NOKIA at the Crossroads (0.3)

7/31/2019 NOKIA at the Crossroads (0.3)

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University of Indonesia

Nokia at the CrossroadsGlobal and European Economic Business Environment -

MGMT 51095

by Ario Timur, Arseno Adji, Frida Silviana, Ira Aryani, Ludwi

Samoen


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NOKIA at the crossroad Page 2

1. Ecosystem1.1.Concept of EcosystemThe basic definition of an ecosystem is a network of entities the work and function together inorder to create an environment. The Telecommunication Ecosystem is one that consists ofvarious functions in order to facilitate communication and other transfers of data from source

to destination. This ecosystem if understood right can help a business define its goals.

Figure 1 - Ecosystem of Nokia

The value that Nokia is based on is the Telecommunication Ecosystem. Nokia as atelecommunication company produces products that fit all the aspects of the ecosystem.Currently, their product portfolio revolves around trying to provide what customers need intelecommunicating, which are:

Network Devices The infrastructure of telecommunication consists of many parts, suchas switches, firewalls, routers, and repeaters. Nokia produces all parts necessary toprovide the telecommunication infrastructure.

Handsets In order for a person to enjoy telecommunication, they need a terminal.Nokias has a large line of cellular phones that may fit anybody.

Operating Systems The main function of the Operating System (OS) is to bring togetherand manage hardware components so it can be used as intended. Most of Nokias

handsets run Symbian OS on their phones. Nokia is shifting its resources into usingMicrosofts OS.

Content The contents of the telecommunication are data and voice. Data may vary fromfiles, to application data that runs on top of the OS. Nokia offers OVI as a platform in ordercontent providers can build applications and offer features to enrich its cell-phones.

OVI is something that is recent and was mainly developed in order so their mobile phones havethe ability to compete with other mobile phones.

Its competitors such as Blackberry and iPhone by Apple offer various contents which attractcustomers. The popularity of these competitors have gained is mainly due to their focus onproviding contents such as client messenger services, email, and internet browsing which all

run through GPRS internet protocol.

One of the things that Nokia failed to do is capture the demand of social networking in themarket. Compared to its competitors, the maturity of the social networking applications is farbehind. Popularity on social networking may be what caused the smartphone segment toflourish.


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1.2.TrendsIf we take a look, mobile manufacturers are constantly improving their handsets so that theycan be used for many kinds of activities, such as taking pictures, recording videos, listening tomusic, and playing games. We find a customer behavior that is so enthusiastic towards hightechnology handsets.

These concepts are known as Convergence and Divergence. Convergence talks about bringingentities and packages together in a unified form or media to be transported while Divergence isextracting and parsing a pool of data into specialized terminals. This is how individualconsumers interact with others through various media platforms and create variousexperiences, and enables new forms of media and content that connects us socially.

Figure 2 - Convergence

Convergence is about co-packing, but all real innovation is about diversity, doing thingsdifferent to serve clients better. This can be boring, destroy variety, breeds monopoly, killsinvention, adds unwanted options, makes life more complicated and robs consumers of choice

(Dixon, 2011). For example, if we bought a slim mobile phone with a 3.2MP camera and havealready installed our favorite games, and then when we need to upgrade the camera to 5MP, wehave to upgrade the entire device. We need to reinstall the games, setup the configurationbefore can we get the similar mobile phone as the previous one?

Convergence will cause us to spend more to produce; thus our product will be more expensiveand badly designed (not proper in usage) compared to the product that is specialized to do onething, such as a handy-cam.

Divergence means Id have a Nanopod for personal music, a tiny mobile phone for

communication only, a pocket PDA with color screen and video, a handy-cam to record videos,and a camera to take serious picture. If someday I wanted to upgrade the camera, I only have tobuy new camera and sell the previous one.

Both convergence and divergence are happening at the same time. We need to keep focus onthe needs of ordinary people who want many simple, well-designed, reliable, low cost products,to do different things. We need to encourage diversity, innovation and creative genius, toimprove quality of life, solve real problems and make great things happen. Convergence intechnology products is important but divergence will drive the future, and survival of everytechnology company will depend on it (Dixon, 2011).


