial information out of Sendo. Then demands got funny: Sendo claims that Microsoft demanded it cease all other development to ship the Stinker; and asked for an expensive and onorous test run of 300 Z100 prototypes.
Now, remember that Microsoft had no business relationships with carriers as a handset provider, while Sendo staff were pretty well versed in what to do. This, Sendo alleges, is what Microsoft's "Master Plan" was all about. As it claims:
"They were not entitled to such information under the terms of the SDMA" - the precursor to the February 2001 agreement that the two inked in the fall of 2000.
In fact, this SDMA turns out to have been Sendo's death warrant. As the company explains:
"Under the SDMA, in the event of a Sendo bankruptcy, Microsoft would obtain an irrevocable, royalty free license to use Sendo's Z100 intellectual property, including rights to make, use, or copy the Sendo Smartphone to create other to create other Smartphones and to, most importantly for Microsoft, sublicense those rights to third parties."
And that's the crux of the case.
Sendo's description of a "master plan" to rob it of its secrets might look like paranoid nonsense, were it not for the fact that in that SDMA, Sendo's demise was in foretold. Microsoft had far more to gain than it had to lose by seeing its partner fall.
This being a civil case, we're not quite sure where the burden of proof lies [reader advice is as ever, welcome]. Were Sendo a bunch of incompetent klutzes who didn't know how to integrate the perfect phone software they received from Microsoft in a timely fashion? Or was Microsoft lying when it said it could ship a carrier-grade phone OS to Sendo in the summer of 2001?
From the Orange SPV buglist, it still doesn't look like Microsoft can ship a carrier-grade phone OS eighteen months later. But this is a court case, and Sendo must prove it. If the discovery phase is half as imaginative as it could be, we're in for a treat.
Background
Microsoft's dalliance with cellphones is interesting for a couple of reasons. Firstly, because phones are morphing into a computer platform of great social value in unimaginably great volumes, only they're pouring into a terrain, a business that Microsoft doesn't yet own or fully understand. Microsoft was clever enough to understand that volume economics worked, when Bill Gates with great foresight engineered the PC DOS license. So Microsoft understands volume economics. That we know.
More interesting than that, though, is how this battle pitches two models of capitalism against each other. These are two worlds apart, and the "OS War" between Microsoft and Symbian/Nokia is a symptom, but it isn't the real story.
To Americans, the telecom world's model of promoting growth through vertical investments (a Nokia or an Ericsson bails out the carriers) and through IP sharing (yeuch!), and promoting common standards (that's goddam Communism!), must look like a filthy and incestuous business.
To Europeans and Asians, though, the red-blooded, last-man-standing American model as exemplified by Qualcomm and Microsoft - backed as they are in trade negotiations by the armed might of the US Government, the world's only superpower - looks like the odd fellow.
They're a bunch of geeks who don't share their hoard and don't know how to partner a relationship, the market tells us. They act like children! And the world seems to be stampeding - irrationately or not, you decide - to the Euro-Asian model, even adopting technologies that don't really work just yet - such as WCDMA, rather than Qualcomm's smarter cdma2000 - because they offer the buyers a choice of multiple (non-US) suppliers. Which maybe isn't so irrational if you think about it.
Back in 1998, the phone companies decided to pool their resources on a wannabe smartphone OS from PDA-pioneer Psion Computer. The formation of Symbian caused Bill Gates much agitation [as these now-legendary memos (http://www.theregister.co.uk/content/archive/11074.html)], but it's to his credit that he identified the company as Microsoft's No.1 enemy. In this case, at least, Microsoft's paranoia was fully justified.

3. Economis.com - The fight for digital dominance

Nokia v Microsoft

The fight for digital dominance

Nov 21st 2002
From The Economist print edition

The convergence of mobile phones and computers is bringing the giants of the two industries into direct conflict

IT MAY look like a mobile telephone, but the Orange SPV, launched last month, is much more than that. With its colour screen, garish icons and musical ringtones, it resembles other handsets on the market. But it has one far more significant feature: the software inside, indicated by a familiar-looking four-coloured logo on its screen. For the SPV is the first "Windows-powered smartphone"-in other words, it runs software from Microsoft. It is the software giant's attempt to stake its claim in the new market created by the convergence of mobile phones and computers. It is no less than a declaration of war.

By putting new technologies into consumers' hands in an easy-to-use form, the new handsets seem to be succeeding where the PC has failed

The market for smartphones is still small. But it is growing fast, as new features are added to handsets, making them ever smarter. Of the 400m mobile phones that will be sold this year, around 16m will have built-in cameras. Nokia, the world's largest handset maker, expects to sell 50m-100m colour-screen handsets next year. A new report from Analysys, an industry consultancy, predicts that by 2007 nearly 300m Europeans will be carrying handsets with colour screens, cameras, music players, support for downloadable games, and other features that are now available only in the most advanced models. Such features are already common in Japan and South Korea, and they are starting to appear in Europe and America. These advanced handsets are, in effect, pocket computers-but they have emerged from the consumer-electronics industry rather than the world of computing.

By putting new technologies, such as digital photography and electronic messaging, into consumers' hands in an easy-to-use form, the new handsets seem to be succeeding where the PC has failed. Mobile phones have a far broader appeal than PCs (see chart 1). The lone exception is North America, where PC ownership exceeds mobile-phone ownership. But even there phones are catching up.

In Europe, more people now send and receive short-text messages on their phones than use the Internet, according to figures from Gartner, another consultancy. This year, users of mobile phones around the world passed the 1 billion mark. The number of mobile phones is now greater than the number of fixed-line ones.

