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Mobile device vendors turn to growth opportunities in emerging markets to combat falling ARPU

01-July-2006
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Mobile device vendors turn to growth opportunities in emerging markets to combat falling ARPU

Manufacturers in the global handheld device market face the challenge of maintaining profitability despite slumping average price per unit (ARPU). While growth in unit shipment increased by more than 14 per cent over 2004, the average price per unit reduced by 7 per cent per year during 2002-04. However, device vendors must continue to focus on creating low-cost alternatives to effectively exploit burgeoning growth opportunities in developing nations, according to a study by Frost & Sullivan.

Frost & Sullivan reveals that the global mobile handheld device market earned revenues of $122.6 billion in 2006 and estimates this to reach $164.3 billion in 2012.

“Although mobile networks cover 80 per cent of the world’s population, mobile users comprise only over 25 per cent of this share,” notes Frost & Sullivan Research Analyst Daniel Longfield. “Since developed markets are mostly saturated, device vendors will find it increasingly profitable to cater to low-income consumers in emerging markets with more economical options,” he added.

Emerging markets have the potential to increase their customer base by 1.5 billion mobile users. In fact, the global mobile phone market is set to grow to two billion subscribers by the end of 2007, fueled by strong demand from developing economies in Asia and Latin America.

In order to offer low-cost handheld devices and maintain profitability, the study says, market participants must consider moving manufacturing centres to low-cost labour areas. Market leader Nokia implemented a successful cost-cutting strategy by building a multi-million dollar state-of-the-art manufacturing centre in Chennai. Moreover, overseas production also allows device vendors to remain close to high demand areas in Asia and consequently lower transportation and shipping costs.

“With access to over 35 per cent of the regional market, local device vendors have a significant advantage,” explained Longfield, adding, “Global handset vendors can, therefore, combat competition from the resale market and regional participants by developing joint-venture agreements with carriers to garner the latter’s subscriber base.”

While emerging markets are proving to be the ideal solution for sustaining revenues in the face of falling ARPU, the rapid commercialization of 3G services is likely to open up new opportunities in developed markets, the study observes.

“Profitability for device vendors and carriers hinges on high-end mobile devices and the accompanying killer applications. Perennial early adopters, such as the youth market, which are the least price sensitive as well as more open to premium mobile content and applications must also be a key target for device vendors,” said Longfield.

Frost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years.

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