* Operators buy majority of phones in U.S., Europe
* Some worry Nokia’s new smartphones not very good
* U.S. launch of Lumia is big test, operators optimistic
* Some telcos unwilling to spend on ads, subsidies for Nokia
* Nokia sees positive momentum, strong Lumia 900 start in
U.S.
By Leila Abboud and Georgina Prodhan
April 17 (Reuters) – Nokia’s bid to challenge the
dominance of Apple’s iPhone and Google’s Android has failed to
convince telecom operators in Europe, depriving it of powerful
allies in its fight to regain the top spot in the mobile market.
Four major telecom operators in Europe, where the phones
have been on sale since before Christmas, told Reuters the new
Nokia Lumia smartphones were not good enough to compete with
Apple’s iPhone or Samsung’s Galaxy phones.
Nokia now faces a battle for the key U.S. market, where its
former dominance has shrivelled to 1 percent of the smartphone
market. AT&T; has been selling the Lumia 900 for two weeks
and it says early demand has been strong.
Sceptics among operators say the sleek, neon-coloured phones
are overpriced for what is not an innovative product, cite a
lack of marketing dollars put behind the phones, and image
problems caused by glitches in the battery and software of the
early models.
Nokia’s big bet made a year ago to put Microsoft’s
Windows Phone software in its smartphones looks far from certain
to pay off, operators said.
“No one comes into the store and asks for a Windows phone,”
said an executive in charge of mobile devices at a European
operator, which has sold the Lumia 800 and 710 since December.
Nokia is trying to catch up after earlier smartphones were
unsuccessful and hurt its image at the higher end of the market.
“Nokia have given themselves a double challenge: to restore
their credibility in terms of making hardware smartphones and
succeed with the Microsoft Windows operating system, which
lags in the market,” the executive said.
He said Microsoft’s software worked nicely with PCs and
allowed you “to do tonnes of cool things” but few customers knew
this. “If the Lumia with the same hardware came with Android in
it and not Windows, it would be much easier to sell,” he said.
Moody’s cut its credit rating on Nokia to one notch above
junk on Monday after the company said it would post losses for
the first and second quarters. Standard & Poor’s announced a
similar downgrade in March.
Nokia insists the Lumia is not a failure. It says it has
successfully launched its Windows Phones range on 42 markets,
including China and United States, the two biggest.
“We are seeing positive momentum in our Lumia range,” said
Niklas Savander, chief of Nokia’s Markets unit. “Our flagship
Lumia 900 is off to a strong start and is exceeding expectations
with AT&T; in the U.S. We continue to work closely with, and
receive the support of our operator partners.”
A Nokia spokesman said the Lumia was now being sold by 80
mobile operators across Europe, all of which had committed to
market the phones with promotional campaigns.
Stacy Drake, Director of Marketing at Microsoft’s Windows
Phone Division said: “In just one year, Nokia and Microsoft have
delivered award-winning products and established a third
ecosystem. We’re off to a strong start and this is only the
beginning.”
Nokia’s shares were at 3.08 euros on Tuesday, up 2.9
percent, at 1630 GMT.
ALTERNATIVE REQUIRED
Without strong support from phone operators, its future is
cloudy. Telecom operators subsidise the majority of mobiles in
the United States and Europe before putting them in the hands of
consumers, so they have an outsized influence on the market.
Operators want a viable alternative to Apple and Android,
not only to offer customers more choice but to give them a
stronger bargaining position with phone manufacturers.
U.S. operators buy about 90 percent of mobiles while their
European peers buy 50-70 percent, according to market researcher
Gartner and Bernstein Research. Operators then sell them at a
discount and recoup the money through 1-2 year contracts.
“It’s good for operators if we can reduce the dominance of
Apple,” said a spokesman for a second telecoms carrier, who
asked not to be named because of the sensitivity of relations
with mobile phone makers.