The walkie-talkie PC
PC sales, meanwhile, have stagnated, and innovation has slowed: today's PCs are really just like those of a year ago, or two years ago, only faster. Sales of handheld computers, or personal digital assistants (PDAs), at around 10m a year, are dwarfed by sales of mobile phones. It looks increasingly as though the "personal computer" was a misnomer. The truly personal digital device today is the phone.

That does not mean that PCs will vanish. Just as mainframes continue to hum in companies' back offices 20 years after the emergence of the PC, so too PCs will continue to have an important role. But their appeal is far from universal; no matter how cheap they become, there are limits to the number of people who want to buy one. Microsoft's once-visionary mission statement-"a computer on every desk and in every home"-now seems dated. Instead, the company talks of "empowering people through great software, any time, any place and on any device". This is an acknowledgment, concedes Ed Suwanjindar of Microsoft's mobility division, that the PC is no longer king, and that "mobile devices are totally critical to the new extended vision for the company."

It might seem an odd time to enter this market, given the uncertainty and technical difficulties surrounding the switch to "third-generation" (3G) mobile networks. But the possibility that mobile phones might be taking over from PCs as the focus of the entire technology industry means that Microsoft has no choice. Hence the launch of the SPV.

The SPV is the first of a new range of devices intended to extend Microsoft's dominance into the new mobile realm

With its Windows-based software, the SPV is, in effect, a PC crammed into the casing of a mobile phone, complete with scaled-down versions of Microsoft's web browser, e-mail and media-playback software. It is the first of a new range of devices intended to extend Microsoft's dominance of the computer industry into the new mobile realm. Microsoft is hoping for a replay of what happened in the PC market, where hardware became a commodity and Microsoft established an enormously profitable monopoly with its Windows software. (Figures that emerged for the first time this week show that Microsoft's profit margins on its Windows software are 85%, whereas many of its other divisions are making losses.)

Yet even as Microsoft tries to get into this new market, the established mobile-phone makers, chief among them Nokia, are determined to stop it. They have seen how Microsoft's Windows monopoly turned PC makers into commoditised box-shifters, and they are determined not to suffer the same fate.

Symbianics
The first obstacle thrown into Microsoft's path by the handset makers was their refusal to license its software-a complete reversal of what happened in the computer industry. There, PC makers queued up to license Windows. The largest mobile-phone makers, on the other hand, established a software consortium called Symbian to produce smartphone software of their own. Their aim was to achieve the benefits of Windows (a single, common software standard) without what they regard as its chief drawback: that the predatory Microsoft owns it. "We want to fend off Microsoft-we don't want to go the way of the PC business," says a spokesman at one handset maker.

Several Symbian-powered handsets have already come to market. The latest is the Nokia 7650, with a built-in camera and colour screen. It was launched in the summer and sales are expected to exceed 2m by the end of the year. More Symbian handsets will appear over the next few months. Besides Nokia, Symbian's backers include Motorola, the world's second-largest handset maker, Siemens, the number two in Europe, SonyEricsson, Panasonic and Samsung. Between them, Symbian licensees account for almost 80% of all handsets sold (see chart 2).

Quite how the market will evolve, and what sorts of devices will prove popular, is not yet clear, says David Levin, Symbian's chief executive. But just as car makers can make several entirely different models on the same "platform", or chassis, the Symbian software is flexible enough to allow handset makers to try out many different designs without having to start from scratch every time. Some phones will focus on photography and picture messaging; others on playing music or games; yet others on corporate e-mail access. When Henry Ford launched the Model T, notes Mr Levin, he had no idea that the sport-utility vehicle or the Winnebago would follow. The handset business, he suggests, will also evolve in unexpected ways.

An interesting twist on the Symbian model has already emerged. The Symbian software provides the underlying features that are essential to a smartphone operating system, such as support for telephony, graphics, security and Internet access. But Symbian licensees and software developers are able to examine and modify its innards, unlike handset makers who use Microsoft's software. Licensees may also change the software's on-screen menus and graphics, or "user interface". Nokia, for instance, has developed a user interface called Series 60, and has licensed it to other phone makers, including Samsung, Siemens and Panasonic.
Series 60 could end up as the standard user interface for smartphones-much as Windows has for PCs. Microsoft is sceptical, of course. "Every one of Nokia's Series 60 licensees is a competitor in the hardware arena," Mr Suwanjindar observes. "If you're Siemens, does Nokia have your best interest at heart?" Yet the only large handset maker to have licensed Microsoft's competing smartphone software is Samsung. And Samsung is well-known for licensing everything: it has Symbian and Microsoft licences, and it has also launched phones that use the Palm operating system, the dominant software in the niche PDA market. So Samsung's support for Microsoft's software is not the ringing endorsement it might seem.

Worse, Microsoft suffered a setback this month when one of the few licensees of its smartphone software, a tiny British handset maker called Sendo, defected to the Symbian/Nokia camp, announcing that its forthcoming phones would use Series 60. Sendo cited its inability to gain access to the source-code of Microsoft's software as one reason for switching.

Microsoftly, softly
Having failed to sign up the large handset makers, Microsoft has decided instead to get round them by going directly to their customers: the mobile-network operators, which buy handsets in bulk and sell them to their subscribers. Microsoft is able to do this because a significant proportion of mobile phones (26% this year, according to figures from Strategy Analytics, a consultancy) are made by contract manufacturers, to which handset makers outsource some or all of their manufacturing. Some contract manufacturers, such as HTC of Taiwan, also design products and are known as "original design manufacturers" (ODMs). The SPV phone is a joint venture between Microsoft, HTC and Orange, a European mobile-network operator. HTC designed and built the hardware, Microsoft provided the software, and Orange agreed to buy the phones.