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2. Social Dimension2.1.Pictures of IT Diffusion

2.1.1. Mobile subscriber and mobile web accessMobile phones are bringing telecommunications to many people in developing countries

that previously did not have access to a telephone. Based on the estimates from TheInternational Telecommunication Union (October 2010), there will be 5.3 billion mobilesubscriptions by the end of 2010, or equivalent to 77% of the world population. 18% areable to access the internet (940 million subscriptions to 3G Network). Compared to 4.6billion mobile subscriptions at the end of 2009, this is a huge increase. This growth is drivenby developing countries especially in Asia and the Pacific region, particularly India andChina. On the other hand, mobile penetration in Africa is lowest worldwide. In developedcountries, the growth is slowing down. The number of fixed lines continues to stagnate, as aresult of the fixed-to-mobile substitution effect, coupled with the limited infrastructure forfixed communications in developing countries. (Appendix 1 Key Global Telecom Indicator)

The number of people accessing mobile Internet is growing fast and is expected to overtake

the PC as the most popular way to get on the Web within five years (ITU report - February2010). Mobile access to the Web will overtake PC access (assuming the present expansion of3G networks and availability of Internet-ready phones continues) because mobile phonepenetration outnumbers fixed Internet users. In the developed world, only 21% of peoplehave Internet access, lowest in Africa at 9.6%. The price of fixed broadband in developingcountries remains prohibitively expensive. There are more mobile Internet users in Chinathan any other country. In developing nations where access to other media has beenlimited, mobile is the great enabler. Mobile and will be their only access to the Internet andall the services such as online banking, money transfer, email, up-to-date weather and news,commodity prices, commerce, government services. In developed nations, mobile is analternative to PC access, it's the Internet while on the move.

One thing that needs to be clear about the definition of mobile access is that not all peoplewith smartphones can access the mobile Web. Many conventional handsets can surf themobile Web as well but a smartphone will deliver provide a richer Web-surfing experience.

2.1.2. SMS RulesAccording to International Telecommunication Union research, the most number of textsare sent in The Philippines and the United States. In 2010, the SMS (Short Message Service)has been used by 4 billion mobile phone users and estimated that 6.1 trillion messages weresent worldwide. This is triple the number sent in 2007 (1.8 trillion). It means that 200 000text messages are sent per second. If the average cost of 1 SMS is 7 cents, the earnings ofthe phone company gained are estimated up to USD 14.000 in respective year. The PortioResearch forecasted that the traffic usage of SMS in year 2013 will exceed 10 trillion.

MMS, mobile email, mobile web and instant messaging are all growing strongly in 2010 andrapidly this year with the Blackberry and iPhone as the mobile internet phone players in themarket. Mobile email takes important role for business people to do their works outside thework place. IM (Instant Messaging) is popular among the young people for them to maintaintheir social networks.

In developed countries (where smartphone penetration is higher), people use mobile Web.


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57% of Japanese use mobile email for sending messages and 41.6% with SMS. Theremaining 3% prefer using IM for messaging.

While for European people, 82.7% are still using SMS to send messages, 22.2% useemails and 14.2% use instant messaging.

In United States 68% of mobile phone users use text message, 30.5% with emails,17.2% with instant messaging.

From here we can see that high frequency of conservative messaging such as SMS indeveloped countries is still popular even though there are other services for messaging asMMS, email and IM. Research estimates that the global mobile messaging business willreach over US$150 billion worth of business, and will hit US$233 billion by 2014.

