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Nokia changes its tune on mobile strategy

Olli-Pekka Kallasvuo, Nokia’s chief executive, is leading the Finnish company through the biggest change to its business strategy since it became the world’s largest mobile phone maker in the late 1990s.

He is moving the company into providing internet services for mobiles. It is a strategy fraught with uncertainty, not least because Nokia risks alienating its traditional customers: network operators such as Vodafone that buy the Finnish company’s handsets.

But Nokia is forging ahead with the strategy because the advent of wireless third-generation networks, coupled with user-friendly handsets, has made it possible to web surf on mobiles at speeds not that far behind fixed-line broadband.

Nokia has done a flurry of deals over the past 18 months to give it a capability in mobile internet services. In October the company announced plans to buy Navteq, a US company that specialises in maps for the Internet. At $8.1bn, it is Nokia’s largest acquisition.

Mr Kallasvuo, who became chief executive in June last year, after 25 years with Nokia, told the Financial Times: “We are second-to-none when it comes to having the ingredients of taking mobility to the internet in a major way. It is a natural extension of the business.”

Nokia is diversifying into mobile internet services partly because the handset manufacturing industry is facing slowing growth. The annual increase in the number of devices sold is falling, from 21 per cent in 2006 to a projected 15 per cent in 2007, according to Gartner, the research firm.

Moreover, the mobile makers are all reporting that the average selling price of their devices is falling.

In the short-term, Mr Kallasvuo says that Nokia’s internet services should “support” its average selling price, and therefore also help its operating margin.

The best example of this strategy is Nokia’s potentially far-reaching Comes With Music initiative, under which people who buy certain of its phones will get free access to the music catalogue of Universal Music for one year.

That access should bolster the amount that network operators are willing to pay Nokia for phones that include Comes With Music.

This is because the operators should in turn be able to charge their mobile customers a premium for Nokia phones that offer the chance to download millions of tracks by Universal Music’s artists.

Nokia is talking to other music labels, which means Comes With Music could offer a wide selection of artists when it launches next summer.

In the longer-term, Mr Kallasvuo says that Nokia’s mobile internet services, based on its Ovi platform, which means “door” in Finnish, should provide it with “billions of euros”.

He is coy about going further, declining to say what percentage of group revenue could come from these services in three or five years’ time.

However, Mr Kallasvuo plays down the prospect that Nokia’s internet services strategy could alienate the network operators.

Many operators, led by Vodafone, have their own internet portals with pay-per-track music download stores and these could lose business to Nokia’s Ovi platform.

But Mr Kallasvuo highlights how, since October, Nokia has struck deals with Vodafone, Telefónica and Telecom Italia under which these operators’ customers will get user-friendly access to the Ovi platform.

He argues the operators’ interests are aligned with Nokia’s. If the Finnish company comes up with attractive handsets, such as those featuring Comes With Music, it will sell more mobiles to the operators, who in turn will sell more devices to customers.

Comes With Music is a response to Apple’s iPhone, and the US computer company’s move into mobile underlines how Nokia faces increasing competition. Traditional rivals, such as Samsung, are getting stronger. But the more significant threat could come from new entrants, such as Apple and possibly Google, the internet search company.

Per Lindberg, analyst at Dresdner Kleinwort, who has a “sell” rating on Nokia’s shares, estimates that the operating margin at Nokia’s mobile manufacturing business could more than halve to 9 per cent by 2012.

Mr Kallasvuo, however, stands by Nokia’s “solid numbers” in its 2008 guidance, under which the mobile operating margin is expected to increase from 19 to 20 per cent over the next two years.

Additionally, he argues that Nokia can lift its share of the mobile handset market from its existing 39 per cent to 40 per cent and beyond.

He says: “I am a big believer in the market share. I do not think the economies of scale will stop at 40.”

Источник: Financial Times

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