For operators such as Orange, the appeal of this approach is that they can customise the phone and brand it with their own logo, differentiating themselves from rival operators. For Microsoft, the appeal is that it can get phones into the marketplace without the support of the large handset makers. In the long run, it hopes that the industry will develop as the computer industry did: away from a vertically integrated model, in which the same companies make hardware and software, and towards a horizontally layered model in which software is supplied by Microsoft and hardware becomes a commodity made by firms such as HTC.

But there are a number of problems with this vision. The main one is that the economics are skewed in favour of the large handset makers, which produce far bigger volumes. Nokia, Motorola and Samsung produce handsets in quantities measured in millions. An operator placing an order with an ODM, in contrast, will order a few hundred thousand handsets at best. With fewer economies of scale, this makes the handsets more expensive.

Matti Alahuhta, president of Nokia's handset division, insists that his company has nothing to fear from contract manufacturers. About 20% of Nokia's production is outsourced, and this provides a reference, enabling Nokia to ensure that its own manufacturing facilities stay competitive.

Vertical integration will continue to make sense in such a fast-moving industry, says Mr Alahuhta. He concedes that handsets are becoming a commodity-but only at the very bottom of the market, and even there he claims that Nokia's superior logistics mean it has better margins than its smaller competitors. At the top end of the market, though, where Microsoft is trying to compete, Mr Alahuhta insists there is no sign of commoditisation.

It is too early to conclude that Microsoft's attempt to by-pass the handset makers will fail. But the omens from its previous joint venture with HTC, a hybrid PDA-phone running Microsoft's Pocket PC software, are not good. Sales of the device, known as the XDA in Britain, the MDA in Germany, and the "T-Mobile Pocket PC Phone Edition" in America, have been slow. A British operator, O2, has sold only 12,000 XDAs since its launch this summer, despite a massive advertising campaign. This may reflect a lack of enthusiasm for PDA-like devices, but it also highlights another problem with the ODM approach: the lack of a strong brand.

Mobile phones are fashion items, and branding matters to their users. Once again the large handset makers, and Nokia in particular, have the upper hand. Surveys show that consumers rate Nokia above all other mobile-phone brands, whether or not their present phone is a Nokia. Its customers are also more loyal to Nokia than to their mobile operator, although operators such as Vodafone are now doing their best to promote their brands above those of the handset makers.

The powerful pull of monopoly
So far, then, Microsoft's plan to invade the mobile-phone market is not going well. "Microsoft have their work cut out to have any major impact on this market as things stand," says Ben Wood of Gartner. The company's best hope, he suggests, is to use its traditional weapon for attacking new markets: its Windows monopoly. By tightly integrating its smartphone software with its desktop and server software, Microsoft might be able to appeal to corporate users. For example, the SPV can, with the help of Microsoft's software, gain access to e-mail, calendars and databases on both PCs and servers.

But there could be legal problems with this strategy. Microsoft's competitors have already complained to the European Commission, which is investigating the company, that its next-generation e-mail server, codenamed Titanium, is being designed to favour those mobile devices that are running Windows.

It is far too early to count Microsoft out. It is nothing if not determined. Its lucrative Windows franchise will be able to fund its forays into loss-making new markets for years to come, and it is sitting on $40 billion in cash. The troubled switch to 3G technology means that the mobile-telecoms industry is in turmoil, and Microsoft may be able to capitalise on the confusion. If all other strategies fail, it could always resort to the drastic step of buying an operator or handset maker.

Mr Suwanjindar insists that it is still early days, and that Microsoft continues to negotiate with handset makers about using its software. As for Nokia, which he agrees is Microsoft's biggest competitor in this arena, Mr Suwanjindar admits that "we have a tremendous amount of respect for them as a handset manufacturer"-in other words, only as a hardware company.

Smartphones, says Mr Suwanjindar, are an entirely new class of device. Although they resemble phones, that does not give Nokia and other handset makers a "birthright" to the market. "There is a contribution we can make to the mix," he says.

In Nokia, however, Microsoft may have met its most Microsoft-like competitor to date. Comparisons between the two firms are difficult to avoid. Mobile-network operators grumble that Nokia has too much clout, much as PC makers grumble about Microsoft. They also worry that with Club Nokia, its loyalty programme, Nokia is encroaching on the operators' own turf, just as Microsoft was wont to do. Club Nokia offers Nokia-specific features, such as ringtones, games and logos, which customers can take with them from one network provider to another.

Moreover, Nokia's Series 60 software could yet emerge as the mobile equivalent of Windows. "Nokia is the Microsoft of mobile phones, the gorilla of the industry," says Gartner's Mr Wood. (It is also, he might have added, the equivalent of Dell, whose superior logistics have made it the number one PC maker.)

Yet, for all their similarities, Microsoft and Nokia differ in one crucial respect. Microsoft's dominance stems from its closely guarded ownership of Windows. But the mobile-phone industry, in which Nokia is top dog, is based on open standards. The use of common standards that are not owned by any particular vendor has benefits. For example, it enables handsets based on the GSM standard to be used in most parts of the world. But it also has drawbacks: Europe's proposed standard for 3G does not work yet. Nokia has achieved its dominance not through ownership of proprietary technology, but from its ability to innovate around open standards, from its strong brand, and from its impressive logistics. In other words, in several respects it is not like Microsoft at all.

Nokia's attitude to Microsoft is revealing. "We are not in competition, but approach convergence from different sides," says Mr Alahuhta, choosing his words carefully. He is right: Microsoft is so insignificant in the mobile-phone market that it is not a competitor-at least, not yet. But as their industries collide, the firms are sure to become opponents in what promises to be a long and bitter fight.