United States Europe Japan

Used connected media

(browser, app or download)46.7% 41.1% 76.8%

Used browser 36.4% 28.8% 55.4%

Used application 34.4% 28.0% 53.3%

Used messaging

Sent text message 68.0% 82.7% 41.6%Instant messaging 17.2% 14.2% 3.6%

Email 30.5% 22.2% 57.1%

Accessed entertainment/social media

Took photos 52.4% 57.5% 62.9%

Social networking or blog 24.7% 18.0% 19.3%

Played games 23.2% 25.3% 16.3%

Recorded video 20.2% 26.1% 15.8%

Listened to music 15.7% 25.0% 12.9%

Watched TV and/or video 5.6% 5.7% 22.8%

Accessed financial services

Bank accounts 11.4% 8.0% 7.0%

Financial news or stock quotes 10.2% 8.0% 16.5%

Accessed news, sports, weather, search, retail, travel, reference

News and information 39.5% 32.2% 57.6%

Weather reports 25.2% 16.4% 34.7%

Search 21.4% 14.9% 31.5%

Maps 17.8% 13.0% 17.1%

Sports news 15.8% 12.0% 18.2%

Restaurant info 10.0% 6.5% 9.7%

Traffic reports 8.4% 7.4% 14.0%

Classifieds 7.3% 4.8% 3.6%

Retail site 6.5% 5.2% 8.5%

Travel service 4.4% 4.6% 2.9%

Figure 3 - Mobile behavior in United States, EU5 (UK, Germany, France, Spain and Italy) and Japan October, November,

December 2010


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Another fact that supports the statement that SMS is still popular compared to othermessaging service. The research took place in India. Nokia invested in a series of services oftext messaging for India. The idea was to be customer-driven, not just technology-driven.The tools are:

We Meet :We Meet social networking will not require the user to have any data/GPRS plans forconnecting to friends and networking around. The application specifically developed forIndian markets bypasses GPRS connection, which is still a prohibitively costly option inIndia and allows one to chat/IM through text messages. The effect is something like aninstant messaging conversation, but at the fraction of the cost and on devices with no dataplans. We Meet is also designed to be location-aware. But instead of pricey GPS, which istypically found only in high-end phones, it tracks peoples location via towers. The systemworks because, in India, operators give cell towers geographic names. Even low-endphones can detect the basic vicinity of specified contacts and display the information inthe form of a word or phrase. When people move, the location updates. Its not a digitalmap, but it serves the same function.

MoMart :MoMart, stand for Mobile Mart, another mobile texting based marketplace. It consists ofproduct listings delivered by text message. Interested buyers would subscribe to theservice and specify the goods they want; the program would then push matches directlyto their phones. Listings could be text-only or include an image embedded into themessage. They could also be targeted to particular areas using cell-tower locationtechnology, enabling buyers and sellers to meet in person. The programs run on Nokias

Series 40 software platform, giving them a potential audience of hundreds of millions ofphones.

Nokia also has some experience it can reference. Last November, the company introduced aset of mobile programs called Life Tools that provided agricultural information and

educational material to people in rural areas. Life Tools routes information to users via textmessage and was tested in India before being publicly released. However MoMart andWeMeet target urban users and encourage people to communicate with each other, not justconsume content pushed to their phones.

2.1.3. Nokias PositionTop handset suppliers in the global market are Nokia, Samsung, LG, Sony Ericsson, Motorolaand Research In Motion. Nokia still leads with a market share of 36.3% in 2011. Asia Pacific,Middle East and Africa will experience faster growth than other regional handset marketsover the next two years (VisionGain).


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Figure 4 - Market Share

Based on Telecom market research, if we look deeper into regions, only North America(United States and Canada) has a different top 6 handset suppliers. The handset suppliers

are: Samsung, LG, RIM, Motorola, Apple and HTC. The market dynamics are clearly differentfrom the overall global market where Nokia is the dominant leader. Nokia is the numberone supplier in both China and India. It is forecasted that Nokias handset shipments in AsiaPacific will rise to 222.6 million in 2011.

2.1.4. Application on Smart PhonesOver 300,000 mobile apps have been developed up to December last year. Theseapplications were downloaded 10.9 billion times. It is predicted that global downloads willreach 76.9 billion in 2014 and the business will be worth US $35 billion. Demand for appstores is expected to peak in 2013.

However, mobile application stores will slowly decline as subscribers migrate from

download apps to mobile Web sites and more popular download apps, such as socialnetworking, like Twitter and Facebook are preloaded on mobile devices. The average priceof downloading a mobile app is falling rapidly on all vendor app stores, except Android.

