Research Notes

Will handset manufacturers loose their brand?

An increasing number of MNOs are trying to differentiate themselves to their competitors by using branded mobile handsets. There are two types of branded mobile handsets:
· MNO branded mobile handsets
· Co-branded MNO mobile handsets
The MNO branded mobile handsets only have the MNO’s brand name/logo on the handset while the co-branded MNO mobile handsets have both the handset manufacturers and the MNO’s brand name on the handset.
One example of MNO branded mobile handsets is HTC. HTC’s mobile handsets are marketed under different brands depending on which MNO is selling them. The MNOs have their logo on the mobile handset to thereby make themselves more visible to their customers. In Germany, the MNO T-Mobile markets HTC’s mobile handsets using the name MDA, while the MNO Orange uses the name Orange SPV (Sound, Pictures and Videos) for the same mobile handset. HTC’s mobile handsets are also sold by 02, either using the name XDA orXphone.
It has primarily been the smaller handset manufacturers that have agreed to manufacture mobile handsets that are MNO branded. The larger handset manufacturers have chosen to co-brand handsets, whereby both their own brand name and the MNO’s brand name are visible on the handset. Handset manufacturers like Nokia, Sony Ericsson and Motorola are some of the manufacturers that have chosen this method.
The reason that MNOs are choosing the second approach is that they would prefer to brand themselves, instead of focusing on subsidising mobile handsets – and thereby branding the mobile handset manufacturers’ brand name. It is however only during the past few years that the MNOs have become strong enough brands to be able to take advantage of co-branded MNO mobile handsets. Previously the MNOs did not have this option, but there is a trend towards MNOs now successfully purchasing mobile handsets from OEMs (Original Equipment Manufacturers), that are currently unknown to the European mobile customers.
The MNOs have a higher risk when offering branded handsets, as they have to be extremely good at predicting the sales of individual handset models, otherwise they risk ending up with too many or too few models in stock. In other words, mobile providers that choose to use a branded mobile handset strategy will have a higher Stock Rotation Risk – a risk that is already increasing solely due to the many new handset models currently being launched.
Not all MNOs can take advantage of offering branded mobile handsets due to the larger costs, so it requires a certain volume before it becomes attractive to offer customers branded mobile handsets. This has resulted in it mainly being the global/large MNOs like Vodafone, T-Mobile, Orange etc. that are currently using this method. For the smaller MNOs the risks and costs of offering branded mobile handsets are still too large and therefore outweigh the advantages of using this handset strategy.
But there is no doubt that brands are becoming increasingly important on the future fragmented mobile market – the question is whether the future handset brands will be Nokia, Sony Ericsson or Motorola, or whether they will be Nike, Disney or MTV – or a combination of the above brands?
The handset manufacturers are therefore starting to wake up to a completely new reality in the mobile value chain, where the distribution of the tasks between them and the MNOs is being redefined. The handset manufacturers can no longer count on MNOs more or less directly marketing the handset manufacturers’ brands via differentiated handset subsidies and large advertising campaigns. Instead, handset manufacturers will be increasingly forced to document to the MNOs the value each of their mobile handsets can generate for the MNOs.

You can find much more information about the challenges the handset manufacturers are facing in our latest report – How technology providers get success on the MVNO market– where the handset manufacturers future role in the mobile universe is thoroughly analysed. The report also analyses and describes the advantages and disadvantages for the MNOs and handset manufacturers when using a branded mobile handset strategy.

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