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4- International press review

From the International Press, the best we could do was to ask for a qualified help: this is what Financial Times found for us

1. Financial Times (London, England), February 10, 2004 Tuesday, London Edition 2, COMPANIES: EUROPE; Pg. 26, 560 words, EUROPE: Smart money on the unstoppable phone: Symbian chief sounds the death knell for the personal mini-computer, telling Chris Nuttall why he thinks the PD, By CHRIS NUTTALL

2. Financial Times (London, England), February 10, 2004 Tuesday, London Edition 1, FRONT PAGE - FIRST SECTION; Pg. 1, 454 words, Nokia steps up smart-phone duel with Microsoft, By CHRISTOPHER BROWN-HUMES and MAIJA PESOLA, STOCKHOLM

3. Financial Times (London, England), February 10, 2004 Tuesday, London Edition 1, LEX COLUMN; Pg. 20, 246 words, About a Borg THE LEX COLUMN:

4. Financial Times (London, England), February 10, 2004 Tuesday, London Edition 1, COMPANIES: INTERNATIONAL; Pg. 26, 416 words, INTERNATIONAL: Symbian buy is gamble for Nokia, By CHRIS NUTTALL, LONDON

5. Financial Times (London,England), October 28, 2003 Tuesday, CREATIVE BUSINESS - Wireless World Special; Pg. 2, 1536 words, Turning point for the wireless world Most people in the developed world have phones, and poorer countries offer wafer-thin profits. So the mobile industry now has to persuade consumers to pay for new wireless services, By FIONA HARVEY

6. Financial Times (London,England), August 30, 2003 Saturday, London Edition 2, COMPANIES INTERNATIONAL; Pg. 5, 407 words, Motorola to offload stake in Symbian TELECOMMUNICATIONS:, By ROBERT BUDDEN and ASTRID WENDLANDT, LONDON

7. Financial Times (London,England), August 20, 2003 Wednesday, London Edition 1, FEATURES; Pg. 10, 1348 words, A big test for a smart operator: Symbian is bidding to become the Windows of the mobile phone world. But it faces some serious competition, writes Fiona Harvey, By FIONA HARVEY

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February 10, 2004 Tuesday
London Edition 2

SECTION: COMPANIES: EUROPE; Pg. 26

LENGTH: 560 words

HEADLINE: EUROPE: Smart money on the unstoppable phone: Symbian chief sounds the death knell for the personal mini-computer, telling Chris Nuttall why he thinks the PD

BYLINE: By CHRIS NUTTALL

BODY:
The PDA is dead - the smartphone has killed it.
This bald identification of victim and murder weapon by David Levin, chief executive of Symbian, may appear premature. But it is a mantra he has been repeating for years. When he was chief executive of Psion, he took the decision to shut down production of its consumer personal digital assistant - the handheld mini-computer it pioneered - in the belief that a new breed of phones would wipe out its market.
In that context, Psion's sale of its stake in Symbian yesterday is another step in the funeral march of the PDA as we know it.
Nokia can now invest in, and accelerate the development of, Symbian to power its own smartphones as well as those made by Sony-Ericsson, Samsung, Panasonic, Siemens and others. While worldwide PDA shipments totalled 11.5m last year, compared with 6m-7m smartphones, that was a decline of 5.3 per cent on 2002. Smartphones are expected to overtake PDAs in sales this year.
"The mobile phone is a very flexible device and it's fairly straightforward to couple it with some specific products," says Mr Levin.
Phones such as Sony-Ericsson's Symbian-based P900 already combine high- quality cameras, personal information management (PIM) tools, sophisticated games and music players.
"The PDA is just the first segment the phone is going to eat. We see good evidence the same thing is happening in the camera segment and the same will happen in gaming and in music.
"The reason this will happen is that everybody has a phone and the economics of putting a combined product together is cheaper than doing two separate products, particularly when the device is being subsidised by an operator."
Mr Levin's comments are likely to be taken with a pinch of salt by rivals such as Microsoft and Palm. The Symbian operating system, which has more than 95 per cent of the smartphone market, is seen as having an Achilles heel in the enterprise space where PDAs and other companies still hold sway. "The PDA does have an enterprise future, without a doubt," says Brian Gammage, vice-president for client platforms research at Gartner. "There are groups of users that derive real benefit from PDAs, and support on the Microsoft platform in terms of integration with back-end systems is superior due to the legacy it has there in computers."
Microsoft has been touting figures by the Canalys research firm suggesting Hewlett-Packard PDAs running its Windows mobile software had 33 per cent of the European market in the fourth quarter, against 25 per cent for Palm. Microsoft said this represented 190 per cent year-on-year market share growth for its software. However, Microsoft's emphasis on its success in PDAs is understandable, given that it has made little headway against Symbian in the smartphone market.
The figures also highlight difficulties for Palm. It merged with Handspring last year in an attempt to make an impression in the smartphone market as its PDA business waned. It has also split the company in two - palmOne producing devices, and PalmSource developing an operating system that can work in PDAs and smartphones. Its Treo smartphones have been well received but have only a fraction of the market.
Meanwhile, Psion has decided it is not big enough to stand with Nokia against Microsoft and is retiring to its Teklogix business to develop rugged mobile hardware for the enterprise.