One in four mobile apps once downloaded is never used again. Many apps are downloaded,tried once and then discarded. Tracking downloads is often a first step to gauging an apps

success, but download stats often provide an incomplete and inflated view. High downloadnumbers always feel great, but if those customers never open the application or abandon itafter just a few uses, those high download numbers are really part of a high churn rate.Some app stores, including the largest, Apple, keep download stats for individual apps asecret, which saves the publishers from embarrassment. Thus you will only hear downloadfigures for the more successful apps, but while these sound impressive, they dont mean

much without the retention rate i.e. how many people are still using the app a week, month,or year later.

The most used apps across all smartphones:

Facebook (The Facebook App has been downloaded 100 million times from theindependent app store GetJar, according to GetJar (December 2010). Making this themost downloaded app from any app store).

Google Maps

0.0% 10.0% 20.0% 30.0% 40.0%

Nokia

Samsung

LGRIM

Apple

Others

Market Share

Market Share
http://www.businesswire.com/news/home/20101122005392/en/GetJar-Smash-100-Million-Downloads-Mark-Singlehttp://www.businesswire.com/news/home/20101122005392/en/GetJar-Smash-100-Million-Downloads-Mark-Single


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The Weather Channel (TWC).The most popular categories are: Games, News, Maps, Social Networking, and Music.

On average US feature-phone users have 10 apps on board and smartphone users have 22apps (of which iPhone users have the most with 37). However, Nokia still hopes users willget hooked on doing more with their phones. Consumers who sign up for his apps will be

more likely to adopt data plans in the future. When data plans become mass market, theseusers can easily transition.

2.2.Social Demographic2.2.1. Explore new opportunities in AfricaAs part of the ITU (International Telecommunication Union) program Connectthe World a global multi-stakeholder initiative set up within the context of the World Summit ofInformation Society, ITU has identified 3 key areas that constitute primary building blocksneeded to reach the goal of connecting the unconnected worldwide by 2015, as follows:

Enabling environment that promotes good governance, fair, technology-neutrakpolicy and regulatory framework, intellectual property protection, consensusbuilding/dispute resolution mechanism, national e-strategies, national business andsocial development models, standardization.

Infrastructure and readiness that promotes network infrastructure and development,capacity building, national ICT awareness raising, funding of universal service/accessand local content development.

Applications and services that basically, provide e services that ranges fromgovernance, health, learning, business, employment, environment, agriculture andscience, disaster preparedness and response system, child and youth initiatives,cultural and linguistic diversity and local content.

Connect the World is a complementary initiative; it will not overlap the existing effort by

each region, but rather leverage the strength of its diverse membership to focus onactivities so that communities worldwide get what they need the most.

ITU divided the world into 5 Connect the World series, Africa, CIS, America, Arab States

and Asia Pacific. This paper will focus on Connect Africa that was held in 2007, with the aimof accelerating progress in the implementation of the Plan of Action established during theWorld Summit on the Information Society and the UN Millennium Development Goals,assembled Heads of State and Government and Ministers from African countries haveshown their willingness to collaborate with partners from industry, financial institutions,international and regional organizations and civil society towards achieving the followingConnect Africa Goals:

Interconnect all African capitals and major cities with ICT broadband infrastructureand strengthen connectivity to the rest of the world by 2012.

Connect African villages to broadband ICT services by 2015 and implement sharedaccess initiatives such as community tele-centers and village phones.

Adopt key regulatory measures that promote affordable, widespread access to a fullrange of broadband ICT services, including technology and service neutrallicensing/authorization practices, allocating spectrum for multiple, competitivebroadband wireless service providers, creating national Internet Exchange Points


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(IXPs) and implementing competition in the provision of international Internetconnectivity.

Support the development of a critical mass of ICT skills required by the knowledgeeconomy, notably through the establishment of a network of ICT Centers of Excellencein each sub-region of Africa and ICT capacity-building and training centers in eachcountry, with the aim of achieving a broad network of inter-linked physical and virtualcenters, while ensuring coordination between academia and industry by 2015.

Adopt a national e-strategy, including a cyber-security framework, and deploy at leastone flagship e-government service as well as e-education, e-commerce and e-healthservices using accessible technologies in each country in Africa by 2012, with the aimof making multiple e-government and other e-services widely available by 2015.

