America Zooms in on Camera Phones

For months, John D Downey steered clear of phones with cameras, fearful that

handling the click-on gadgetry would be complicated. But early this fall, the

Sprint PCS Group customer was seduced by a simple Sanyo SCP-8100 with a built-in

camera. Suddenly, Downey became a picture-snapping fanatic, shooting photos of

his six kids to send to grandma. And as owner of Broski Fence Co. in Kansas

City, Mo., he uses the phone to click and e-mail pictures of fence parts to

suppliers. "Since it’s always with me, I can use it on a daily basis and

not get bogged down figuring out how the damn thing works," Downey says.

With wireless carriers pushing lucrative new photography and multimedia

services, camera phones are suddenly hot in the US. From virtually nothing in

2002, sales of photo-friendly handsets should hit 5 million units this year and

soar to 48.5 million in North America by 2006. Good news for the two biggest

suppliers of mobile phones in the US, Nokia and Motorola, right?

Feature-packed Cells for Sales

LG VX6000 Average price: $100. Simple design makes snapping photos and sending audio clips easy. SAMSUNG SPHA600 Average price: $200. Pricey, but sleek rotating camera lens a hit. NOKIA 3650 Average price: $150. Features video, but clunky size and complex keypad turns off buyers.

It should be, but the shift also creates big risks. After all, during

transitions to new technologies, upstarts have a rare opportunity to gain ground

on established players. Nokia should know: It went from nobody to No. 1 during

the move from analog to digital phones in the 1990s, displacing Motorola. Now,

Asian companies are seizing this photo opportunity to challenge Nokia and

Motorola like never before.

Although share figures are a well-kept secret in the emerging US market, the

trend is clear: Having unleashed a variety of models in America when demand

finally took off in the spring, Asian phone makers have claimed the early lead.

Samsung, for example, ships seven camera phones–more than anyone else–that

make up 40% of its US volume. That puts it at the top of the biz along with

Sanyo, LG, and Sony Ericsson, according to Christopher S Ambrosio, wireless

director at Newton Center (Massuchussets) researcher Strategy Analytics Inc.

Nokia lags just behind; Motorola is hardly in the game.

How did the Asians manage to do it? Thanks to speedy data networks that are

more conducive to e-mailing pictures than are US systems, demand for

photo-snapping handsets took off in Asia three years ago. That has given Korean

and Japanese phone makers a big headstart incorporating new capabilities into

the complex handsets.

Moreover, many suppliers of camera components are Japanese, enabling Asian

phone makers to work closely with them. The Asian players are also part of

larger conglomerates that have decades of experience making consumer electronics–expertise

they leverage when producing multimedia phones. "We recognized that cameras

would be a hot trend," says Peter

A Skarzynski, senior vice-president of Samsung’s North American wireless

division.

Bare-bones Phones



At the same time, market-leader Nokia’s traditional strength–a strong

brand, honed through years of marketing–may actually be hurting the company.

As wireless carriers such as Sprint introduce promising new multimedia

offerings, they want to highlight their own names and services as much as the

manufacturers’ brands. This damages entrenched icons such as Nokia and

Motorola far more than upstarts like Sanyo and LG.

But Nokia can’t blame its challenges solely on the carriers. The company

was early to the US market with its 3650 camera model last fall, a phone that

also takes video clips. But its clunky design and poor screen quality pale next

to high-resolution, user-friendly Asian models. Moreover, Nokia has yet to

deliver a picture phone to Verizon Wireless, the nation’s biggest carrier, and

to Sprint, the camera-phone leader. The reason: Nokia is a relative newcomer to

the CDMA technical standard used by those and a few other US carriers. To boost

its presence in the US, Nokia has focused instead on bare-bones voice phones for

CDMA carriers.