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February 10, 2004 Tuesday
London Edition 1

SECTION: FRONT PAGE - FIRST SECTION; Pg. 1

LENGTH: 454 words

HEADLINE: Nokia steps up smart-phone duel with Microsoft

BYLINE: By CHRISTOPHER BROWN-HUMES and MAIJA PESOLA

DATELINE: STOCKHOLM

BODY:
Nokia, the world's leading maker of mobile phones, stepped up its battle with Microsoft yesterday by taking control of Symbian, the leading supplier of smart-phone operating systems.
The Finnish group, which was already Symbian's biggest shareholder and customer, plans to buy 31.1 per cent of Symbian from Psion for an estimated Pounds 135.7m, to take its total stake to 63.3 per cent.
The move will give Nokia more influence over Symbian's development as it battles to stop
Microsoft gaining the same dominance in mobile software as it has in personal computers. Symbian has 95 per cent of the fast-growing smart-phone market.
But analysts said there could be a backlash if Symbian was seen as Nokia's proprietary system, rather than an open standard with broad support in the handset manufacturing community. Symbian's other shareholders include Nokia rivals Sony Ericsson, Ericsson, Samsung, Siemens and Panasonic.
Psion shares fell 30.75p to 65p, as investors reacted to the sale of the company's most important asset and the price achieved.
Nokia is paying an initial Pounds 93.5m for Psion's Symbian stake and will pay a further 84p for every device sold with a Symbian operating system in 2004 and 2005. Analysts expect around 18.7m Symbian devices to be sold in 2004 and 31.5m in 2005.
The agreement values Symbian at Pounds 436.2m, more than a third higher than the Pounds 300m it was valued at last autumn when Nokia and Psion agreed to buy Motorola's 19 per cent Symbian stake.
There has been speculation since the Motorola deal that Nokia would either bid for Psion outright or seek to acquire the company's Symbian stake.
Rachel Lashford, analyst at Canalys, said: "The other shareholders will be concerned about financing a major competitor." Those shareholders have proportional pre-emption rights over the Psion shares, but it is thought unlikely that they would challenge Nokia's move.
Antti Vasara, Nokia vice-president of technology sales, said the company wanted to ensure that Symbian had "staying power in an extremely competitive market". He admitted that Nokia and Symbian could be regarded as the same entity, potentially deterring some users.
"It is clearly a risk, but we are aware of it," he said. "We are committed to making sure Symbian remains an independent company."
The sale of Symbian leaves Psion to focus on its core Teklogix business, which makes wireless handheld computers for industrial use by companies such as DHL and Toyota, and accounts for about 90 per cent of the company's revenues.
Alistair Crawford, Psion chief executive, said funds from the stake sale could be used for acquisitions to bolster the Teklogix business or returned to shareholders. Lex, Page 20 Gamble for Nokia, Page 26

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February 10, 2004 Tuesday
London Edition 1

SECTION: LEX COLUMN; Pg. 20

LENGTH: 246 words

HEADLINE: About a Borg THE LEX COLUMN:

BODY:
"Resistance is futile. You will be assimilated." Star Trek fans will be familiar with the Borg, an irresistible force absorbing everything in its way.
Is the market for mobile operating systems going the same way?
The Symbian joint venture was set up to counter the threat of Microsoft dominance. It has achieved an estimated market share of 80 per cent in smart-phone operating systems. Ironically, Nokia, the world's dominant handset maker, is set to take control.
After Motorola's sale of its stake last autumn, Psion held 31 per cent of Symbian, while Nokia held 32 per cent - giving both a blocking vote. As a financial shareholder Psion's focus was on achieving profitability quickly, en route to an initial public offering. Nokia's interest is more strategic and the Psion stake sale is a recognition of the Finnish group's growing control. A more competitive royalty structure may result, while an IPO has receded as an eventual outcome.
Nokia has offered reassurance that it is committed to keeping Symbian independent. But it may now be perceived more as a Nokia proprietary system rather than an open standard. This could deter potential users and dent its chances of becoming an industry standard.
However, the business model has not changed. All licensees have access to the source code and can differentiate their products. Nokia's control is by no means complete, but it is growing. Rival handset makers may feel the only choice is between the Borg and the Klingons.

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February 10, 2004 Tuesday
London Edition 1

SECTION: COMPANIES: INTERNATIONAL; Pg. 26

LENGTH: 416 words

HEADLINE: INTERNATIONAL: Symbian buy is gamble for Nokia

BYLINE: By CHRIS NUTTALL

DATELINE: LONDON

BODY:
Nokia's decision to take control of software maker Symbian represents a high-stakes gamble in its battle with Microsoft for dominance in the burgeoning smartphone market, according to analysts.
Nokia's move - paying Pounds 135.7m (Dollars 252.2m) to Psion to nearly double its stake in Symbian to 63.3 per cent - is seen as necessary to boost the development of Symbian's operating systems. But it could antagonise operators and rival handset makers.
"The big advantage of Symbian in the past was that it was owned by multiple companies and was setting the standard against Microsoft," said Torsten Frankenberger of Droege, a consultancy. "But now it is linked to one company with a big market share, from the perception of the operators, this is too much power and they won't like it."
Ben Wood, an analyst at Gartner, said handset makers might take a more charitable view, in spite of them becoming more dependent on a rival for a key component of their phones. "Nokia has been Symbian's biggest shareholder and customer for some time now and licensees such as Samsung, Siemens, Panasonic and Sendo have already decided to base (their graphical user interface) on Nokia's own Series 60 interface anyway," he said.
SonyEricsson will be more concerned. Its interface is the Symbian-developed UIQ and the company would have noted assurances from Nokia yesterday that Symbian would continue to support this.
Nokia's move is believed to have been prompted by recent advances by Microsoft in the smartphone market - it has persuaded Motorola and Samsung to make handsets that will use its operating system for the first time.
"Smartphones are a key part of Nokia's strategy and it was in a position where Symbian was not necessarily able to deliver what it wanted in terms of providing the technology in the time it needed it to come to market," said Mr Wood. "So it was left with little option but to invest more in Symbian in order to deliver key components."
Symbian is currently dominant in the smartphone market, where 6m-7m handsets carried its operating system last year compared with an estimated 200,000 for Microsoft.
Richard Windsor, Nomura telecoms equipment analyst, said it would make sense financially for Nokia to absorb Symbian entirely. It would mean the Dollars 100m it was paying out to run Symbian along with about Dollars 350m in earnings would come on to its own balance sheet.
But for those concerned about Symbian's independence, it might drive the industry towards Microsoft or to Linux.

