Francis J. Shammo may hold the key to the revival and long-term success of embattled wireless handset maker Nokia Corp. (NYSE: NOK). Shammo, CFO at Verizon Communications Inc. (NYSE: VZ), isn't very happy with the huge subsidy his company is paying Apple Inc. (Nasdaq: AAPL) for its iPhone and wants to push hard for a third operating system that would help reduce the chokehold Apple iOS and Google Android have on the market.
Don't underestimate Shammo or his counterparts at companies like AT&T, Sprint, and T-Mobile. For the last few years, these companies have been squeezed hard by Apple, which demanded a hefty premium from them before offering them the golden opportunity to sell its iPhone device. The subsidies cost AT&T and Verizon billions of dollars each year, and Sprint only recently agreed to pay about $15 billion to Apple for the same privilege.
Of course, the payoff to the service providers is huge. Smartphones are huge moneymakers for these companies, and even T-Mobile, which does not currently have an agreement with Apple, allows customers to activate jailbroken iPhones on its network. In fact, Verizon continues to dangle tempting carrots in front of customers who still use regular phones. Since these represent about half of all Verizon Wireless subscribers, their conversion to smartphone users (whether Apple iOS or Android) would boost revenue generated per subscriber at Verizon, according to Shammo during a conference call last week to discuss the company's first-quarter results.
"Our smartphone penetration is at 47 percent, which means that there are 53 percent of our phone customers that are still on a basic phone," Shammo tells us. "So we still have a lot of roadway here from a basic to smart upgrade."
Although Shammo likes the sales and subscriber boost Verizon gets from iPhone sales, the company is also smarting from having to pay subsidies in the range of $300 to $400 per each Apple smartphone. Verizon also isn't too happy that it has to pay substantial subsidies (though less) for Android phones and wants to break the duopoly established by the two wireless handset operating systems. Here's how Shammo explained it during the conference call:
Going forward, we will continue to look at opportunities to mitigate the cost of higher equipment subsidies and commissions. We have identified $2 billion of cost saving opportunities for this year, and we are on track to capture these savings. On the Apple iPhone, look, I think as I've said before, we look at every individual handset, we have a broad portfolio. We manage it handset-by-handset and manage our subsidy and again, that's just one aspect of our P&L. This is just a nature of this business that's grown from the beginning of the industry that we subsidize handsets.
I do think though it is important that there is a third ecosystem that's brought into the mix here. And we are fully supportive of that with Microsoft, and as we said that we created the Android platform from beginning. And it is an incredible platform today that we helped to create. And we're looking to do the same thing with a third ecosystem. So that's how I think that we plan to go into the future here.
A third ecosystem? That would be Microsoft Windows OS. And the company that is currently shipping a volume amount of Windows OS phones is Nokia, which rolled out the Lumia last year. So far, Verizon has not adopted the Lumia, but if it does, this will give the device incredible visibility with the service provider's customers. Plus, other service providers will probably follow; Verizon, the No. 1 US telecom company, leads, and others follow.
Suddenly, I am beginning to think the future for Nokia may not be that gloomy after all. But first, it has to give Verizon's Shammo something he can take to analysts and shareholders who have been hinting Apple is feathering its own nest at the service provider's expense. By the way, "carriers are mad as hell" with Apple, as a Wall Street Journal report puts it; but for now, the consumer electronics company holds all the aces. That's why it's working on the alternative -- but does Nokia and Windows OS really fit the bill?
Hi Bolaji, I wouldn't count Microsoft out in the smart phone market.I have heard very positive feedback on their latest Windows Phone OS.Just like in the browser wars, they weren't the first to get to market, but they dominated in time.
Yes, indeed. Microsoft is the underdog in the operating systems markket. That, at lease is the impression. However, how could Microsoft be the underdog in a plot where it holds no power except for its own inability.
I think that Microsoft needs to be having serious talks with Verizon and they need to look at bringing some "wow" to their OS. If they can bring in something that draws people away from either having an Android or Apple, there will be a lot of future business. Many people don't like the fact that there is a duopoly, and this is the move that could help Nokia become a major player again.
I agree, the only way Nokia is getting out of trouble is by making sure that their choice of mobile OS platform gets accepted by the masses. It seems to be a far fetched goal but it can happen based on new interface and features being introduced.
Similarly, apps also play a key role in determining the sales of smartphones. If there are plenty of free apps available people will generally be pulled towards the smartphone.