Of course, Nokia doesn’t plan to let the Asians corner the US camera-phone

market. A new version of its video phone, with better color and a simpler

keypad, is due this month. And Nokia aims to deliver at least four more camera

phones by the spring. "You can be assured that the goal for Nokia is to be

No. 1" in US camera phones, says Randy C Roberts, director of imaging for

Nokia Americas. It had better hurry. Nokia "has higher share now than it

will have next year unless it comes out with several more phones," says

Strategy Analytics’ Ambrosio.

That leaves Motorola, with its plodding engineer’s culture, as the odd man

out. The company delivered its first camera phone to T-Mobile in November–11

months after Samsung, and only in limited supply. Its failure to jump on the

camera-phone trend early has cost Motorola dearly. The outfit has complained

that it is unable to get key components. But its rivals, who locked in limited

supplies early, have not been similarly hurt. As Motorola dithers and Nokia

plays catch-up, Japanese and Korean phone makers are quickly making their brands

synonymous with the coolest technology.

By Roger O. Crockett in Chicago, with Andy Reinhardt in Paris, and bureau

reports  in BusinessWeek. Copyright 2004 by The McGraw-Hill Companies, Inc

WIRELESS: Richard Branson: Winning Virgin Territory

If anyone can make a prepaid phone plan seem cool, it’s Richard Branson. As

part of his assault on the fastest-growing segment of the wireless business, the

brash chief executive of Virgin Group Ltd. is employing the same full-frontal

sales tactics he brought to music, air travel, and vacation resorts.

He’s targeting young phone users with features such as pipedin music news

from MTV Networks or, for $2.95, an outgoing voice greeting from William Shatner.

Afraid your date won’t pan out? Virgin offers a bailout option with ‘rescue

ring’–an ‘emergency’ call you can arrange to receive so you have a

reason to bolt.

Branson himself showed up nearly naked in New York’s Times Square a year

and a half ago to kick off the 50:50 joint phone venture with Sprint PCS Group.

Since then, Virgin Mobile USA LLC has racked up more than 1 million users. The

fast start shows Virgin’s distinctive lifestyle pitch has connected with many

younger consumers. As the new kid on the block, Virgin is far from the biggest

player. AT&T Wireless and Cingular each has a fifth of the market for

customers aged 17 to 23, compared with Virgin’s 5%, estimates consultant

Adventis. But Virgin was the first to expressly target this group. And there

should be plenty of growth ahead, since American youth lags much of the world in

cell-phone usage–in the US, only 47% of consumers aged 12 to 24 have a cell

phone, says researcher Mintel International Group Ltd., compared with 80% or

more in many European and Asian countries. "They’ve proved a point: that

it’s possible to come in with a new brand," says Adam Guy, senior analyst

at Yankee Group.

To pry away those younger callers, Virgin offers the simplest of prepaid

deals–25¢ per minute for the first 10 minutes each day, then 10¢ after that–with

no contracts and no small print, under the romantic-sounding slogan "Live

without a plan."

Virgin Mobile USA is guarded with its data, but Yankee Group’s Guy figures

it gets a respectable $40 per month from each user and has kept customer

acquisition costs low. Funded with $160 million from Branson, Virgin Mobile says

it is self-sustaining now and should be in the black by early 2004. Until

recently, Virgin had to contend only with sporadic efforts from first-tier

carriers such as AT&TWireless and T-Mobile. But that’s changing. Nextel

Communications Inc., after grabbing 250,000 users with a tie-in to skateboard

and surfing events, is rolling out a youth brand, Boost Mobile. Like Virgin,

says Tom Hebert, business team leader for wireless at retailer Best Buy Co.,

"Boost has reached an untapped market that had very few options." And

there’s nothing to stop other carriers.

Thanks to Virgin’s early success, several are said to be hearing pitches

from brand powerhouses such as Walt Disney and Nike. Those companies have far

bigger budgets and could use wireless as a loss leader to flog other products.

That would cut the floor out from under prepaid pricing. Just because Virgin has

carved out a new niche doesn’t mean it will be alone for long.

By Gerry Khermouch in New York, with Catherine Yang in Washington  in BusinessWeek. Copyright

2004 by The McGraw-Hill Companies, Inc