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October 28, 2003 Tuesday

SECTION: CREATIVE BUSINESS - Wireless World Special; Pg. 2

LENGTH: 1536 words

HEADLINE: Turning point for the wireless world Most people in the developed world have phones, and poorer countries offer wafer-thin profits. So the mobile industry now has to persuade consumers to pay for new wireless services

BYLINE: By FIONA HARVEY

BODY:
In the beginning there was the mobile phone. It gave us the power to communicate with whomever, whenever and wherever we may be. Later we were given the internet, which showed us the way to surf the world wide web and e-mail, and lo, the message then came that the two would be combined to create a new world of wireless communications.
When Microsoft, the world's biggest software company, struck a deal with Motorola, the handset maker and Orange in September, it signalled another step towards the brave new wireless world. Bill Gates has long had his eyes on the mobile phone market, chiefly as a platform for the Windows operating system and a way of extending Microsoft's hegemony into one of the few areas of technology that had so far eluded him.
Mobile phone operators also seem to be picking themselves up from the rubble caused by the burst of the telecoms bubble and massive debts from 3G licences. "We are going through another type of evolution because customers are clearly learning there are more things they can do with these devices," says Sol Trujillo, chief executive of Orange.
But the road to the promised land is not going to be an easy one. The causes of the doldrums of the past few years have yet to be addressed. Growing saturation of the mobile phone market in the developed world, advances in technology that have brought us handsets that are now good enough for many people's needs, the slow take-up of third generation mobile technology, and the debts that operators incurred in buying their 3G licences: all of these, added to the hangover from the late 1990s boom and sluggish economies worldwide, have produced a more difficult market than any mobile players were prepared for.
A wireless world, where the mobile phone is used for everything from shopping to dating to payment, is the ultimate panacea for the saturation problem. After ramping up gradually from the late 1970s, the mobile phone industry finally reached critical mass at some point in the 1990s, when the costs of hardware and subscriptions declined enough in developed countries to let mobiles reach the mass market. Now that the penetration of mobile phones has reached about 80 per cent of the population of western Europe, there is little room for more growth, as only the very young and the very old and a few other groups now do not have phones. Gartner predicts 87 per cent penetration by 2008. In north America, some room remains, as only half the population has a mobile phone and penetration is predicted to grow to 66 per cent by 2008.
Operators and handset makers are now looking for revenue growth through data services such as picture messaging and downloads and are hoping that consumers in the west will follow their counterparts in Asia. In Japan, operators have managed to sell consumers added services from polyphonic ringtones to games, and fun services from mobile flirting to picture messaging. Through increased use of data services they are hoping to lay the ground for 3G mobile usage in the near future.
However, the going has been hard work for operators and handset manufacturers, as consumers have been slow to use premium services such as e-mail on the move or Wap-style internet browsing. SMS, or text messaging, is the only true non-voice service that consumers are willing to pay for today according to Paul Jackson, analyst at Forrester Research. "Only 24 per cent of mobile users say they would be willing to pay for any mobile application via their mobile phones."
Sales of handsets that had been buoyed by people upgrading to sleeker, smaller and lighter models also look set to slow, as most handsets have reached a point where mainstream users are relatively happy with them. Jackson points to "low consumer interest in added phone functionality" - in other words, our phones have progressed from the ugly bricks of a few years ago to a point where most people get enough out of them already.
The search for revenue could pose a risk of increased costs and the loss of a highly profitable revenue stream. In Japan, the operators offer large subsidies for handsets, while attempting to stimulate mass data adoption could lead to the loss of SMS revenue, says Enders Analysis.
Of course operators can look for growth in areas of the world where mobile technology has not yet taken off. Latin America, Eastern Europe and Asia Pacific look better prospects, as penetration in Eastern Europe in particular is forecast to double in the next five years. China and India also represent a huge market, with only 230m mobile connections so far.
Other developing countries, lacking China's impressive growth rate, do not look so attractive, but even there the lack of sufficient land lines has led the International Telecommunications Union to predict that mobile operators will leapfrog landline providers in developing countries, setting up a mobile infrastructure instead. For handset makers, developing countries are unattractive markets as margins are razor thin and it is hard to avoid commoditisation of handsets.
But in developed countries, operators need to increase the revenues they generate from each customer. They should target two early adopter profiles, who will lead the adoption of GPRS and 3G services, says Jackson of Forrester. One group is young women, who make up 14 per cent of the mobile population and use their phones for entertainment. This means more than gaming services, which generally target young men. Entertainment encompasses services such as news and horoscopes, but also picture messaging, mobile dating and instant chat. These services will fuel handset growth, as people upgrade to camera phones - forecast to make up a substantial part of the handset market next year. The other early adopters tend to be male, with high incomes and ambitious career goals. To these customers, operators need to stress the benefits of organising work tasks, accessing e-mail, and eventually offering synchronisation with corporate systems. Jackson believes that many corporate users will adopt GPRS in 2004 for these reasons, and that by the start of 2006 they will be ready to embrace 3G.
It seems that may be how long we have to wait for 3G to fulfil its promise. So far, the UK's 3G network 3 has only 115,000 subscribers, according to the latest figures dating from August. However, the crucial test will be the Christmas market, when many people buy phone upgrades as presents.
Other operators planning to launch services in 2004 will watch with interest the marketing tactics 3 employs this year. The company has firmly pitched its services to men, say analysts. "The 3 device is all about videos and sports, a bit of a boy's toy, targeted at men who have the required income and who are (technology) enthusiasts," says Eden Zoller, analyst at Ovum.
And what of the Microsoft deal with Motorola and Orange? Microsoft is investing billions of dollars to try to compete with Nokia and become a dominant force in the emerging "smartphone" market, where handsets are becoming multimedia devices.
At this point, it is unclear whether smartphones will be able to find a market beyond business users. However, the deal is a warning shot at Symbian, the dominant supplier of mobile phone operating systems backed by Nokia, and the mobile operators.
David Levin, chief executive of Symbian, argues that Microsoft remains a relatively small force: "Our main competition comes not from Microsoft but from the (internally developed) operating systems of the handset manufacturers."
Microsoft has also announced a tie-up with Vodafone in an initiative designed to bring mobile data services to the personal computer. The news that the two companies will launch a device that users can attach to their PCs enabling them to pay via their monthly mobile phone bills for goods and services bought over the internet left many people scratching their heads. However, it seemed to signal an improving relationship between the software giant and mobile operators.
While the market may not have taken off as fast as some expected, most observers within the industry remain optimistic. Nikesh Arora, chief marketing officer of T-Mobile International, notes: "What we consider as optional or marginal will become mainstream for future generations," in much the same way as any new technology, from cars to telephones, TVs, the internet and DVDs.
Devices with a much richer range of functions, from gaming to music playing to digital cameras and personal digital assistants, will entice more consumers into the market, argues Levin of Symbian: "Devices are now encompassing the full range of functions - you can build nearly any item of consumer electronics into a mobile phone."
We have heard these visions, before - these were the prophecies which led to the mad rush for 3G spectrum. "I see no reason cars, cameras, music players, parking meters, home and business systems, infrastructure and machines, payment and delivery cannot be connected wirelessly and, in time, they will be," says Arora.
It may not be fantasy, but the crucial question both operators and handset makers are asking themselves is when will it happen and how can they hasten the move towards this wireless world.
mailto:[email protected]

