Roger Entner, Nielsen Telecom
Nokia: the name is synonymous with mobile phone innovation and leadership everywhere in the world but in the US. Its handsets comprise about 40 percent of the worldwide marketplace. It has not always been this way. Once the leading brand of phone in the US, Nokia’s share of the market has dropped to about 10 percent. Brands such as LG, Samsung, Blackberry, Motorola and Apple’s iPhone tend to lead in market share and mindshare respectively.
But cell phones have evolved a great deal since Nokia was a major player in the U.S. It’s a rare person these days whose cell phone is used only for calls; texts, e-mails, calendars, digital music players, cameras – the list of applications is practically endless – are standard now on most handsets.
One way Nokia hopes to get its phones in more American hands is with the launch of the 5800 Music Xpress handset, which is rumored to include its “Comes With Music” (CWM) service sometime this year. The 5800 Xpress Music handset is selling for between $350 and $399, and features a touch screen, 3G speed and a host of other features similar to the iPhone.
Services such as CWM are reshaping the music landscape. The music industry has largely concluded that it will not be able to be profitable at the levels it deems necessary with a la carte song purchases. The only viable solution, which also conveniently will solve other issues, is to persuade music lovers to purchase an unlimited subscription to the music. CWM enables a subscriber to download an “unlimited” number of songs from its vast library to the handset (as well as one PC) and keep the songs after the subscription expires. Based on an analysis of the service in the U.K., where it launched in October, CWM costs about £80 per year (or about $113 at 1.42 dollars to the pound) compared to an identical phone without the CWM service. Compare this to other similar services already available in the U.S.:
- Rhapsody — Approximately $180 with Verizon Wireless ($15 per month); handset free
- Napster – AT&T ($7.49 per month for 5 song downloads; $1.99 song thereafter)
And of course, iTunes offers subscribers songs for 99 cents each.
In the U.K., where the handsets are contrary to the folk lore in the United States, often subsidized by carriers, oftentimes given free with a one-year or longer contract, “initial sales had been okay, but not earth shattering” according to an unnamed source quoted in the Financial Times.
While the pricing for the service appears competitive, Nokia faces two huge challenges: the cost of the handset in a market where consumers are not used to pay anything close to the true value and cost of the phone and the potential lack of a carrier agreement that would enable it to subsidize those costs. Of the major U.S. carriers, T-Mobile is the most likely to partner with Nokia on CWM, given AT&T’s alliances with Apple and Napster and Verizon’s partnership with Rhapsody. The T-Mobile partnership would be a win-win for both companies; T-Mobile would be able to provide another innovative service to its younger customer base and Nokia would get major US carrier distribution.