Based on the ITU statistics in Africa region, there 5 striking facts as follows:

Fewer than 4 out of every 100 Africans used the internet, compared with 1 out ofevery 2 people living in the G8 nations

The G8 is home to less than 15% of the worlds population, yet it is home to 45% ofthe world's internet users.

At present (2004-2005) growth rates, nearly 25 % of people living in the developingworld will be online by 2010.

An estimated 30% of all villages worldwide still have no access to telephone services. 79% of Africas 27 million fixed phone lines are located in just 6 of its 54 nations. An

estimated 30 countries still rely on a single 10Mbps international internet connection(or less) to serve their entire population, compare to in wealthy countries, consumerscan now buy their own personal 10Mbps connection at very affordable prices

Accounted for 14% of the worlds population, but for only 5.6% of all fixed and mobilesubscribers worldwide.

By far the worlds lowest penetration of fixed lines, with a continental average ofaround 3 main lines per 100 people.

Had 221 million total telephone subscribers, 198 million of which were mobilecellular subscribers. The continent has the highest ratio of mobile to total telephone

subscribers of any world region, and has been dubbed "the least wired region in theworld".

The region with the highest mobile cellular growth rate. Growth over the past 5 yearsaveraged around 50% year on year. The total number of mobile cellular subscriberscontinent-wide at end 2006 was 198 million.

Had some 22 million Internet users, for an Internet penetration of just 5%. EuropesInternet penetration is 7 times higher.

Please refer to the graphs on appendix 2 for more detail information Africa ICT regionalprofiles.

The opportunity for Nokia in this situation is involvement in building infrastructure,

network upgrade and expansion and high speed internet connection. Nokia, through itsNokia Siemens Network which already has 25% of the worlds population connect using itsinfrastructure and solutions, can increase their market sharing by exploring thisopportunities.

Just as Africa started building their telecommunication infrastructure, to complement thisinitiative, they can provide telecommunication devices such as conventional handset, whichalready their strong market worldwide. Developments in the mobile sector have been ableto change the ICT landscape. In Africa only one out of 4 African have a mobile phone. As an


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indicator, mobile growth remains strongest in the developing world. Contrary to what ishappening in the mobile sectors, Internet use is not growing as quickly in the developingworld as in the developed world. A high level of competition and a decrease in prices havebeen able to reduce the digital divide in mobile telephone, substantially.

Fixed telephone lines remain the exception and penetration is at 3 per 100 inhabitants, stillthe lowest in the world and will remains as the least dynamic sector. The limited availability

of fixed lines has also been a barrier to the uptake of fixed broadband and it is most likelythat Africas broadband market will be dominated by mobile broadband. Internet use, in

general, remains low in Africa especially, where only 5 percent of the population is online,compared to over 40 percent in Europe, the Americas, and Oceania.

The case will be the same with India where they see the opportunities of providing the text-message based service. This emphasize not in the sophisticated type of technology, but howpeople are involved in telecommunication progress in their region by adopting simplemeans of communication. The approach is the need for handset that can provide this basicservice.

3. ConclusionTelecommunication is a commodity which fully understood by Nokia. Currently, they have almostall chain in telecommunication started from the network, platform, content, and also handset. Tosurvive for a long term, several steps might be thought by Nokia as its business microscope.Scenario which might be the path as below:

3.1.Put the network up, send the other into rubbish basketNokia network currently occupied 25% of telecommunication infrastructure over the world. Itsounds great for Nokia network business. Therere two aspects which can be fundamental forthis choice.

Africa as new market of conventional telecommunication ITU as a union of telecommunication industry proposes a program which named

Connect Africa.

Figure 5 - Cellphone Subscriptions (2010)

According to the graph, it means that Africa has many potential to be utilized bytelecommunication companies, which means that infrastructure development required.And what type of telecommunication technology might be applied here? To win the


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Africa market, the technology which will be implemented must suit the economysituation in most Africa countries, which are not the latest technology, but the earlierone, such as 2G, 3G. And Nokia can put their value in it.

