What's The Next Handset Gimmick?
By Carlo Longino, Thu Dec 16 23:00:00 GMT 2004

A research firm says manufacturers need to come up with another catalyst to spur handset replacements, since 3G content isn't doing it.

Analysts IDC say the handset market will grow more slowly in 2005 than in 2004, where sales are expected to finish up 20% to about 650 million units. The availability of handsets with color screens and integrated cameras has powered the current replacement cycle in developed markets as well as spurring many consumers to buy their first mobile phone. But the only new catalyst in the foreseeable future is getting users to upgrade to 3G handsets -- and the lack of interesting content and services isn't moving things along too quickly.

"Continued delays in the evolution of compelling 3G services and content, however, remain. Although 3G mobile phone volume will grow, a relatively prolonged transition period from 2.5G to 3G will leave the mobile phone market with a weaker set of demand catalysts in 2005," says IDC analyst Alex Sawsby. The company predicts that 3G phones will make up just 18% of the handset market in 2006, and a quarter of all shipments in 2007.

Figures from Japan seem to bear this out: handset shipments in October were 40% lower than a year ago, down for the 10th straight month, blamed in part on the saturation of the market with cameraphones. Japanese operators are having to pay higher retail commissions and subsidies to boost 3G handset sales, and it's hurting their results as well as putting the squeeze on Japanese handset vendors, whose average margin is 4%, compared to the 20% or more at Samsung and Nokia.

3G in and of itself doesn't appear to be compelling enough to get many users to switch. Video calling doesn't look to be catching on too quickly, and Hutchison 3G's subscriber figures didn't take off until it quit emphasizing video calls and made cheap voice and cut-rate handset prices its main attraction.

The transition from 2G to 2.5G was a slow one, too -- WAP didn't quite pan out the way operators hoped, and it's been cameras and color screens rather than MMS that's driven this handset sales cycle. But with no new handset feature gimmick on the horizon, the onus is now on handset vendors and operators to create an environment where developers can flourish and create successful, compelling applications -- applications that will make users want to upgrade.