T-Mobile To Cut Jobs, Handsets
By Carlo Longino, Fri Jan 21 17:45:00 GMT 2005

As many of its key markets reach saturation, the operator looks to cut costs.

T-Mobile CEO Rene Obermann says the mobile business is changing in a big way: "We are at the beginning of a new phase in mobile. The mobile industry is on the verge of a shift from the focus being on growth purely in SIM cards to the development and maintenance of deeper customer relationships." Simply put, European carriers are running out of new subscribers, and have to shift their emphasis to serving existing customers more profitably -- which translates to either higher ARPUs or lower costs. While T-Mobile is still seeing rapid growth in the US, growth has slowed in its European markets. In one of those, the Czech Republic, it was reported this week that penetration is now over 100 percent.

So in an effort to save a billion euros in operating costs at its European units next year, T-Mobile plans to cut 2,200 jobs, but is hoping to get the majority of the savings by changing its handset procurement strategies to enable it to offer "simple and inexpensive tariffs coupled with realistic handset prices". The carrier will cut the number of handsets it sells from more than 50 to 30-40, with an emphasis on "specific devices that deliver real competitive advantage" -- which sounds like T-Mobile-branded and customized white-label devices, like its MDA range.

But, of course, the real motivation in cutting the number of handsets is to be able to order more units of few models, securing volume discounts. This puts even more pressure on handset vendors, many of whom are already predicting 2005 will be a tight year thanks to slowing subscriber growth. But even with a slowdown in sales, many vendors are planning to release more models than ever in 2005: Samsung says it will ship 140 new handsets in 2005, Nokia plans for 40 and Sony Ericsson says it will expand its range as well. So all these devices, and carriers looking to choose less of them, will make competition among the manufacturers even tougher.

T-Mobile's cost cuts are an attempt to avoid the pitfalls saturation has brought in Japan, where KDDI and NTT DoCoMo have been locked in an expensive battle to steal each other's customers. Both carriers' results have been hit by the cost of offering discounts and higher handset subsidies, and while T-Mobile's new strategy may not redefine the market, it will be better positioned should pricing come under pressure.