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August 30, 2003 Saturday
London Edition 2

SECTION: COMPANIES INTERNATIONAL; Pg. 5

LENGTH: 407 words

HEADLINE: Motorola to offload stake in Symbian TELECOMMUNICATIONS:

BYLINE: By ROBERT BUDDEN and ASTRID WENDLANDT

DATELINE: LONDON

BODY:
Microsoft's attempt to challenge Symbian's dominant position in the market for smartphone operating systems received a boost yesterday after Motorola, the world's second-largest handset manufacturer, unveiled plans to sell its stake in Symbian.
Publicly, Motorola said it remained committed to launching more Symbian-powered phones following the launch this week of its first phone using the Symbian operating system.
But analysts said the manufacturer's decision to dispose of its 19 per cent holding in Symbian signalled its intention to strengthen its partnership with Microsoft, particularly in the development of phones for the business market.
Richard Windsor, analyst at Nomura, predicted Motorola would not launch any more Symbian handsets but would focus on Java technology and Linux, the open source operating system, for its consumer phones and use Microsoft for business devices.
Ben Wood, principal analyst at Gartner, the research group, said Motorola had abandoned Symbian in an effort to differentiate its handsets from those made by Nokia, the market leader.
Yesterday's decision by Motorola to sell its stake on the first possible day after a five-year lock-in period demonstrates the handset maker's desperation to quit the venture.
Symbian was founded in 1998 by handset makers to prevent Microsoft from towering over the market. The joint venture is owned by Nokia, Panasonic, Sony Ericsson, Ericsson, Samsung, Siemens and Psion.
Nokia said it intended to buy part of Motorola's 19 per cent stake for Pounds 39m (Dollars 61m), taking its holding in Symbian to 32.2 per cent and making it Symbian's largest shareholder. Psion wants to buy part of Motorola's stake, or the remaining 5.8 per cent, lifting its holding to 31.1 per cent.
But some analysts fear Nokia's increased ownership and influence over Symbian could provide greater opportunities for Microsoft.
"Microsoft welcomes this news as it gives it the opportunity to lobby very hard with Motorola and even the other owners of Symbian such as Siemens and Samsung," said Per Lindberg, analyst at Dresdner Kleinwort Wasserstein.
Every manufacturer that uses Symbian software in their phones pays the company a royalty fee of between Dollars 5 and Dollars 7 per handset together with consultancy fees for using the software platform. The company has about a 50 per cent share of the software market for smartphones - handsets with the latest applications such as games and e-mail.

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August 20, 2003 Wednesday
London Edition 1

SECTION: FEATURES; Pg. 10

LENGTH: 1348 words

HEADLINE: A big test for a smart operator: Symbian is bidding to become the Windows of the mobile phone world. But it faces some serious competition, writes Fiona Harvey