Nokia is trying to capitalise on its closer ties with the
operators and to exploit their irritation with Apple’s dominance
and Google’s bandwidth-hungry services like YouTube i n the hope
they will push their phones on the market.
However, at a France Telecom store in Paris, Lumia models
were not prominently displayed and a sales clerk was quick to
offer one shopper an iPhone first. She then presented a range of
Android smartphones made by Samsung and HTC.
MIXED REVIEWS
Reviews of the Lumia on tech blogs have been mixed with some
liking the smart look and Windows-inspired design, and others
pointing out the poor quality of the screen and battery life.
Few reviewers have suggested users should dump their iPhone or
Android to buy a new Nokia.
Getting customers to switch phones is even trickier in the
“app economy” as users buy games, publications and videos on
their phones and do not want to lose them by switching system.
Issuing a profit warning last week, Nokia fell short of
analysts’ estimates by saying it had sold over 2 million Lumia
smartphones in the quarter ending March, up from 1 million in
November to January. Analysts had expected sales of 3 million.
Apple sold 37 million iPhones in the last quarter of 2011
while South Korea’s Samsung has sold more than 40 million Galaxy
smartphones since the range went on sale in June 2010. It will
unveil the third-generation Galaxy S on May 3 in London, banking
on grabbing attention before the Olympic games.
Apple uses its dominant position to dictate to operators the
minimum number of iPhones they must buy and the size of
subsidies they must offer to reduce prices for consumers.
That has hit the profits of European and U.S. operators just
as they struggle with more competition from Web-based free
messaging services and face costs for network upgrades to keep
up with data traffic generated by smartphones.
AT&T; and Sprint posted hefty losses last quarter that
analysts blamed at least partly on heavy iPhone subsidies.
Apple iPhones tend to cost operators roughly 600 to 700
euros ($800 to $900), while high-end Samsung smartphones can
cost 300-500 euros.
AT&T; sells the new Lumia 900, a fourth-generation phone
capable of ultra-high connection speeds, for $99.99 with a
two-year contract and is marketing it heavily. Rival operator
T-Mobile says the Lumia 710 is among its the most popular
phones.
“We don’t put this weight behind every launch,” said an AT&T;
spokesman, adding the Lumia 900 had sold out in many stores.
At a shop in New York, a sales associate pointed out the
Lumia to a Reuters reporter, saying it was AT&T;’s newest phone
and many people had been asking for it.
LOSS LEADER
In Europe, although most operators are offering the new
Nokia Lumia brand Windows phones, few use the weapons they have
to push them: deeper subsidies or bigger marketing budgets.
Some complain they are too expensive, despite Nokia selling
the range to operators and distributors for an average 220 euros
last quarter, well below what had been expected.
“This implies that sales to the consumer are proving to be
more difficult than we would have expected,” said Richard
Windsor, global technology specialist at investment bank Nomura,
who had expected an average selling price of 300 euros.
A spokesman for a third operator who did not want to be
named said: “If they could lower the price we think they could
sell more. It might be worth making it a bit of a loss leader to
get it out of the door. It’s not rocket science.”
Operators are also frustrated that cash-rich Microsoft is
not spending more on marketing Nokia Windows phones.
The Nokia spokesman declined to comment on the marketing
budget or whether there were plans to increase it. Microsoft’s
Drake said: “We are investing deeply with all of our partners
and are optimistic about the future of Windows Phone.”
Telecom consultant John Strand, who works with many of the
top European carriers, said operators want to see more cash
being spent. “The operators say to Nokia: ‘We will try to bail
you out if you and Microsoft come with the marketing money.'”
“But even if the operators start to give away the Nokias for
free, it will not make Nokia a success,” he added.
One device chief at a European operator agreed. “We can open
our stores to them and train our staff to sell the phones, but
that’s it,” he said.
“Ultimately, Nokia and Windows are challengers and they
either need to come to market with a really disruptive,
innovative product or a huge marketing budget to create client
demand. So far they have done neither.”