Atlast there is some good news to Nokia, if they are ready to be suppliers for Verizon and T-Mobile at little less premium they would surely regain the market. Even the operators would be glad if ther is competetion among different manufacturers which could bring down the dominance of the mobile makers and brign more profits to operators.
Consumers can accept Windows OS. I believe they are not wedded to any particular platform, though the success of Apple's iPhone may challenge this view. Google's Android came from nowhere to become the leading smartphone operating system. It is not impossible for Windows OS to gain market share. The company just has to be seen to be serious about it. I don't see the marketing from Microsoft supporting the platform.
Yes, consumers can accept in new OS but it depends on a few things like marketing efforts, range of apps based on that platform, the ease of app development, the hardware vendors that support the new OS etc.
If all goes well like it did for Android, the Windows OS may get popular soon.
I hope they start marketing it soon. We'll have to wait and see if it makes ripples in a market that is already being dominated by the iOS and Android.
It is quite surprising that Microsoft is not marketing the Windows OS the way it should. This may be signs that even the company doesn't trust the product that much as a game changer.
It is surprising that MS is not marketing Windows OS but I am sure it doesn't mean they don't trust their product. Probably they are waiting for the right time and with linkages with hardware manufacturers they will soon come out with a bang. Atleast, I hope so.
Google's Android came from nowhere to become the leading smartphone operating system.
@Bolaji, one of the things that might be worrying Google is the announcement by Samsung that the "company is working on merging its Bada mobile operating system with the open-source Tizen operating system". This clearly shows that Samsung is not comfortable using Android and in the long run they would want to develop their own OS. Nokia wont face this problem because Microsoft doesn't own its own mobile business.
Its market growth is playing major impact to Samsung success. And it feels creating own software application that would enable its products run on would not cause any harm. If eventually Samsung abandons Android OS what scenario would that create to smartphone market?
If eventually Samsung abandons Android OS what scenario would that create to smartphone market?
@Wale Bakare, that would create lot of confusion to the end users because they will have multiple OS to choose from. Android will slowly loose its market share just like the symbian lost its market.
Apps are critical. However other than some preinstalled apps in the phone, i think people would not mind paying a few dollars for really quality apps if there are.
Microsoft is going to release windows 8 and one of the major features of windows 8 is the OS component is same across all devices. I mean the same light weighted copy can be used across both Smartphone, laptop, desktop etc. If Nokia is planning to update the mobile platform with windows 8, I think they can gain a better momentum in Smartphone arena.
You've got a very valid point here. If Nokia continues to establish its linkages with MS for its mobile platforms they will have a chance to re-capture the lost market.
I still have doubts that windows 8 will have phenomenal sales (as a mobile OS) but nevertheless it will provide Nokia with an option to compete with the other manufacturers.
How much will be charge from Nokia for its new smart phone? It may be lower by only around 20%. So saving may not be that atractive. But I wish people like new Nokia phone.
Jay, The missing component in Nokia's efforts to push the Lumia is that Microsoft does not seem to be pushing its Windows operating system with telecom carriers in at least the same way Google has pushed Android. I believe Microsoft still has to do some heavy lifting and marketing to support Windows OS, perhaps even pay carriers the way it agreed to pay Nokia or give them some form of compensation that makes the deal tempting for them. Until this is done, Nokia's Lumia and other Windows-OS supporting phones will continue to suffer.
More than what OS is Embedded into it , I think the success of Nokia in smart phone domain will mainly depend upon the capability of Nokia to show that it is still a stable brand to go with. If people have already lost the faith in the brand there is a little chance that the customers will turn back to Nokia.
But diversion of support by telecom companies away from Apple will definitely have the desired effect for Nokia in increaing its market share.
"It is the carriers that make Apple what it is today."
That is true, But still the quality of Apple's products made it easy for carriers to sell them. If Nokia Windows phones are good, carriers will certainly back them up.
Suddenly, I am beginning to think the future for Nokia may not be that gloomy after all.
@Bolaji, I totally agree with you. I feel Nokia provides some of the best hardware features on its phone. Even Siri says Nokia Lumia 900 is best smartphone ever.
Even Siri says Nokia Lumia 900 is best smartphone ever.
I believe, the tiny number of professionals know inside and out of smartphone components. What about the substantial number of consumers ? Whom i think lager percentage of them like to jump in the bandwagon. Why not be on the market watchout for at least Q3/Q4 of 2012 to decide if best fits Nokia.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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