BYLINE: By FIONA HARVEY

BODY:
David Levin's offices sit on a small, dusty side street beside a housing estate in an unpromising area of south London. The modest setting seems incongruous for a company bidding to be the face of mobile telephony.
Symbian was set up in June 1998, the brainchild of the veteran British technology company Psion and a joint venture with Nokia, Ericsson and Motorola, three leading mobile phone makers. David Levin gave up his post as chief executive of Psion to head Symbian in April 2002.
The company makes an operating system for mobile phones. Like that of a computer, this software controls the interface through which the user operates the phone, and it brings to phones many of the capabilities of a computer including e-mail, calendars, address books and the power to take pictures or show images. Symbian provides the "face" of devices including the Nokia's 9210 and 3650 handsets and the N-Gage mobile games device, the Siemens SX-1 and the Sony Ericsson P800.
Mobile phones are the next battleground for software companies. The dominance of the Windows PC operating system has created a virtuous circle for Microsoft: the more personal computers use it, the more applications are written for Windows and therefore the more PC users want it. The same prize is potentially up for grabs in the mobile phone market.
Symbian was set up to ensure that Microsoft, with its smartphone operating system based on a cut-down version of Windows, would not extend its desktop hegemony to the phone. The fear is that if Microsoft wins the battle, the phone manufacturers' margins will come under threat from the commoditisation of phones, as happened to the PC makers.
However, Symbian faces several rivals. Not only is there Microsoft but also many phone makers produce their own operating systems, further complicating its effort to get into as many phones as possible.
Tomorrow, Symbian will publish second-quarter results that are expected to show a substantial rise in the number of units delivered. If the company has maintained its progress, about 2.5m to 3m Symbian-equipped handsets will have been dispatched in the quarter. Most units generate a licence fee of Dollars 5 (Pounds 3) and a few Dollars 7.50; and some extras are available, giving revenues of between Dollars 5 and Dollars 8 a handset, which would equate to total royalties for the quarter of Dollars 12.5m to Dollars 18m.
Historically, and as an unlisted company, Symbian has been reluctant to give out financial data, prompting speculation that its recent openness - the company released first-quarter figures this year - is a prelude to a stock market listing.
Mr Levin states firmly that, although his shareholders have indicated their preference for an initial public offering, now is not the time.
For Symbian, the figures should provide a boost in its fight against Microsoft. In December 1999, when Microsoft announced a collaboration with Ericsson in the mobile market, shares in Symbian's parent, Psion, immediately plummeted 40 per cent.
Since then, Symbian has suffered further blows, as other shareholders have looked at collaboration with Microsoft, or pulled out of the businesses that gave rise to their interest in the joint venture. Ericsson, for instance, put its handset business into a venture with Sony, while Psion abandoned its handheld computer business in the face of fierce competitive pressure.
Motorola also rocked Symbian when it announced an alternative deal with Palm and when rumours emerged of an arrangement with Microsoft. In addition, Motorola is developing its own smartphone operating system and trying to create a separate phone operating system based on the free software, Linux. Some of Symbian's other customers are similarly pursuing several options for operating system development.
"Our main competitor is not Microsoft," says Mr Levin. "It's the proprietary operating systems of the handset manufacturers themselves."
But, to most observers, Microsoft remains the biggest threat. It has formidable strengths and, whereas Symbian fights shy of the fully fledged handheld computer market, Microsoft spans all kinds of mobile devices, including personal digital assistants, smartphones, web tablets and laptops.
However, Microsoft has run into serious problems with its smartphone software. Last October, the UK mobile phone maker Sendo broke off a widely publicised agreement to use Microsoft's product in its phones, in favour of Symbian. Sendo says Microsoft was not able to deliver its software in time. The company also cites as a factor the access to its source code that Symbian provides, allowing much greater customisation of the software.
This summer, Microsoft had to admit that its planned launch of a phone in conjunction with T-Mobile would be delayed, with the operator citing concerns over the software's quality.
Branding has also emerged as a sensitive issue, as handset manufacturers and operators vie to make their product identifiable to the end user. If Microsoft owns the branding of the user interface, handset makers may find themselves squeezed out in favour of low-cost, no-name phone manufacturers and mobile operators may find it hard to differentiate their services to users.
Microsoft declines to disclose how many handsets have been dispatched bearing its software but analysts cite estimates of little more than 100,000. It has only five licensees, mostly minor operators, to Symbian's nine. And Symbian has gathered more software applications to its platform, with an estimated 1,200 compared with about 500 from Microsoft. Applications will be vital to any smartphone's success, just as they have been to that of PCs.
Given these factors, and its head start, analysts predict Symbian will win.
Jessica Figueras, analyst at Ovum, says: "Symbian is easily ahead of Microsoft." Nomura recently predicted that Symbian would take 40 per cent of the smartphone market and Microsoft 20 per cent. This month, Bernstein praised Symbian's "brilliantly designed operating system", saying: "We expect Symbian phones to dominate."
However, Symbian's ride will not be smooth. As well as fighting Microsoft, it must also fight the perception that it is a European technology. Ken Smiley, an independent analyst in the US, observes: "There is still the ongoing issue of lack of adoption in North America and many of my clients view Symbian as a 'Europe-only' solution and are therefore unwilling to purchase Symbian-based solutions."
In addition, the strategic interest of several of Symbian's shareholders in its success has dimmed. Motorola is working on alternatives; Ericsson has moved out of handsets; and Psion has quit PDAs. Of the founding shareholders, only Nokia retains as strong an interest in Symbian's success as it had in 1998. Does this shifting allegiance bode ill for the joint venture?
The main shareholders appear to be standing firm. Psion is believed to be committed to retaining its stake. Ericsson says: "Even in today's perspective, after the establishment of the Sony-Ericsson joint venture for mobile handsets, Ericsson has a key interest in technology development in the mobile communication sector, as manifested in our mobile platforms business. This includes strategic interest in such key technology areas as operating systems." Motorola declined to comment on its plans for its stake but said Symbian remained crucial to its software strategy.
Last, Symbian must keep its focus on technology, and in particular the openness of its technology, warns Ms Figueras: "Fragmentation could be a problem. As the Symbian technology is adapted to many different devices, it risks breaking into different versions" - which may eventually become incompatible.
Tomorrow's results mark another early staging post in the race for dominance in mobile phones. Mr Levin says Symbian, now running at a loss of about Pounds 40m a year, will break even when it delivers 20m units a year. Analysts expect that towards the end of 2004.
In the next three to five years, it should become clear whether Symbian will remain on a dusty side street off the technology thoroughfare.

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