Troubled telecoms sector pins hopes on camera phone

 

The telecoms industry desperately needs good news and the camera phone may bring it. These have started to appear in Europe and this week Nokia, the world's leading mobile phone maker, introduces its first model, the 7650.Success is vital for telecoms operators and equipment suppliers alike.

Their share prices have been hammered by increasing saturation of the mobile phone market, a slowdown in the sales of replacement phones and doubts about whether consumers will switch from voice to data services.

If picture messaging takes off, it could prove to be the first "killer application" of the mobile data era. That would give hope to operators who have spent billions acquiring 3G licences in the belief that data services such as entertainment, shopping and e-mail will drive their future revenue growth.

There could also be implications for the camera industry, if the more enthusiastic claims for camera phones can be believed.

Mr Kurt Hellstrom, chief executive of Ericsson and chairman of SonyEricsson, says: "At a certain stage, maybe even next year, there will be no need to buy a separate digital camera for most people. It will already be in your handset."

For some mobile users camera phones are already a reality. In Japan, Vodafone is selling more than 100,000 camera handsets a month. Several operators have started selling camera phones in European countries and most plan a marketing push for Christmas.

Mr Lauri Rosendahl, analyst with Deutsche Bank in Helsinki, says: "Picture messaging could already be a consumer mass market phenomenon in Europe towards the end of 2003. It won't just be young people, because everyone knows what a camera is for and how to use one."

Mr Julian Horn-Smith, chief operating officer of Vodafone, predicts picture messages will overtake text messages as the biggest element of data revenues in the next five years. In most of Vodafone's key markets, text messages account for more than 10 per cent of its revenues.

But picture messaging could be slow to take off if the phones are expensive or if photographs cost a lot to send.

Nokia says the price of its new 7650 camera phone is likely to be €700-€800 - much more than that of a standard phone. Operators intend to subsidise camera phone costs to encourage sales. Vodafone has said this should cut the cost to €200-€500 - considerably more expensive than standard handsets.

Sending a picture is a premium service compared to standard text messages, so operators will want to impose a charge that reflects that. But if the price is pitched too high, consumers will be deterred.

Norway's Telenor became the first European mobile network operator to announce its pricing structure for its multimedia messaging service (MMS) in March. But it caused a shock when it disclosed a price of 10 Norwegian krone (88 cents) per message - 10 times what it charges for a text message. Telenor says it will reconsider the price when it sees how the market develops.

This month T-Mobile, Deutsche Telekom's mobile arm, announced it would charge UK users of its service an additional £20 (€31) a month to allow them to send about 350 picture messages monthly. But analysts warned the price was too steep and risked stunting take-up.

Other operators plan to charge less - Vodafone charges about 39 cents a picture in Germany. But some see even this as too expensive as there is a feeling across the industry that anything above 30 cents per picture is too much. Even if operators get the pricing right, another big issue is inter-operability.

"The mobile industry has generally poorly deployed new technology, so my gut feeling is that early deployment with picture messages will also have problems," says Mr Jamie Mariani, analyst at ABN Amro. Crucially, it is still not clear whether camera phones from rival handset manufacturers let alone those running on different networks will be able to send pictures to each other. This is important as there are fears that if the technology does not work properly from the outset consumers may abandon picture messages, much as they have done WAP services.

Operators and retailers expect camera phones to be among the big sellers in the run-up to Christmas. But the industry is careful to refrain from bold claims for the camera phone, having learnt the lessons of WAP. The hype that surrounded WAP only increased consumer disappointment and lowered WAP take-up.

ABN Amro calculates that camera phones will need 30 per cent penetration before seriously affecting revenues. For mobile operators this means getting the price of both handsets and picture services just right. - (Financial Times Service)