Data traffic which becomes higher from day to day due to human demand oninformation and internet-ing devices will increase congestion and utilization oftelecommunication operator network. Furthermore, Nokia is in proposing their LTEtechnology too many telecommunication operators, and they have signed agreement

with many of them. Why LTE can be a grace to telecommunication operators, theanswer as picture below:

Figure 6 - LTE cost per MB Figure 7 - LTE Performance

As an operator perspective, what they can conclude as below:

Cost which they need to provide data traffic for the customer will be lower. In along term, it means that the operating expenditure which they need will belower also, And we can conclude that profit that gathered by the operatorcompanies will be higher.

Satisfaction of telecommunication subscriber will get better which aresupported by the improvement in peak throughput and latency. What does itmean to telecommunication companies? The answer is lower churn rate, more

new subscriber activations. Then the next question is what does it mean tothem? The most feasible feedback to them is more profit for telecommunicationcompanies.

From 2 (two) points above, theres no reason for operator company not to take thistechnology. Why they have to do it? The answer is simple: profitability will be improved,and while they dont take LTE, they will be behind of the queue. Nokia as one of theearliest network company which propose LTE might have a large portion of cake. Sothink about it Nokia.

Maintain the handset and network business, handshake with other company in platformand content.

As we have demonstrated above Nokia network is so highly advantageous business forNokia. For other business part, they might think handset as the next commodity. Nokiahandset currently encompasses these following segments:

Smartphone handsetRecently, many platforms for mobile were built and shared without any charge,except for Apple with its iPhone which treat their platform as valuable one. With


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lack of limitation in Nokia current platform we might predict that Nokia will throwthe business away and cooperate with other parties in this part. And we thinkMicrosoft with its Windows is a appropriate candidate for it, while their platform isusing widely over the world, furthermore will give compatibility advantage to NokiaHandset.

Conventional handsetNot all the community needs the handset with high capabilities. Several reasonsmight be caused by uncomfortable, inappropriate, or unaffordable. Lets take a clear

example which we have described above about Africa Connect program. As theeconomy situation is not widely available for smart phone option, Nokiaconventional handset might be suitable for this segment.

A question emerged from these condition is which one that Nokia should take?Referring to Nokia current market share in conventional handset, in developingcountries, they should utilize it rather than try to compete in smart phone. And fordeveloped countries which will adopt LTE technology, smart phone might be theanswer to compete with the other handset manufacturer.


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Appendix 1 Key Global Telecom IndicatorsKey Global Telecom Indicators for the World Telecommunication Service Sector in 2010

(all figures are estimates)

Global Developed

nations

Developing

nations

Africa Arab

States

Asia &

Pacific

CIS Europe The

Americas

Mobile cellular

subscriptions(millions)

5,282 1,436 3,846 333 282 2,649 364 741 880

Per 100 people 76.2% 116.1% 67.6% 41.4% 79.4% 67.8% 131.5% 120.0% 94.1%

Fixed telephonelines (millions)

1,197 506 691 13 33 549 74 249 262

Per 100 people 17.3% 40.9% 12.1% 1.6% 9.4% 14.0% 26.6% 40.3% 28.1%

Mobile

broadbandsubscriptions

(millions)

940 631 309 29 34 278 72 286 226

Per 100 people 13.6% 51.1% 5.4% 3.6% 9.7% 7.1% 25.9% 46.3% 24.2%

Fixed broadband

subscriptions

(millions)

555 304 251 1 8 223 24 148 145

per 100 people 8.0% 24.6% 4.4% 0.2% 2.3% 5.7% 8.7% 23.9% 15.5%

Source:International Telecommunication Union(October 2010) via:mobiThinking
http://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom.htmlhttp://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom.htmlhttp://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom.htmlhttp://mobithinking.com/mobile-marketing-tools/latest-mobile-statshttp://mobithinking.com/mobile-marketing-tools/latest-mobile-statshttp://mobithinking.com/mobile-marketing-tools/latest-mobile-statshttp://mobithinking.com/mobile-marketing-tools/latest-mobile-statshttp://www.itu.int/ITU-D/ict/statistics/at_glance/KeyTelecom.html


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Appendix 2 Africa ICT Regional Profiles


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NOKIA at the Crossroads (0.3)