Nokia Oyj and rival mobile-phone makers, recovering from the industry's worst year, are counting on handsets allowing speedier Internet access to spark a rebound in 2002.
Sales sputtered this year as economic growth stalled, phone companies cut subsidies on handsets and consumers saw little reason to upgrade phones. That led to losses, thousands of job cuts and falling stock prices at companies including Motorola Inc the No. 2 producer after Nokia, and Ericsson AB.
The top three cellular-phone makers lost a combined US$130 billion in market value this year. Whether sales and stock prices will rebound in 2002 may depend on consumers' appetite for phones allowing them to stay constantly linked to the Internet and transfer data at higher speeds.
PHOTO: AP
"The industry will have very big problems" if mobile Internet services don't catch on, said Jan-Eric Umiastowski, who helps manage 300 million euros at Financiere Rembrandt in Paris, including shares of Nokia and Ericsson.
Nokia, which makes a third of all mobile phones, estimates handset sales will rise as much as 16 percent next year to 440 million. While that would be an improvement over 2001, when sales fell an estimated 6 percent, it would still be far short of the 55 percent average growth in the previous three years.
The Finnish company provided some reassurance to investors this month when it said the popularity of its first phone based on the General Packet Radio Service standard, the 8310, would help it meet or beat its fourth-quarter profit forecast.
GPRS phones eliminate the hassle of reconnecting each time a user wants to use the Web. Nokia Chief Executive Officer Jorma Ollila said enthusiasm for these services will lead consumers to buy new phones, even as economies remain sluggish.
Investors aren't convinced, especially after Nokia lowered its 2001 industry forecast five times, to 380 million units in November from 550 million in October of last year. Its profit declined in the past two quarters.
"Nokia has always been very bullish," said Umiastowski.
"But it will be very difficult for anyone to say where the market is going next year."
GPRS technology will form a test case for so-called third- generation mobile phones, which will let users watch television and hold video conferences on their handsets. Those phones, based on the Universal Mobile Telecommunications System, won't be widely available in Europe until 2003, analysts say.
Optimism that consumers would flock to such products prompted European phone companies to pay some US$100 billion last year for permits allowing them to provide UMTS services. Royal KPN NV, Deutsche Telekom AG and rivals are still struggling to lower the debt they amassed paying for licenses.
Consumer demand for mobile Internet services is so far largely untested. Wireless Application Protocol, a technology introduced in 1999 to allow cell phones to access the Internet, never caught on because users found it slow getting online and had to reconnect every time they wanted to surf the Web.
Should GPRS also flop, analysts question whether third- generation services, or phones, will be well received.
"If you can't make a business case out of GPRS, then there is no third-generation market," said Bengt Nordstroem, founder and CEO of Northstream, a Swedish telecommunications consultant.
That isn't lost on handset makers, who are pushing a number of features to spur adoption of GPRS.
Among them is the multimedia messaging service, or MMS, a souped-up version of the short messaging service which has proved popular with phone users. About 30 billion SMS messages will be sent worldwide this month, according to the GSM Forum, an industry group.
With MMS, handset users will be able to send moving images and music files to each other on their GPRS phones.
"Moving pictures is the next natural step," said Jan Lindgren, an Ericsson marketing manager. "Our consumer lab indicates tremendous interest in MMS."
Ericsson and rivals such as Samsung Electronics Co and Matsushita Electric Industrial Co, which makes Panasonic phones, have another reason for wanting the mobile Internet to take off.
They aim to use the transition from voice to data services to gain on Nokia.
The success of Nokia, which has said it wants to capture 40 percent of the mobile-phone market, has forced competitors to seek alliances or exit the business. Rivals say they're determined to chip away at Nokia's dominance.
"Nokia isn't going to be the Microsoft Corp of this business," Olivier Houssin, head of Alcatel SA's unprofitable handset unit, said at a conference last month. "There's room for other people. We need to form partnerships."
Ericsson and Sony Corp in October put their struggling mobile-phone units into a joint venture after failing to dent Nokia's market share on their own.
By combining Sony's skill at designing products popular with consumers and Ericsson's knowledge of radio technology, the two aim to grab the lead in the market for UMTS phones.
Stockholm-based Ericsson, the third-largest cell-phone maker, launched three GPRS models this year, including the T68, the first with a color screen.
That didn't prevent the company's market share from falling to 8 percent in the third quarter from 9.7 percent a year earlier, according to Gartner Inc's Dataquest unit.
Nokia's share rose to 33.4 percent in the third quarter from 30.6 percent a year before, while Motorola's rose to 15.7 percent from 13.3 percent, Gartner's Dataquest said. Overall, phone sales fell 10 percent during the period.
Like Ericsson, Motorola aims to strengthen its position by introducing more feature-laden GPRS phones.
Motorola's incoming president, Edward Breen, has said the company expects to gain market share in 2002 and has a long- term goal of taking 25 percent, a level it last achieved for a full year in 1996, before being surpassed by Nokia.
Another challenge comes from Japan. NEC Corp and Matsushita already sell third-generation phones in the first country to introduce such services. They plan to use that advantage to steal a march on Nokia.
Royal KPN NV, the largest Dutch phone company, said it would start testing wireless Internet services using NTT DoCoMo Inc's i-mode system and mobile phones from NEC this month, making it the first phone company in Europe to bring DoCoMo's technology to the region.
Subscriptions to I-mode, a proprietary service of DoCoMo's, reached 30 million this week, the company said.
I-mode allows mobile-phone users to send e-mail, view specially designed Web sites and download services such as special ringing tones or screensavers for their handsets.
The popularity of the service helped make DoCoMo Japan's most valuable company -- and is often cited by Nokia and rivals to explain why mobile telephony will remain a growth industry.
Yet industry analysts say the success of i-mode partly reflects factors specific to Japan, such as relatively low fixed-line Internet penetration and a high proportion of commuters.
Should European and US consumers prove less receptive to mobile data services, Nokia and its rivals may once again find themselves lowering industry forecast, analysts say.
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