University of Indonesia

Nokia at the Crossroads

Global and European Economic Business Environment MGMT 51095
by Ario Timur, Arseno Adji, Frida Silviana, Ira Aryani, Ludwi Samoen

1. Ecosystem
1.1.Concept of Ecosystem
The basic definition of an ecosystem is a network of entities the work and function together in order to create an environment. The Telecommunication Ecosystem is one that consists of various functions in order to facilitate communication and other transfers of data from source to destination. This ecosystem if understood right can help a business define its goals.

Figure 1 - Ecosystem of Nokia

The value that Nokia is based on is the Telecommunication Ecosystem. Nokia as a telecommunication company produces products that fit all the aspects of the ecosystem. Currently, their product portfolio revolves around trying to provide what customers need in telecommunicating, which are: Network Devices The infrastructure of telecommunication consists of many parts, such as switches, firewalls, routers, and repeaters. Nokia produces all parts necessary to provide the telecommunication infrastructure. Handsets In order for a person to enjoy telecommunication, they need a terminal. Nokias has a large line of cellular phones that may fit anybody. Operating Systems The main function of the Operating System (OS) is to bring together and manage hardware components so it can be used as intended. Most of Nokias handsets run Symbian OS on their phones. Nokia is shifting its resources into using Microsofts OS. Content The contents of the telecommunication are data and voice. Data may vary from files, to application data that runs on top of the OS. Nokia offers OVI as a platform in order content providers can build applications and offer features to enrich its cell-phones.

OVI is something that is recent and was mainly developed in order so their mobile phones have the ability to compete with other mobile phones. Its competitors such as Blackberry and iPhone by Apple offer various contents which attract customers. The popularity of these competitors have gained is mainly due to their focus on providing contents such as client messenger services, email, and internet browsing which all run through GPRS internet protocol. One of the things that Nokia failed to do is capture the demand of social networking in the market. Compared to its competitors, the maturity of the social networking applications is far behind. Popularity on social networking may be what caused the smartphone segment to flourish.

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1.2.Trends
If we take a look, mobile manufacturers are constantly improving their handsets so that they can be used for many kinds of activities, such as taking pictures, recording videos, listening to music, and playing games. We find a customer behavior that is so enthusiastic towards high technology handsets. These concepts are known as Convergence and Divergence. Convergence talks about bringing entities and packages together in a unified form or media to be transported while Divergence is extracting and parsing a pool of data into specialized terminals. This is how individual consumers interact with others through various media platforms and create various experiences, and enables new forms of media and content that connects us socially.

Figure 2 - Convergence

Convergence is about co-packing, but all real innovation is about diversity, doing things different to serve clients better. This can be boring, destroy variety, breeds monopoly, kills invention, adds unwanted options, makes life more complicated and robs consumers of choice (Dixon, 2011). For example, if we bought a slim mobile phone with a 3.2MP camera and have already installed our favorite games, and then when we need to upgrade the camera to 5MP, we have to upgrade the entire device. We need to reinstall the games, setup the configuration before can we get the similar mobile phone as the previous one? Convergence will cause us to spend more to produce; thus our product will be more expensive and badly designed (not proper in usage) compared to the product that is specialized to do one thing, such as a handy-cam. Divergence means Id have a Nanopod for personal music, a tiny mobile phone for communication only, a pocket PDA with color screen and video, a handy-cam to record videos, and a camera to take serious picture. If someday I wanted to upgrade the camera, I only have to buy new camera and sell the previous one. Both convergence and divergence are happening at the same time. We need to keep focus on the needs of ordinary people who want many simple, well-designed, reliable, low cost products, to do different things. We need to encourage diversity, innovation and creative genius, to improve quality of life, solve real problems and make great things happen. Convergence in technology products is important but divergence will drive the future, and survival of every technology company will depend on it (Dixon, 2011).

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2. Social Dimension
2.1.Pictures of IT Diffusion
2.1.1. Mobile subscriber and mobile web access Mobile phones are bringing telecommunications to many people in developing countries that previously did not have access to a telephone. Based on the estimates from The International Telecommunication Union (October 2010), there will be 5.3 billion mobile subscriptions by the end of 2010, or equivalent to 77% of the world population. 18% are able to access the internet (940 million subscriptions to 3G Network). Compared to 4.6 billion mobile subscriptions at the end of 2009, this is a huge increase. This growth is driven by developing countries especially in Asia and the Pacific region, particularly India and China. On the other hand, mobile penetration in Africa is lowest worldwide. In developed countries, the growth is slowing down. The number of fixed lines continues to stagnate, as a result of the fixed-to-mobile substitution effect, coupled with the limited infrastructure for fixed communications in developing countries. (Appendix 1 Key Global Telecom Indicator) The number of people accessing mobile Internet is growing fast and is expected to overtake the PC as the most popular way to get on the Web within five years (ITU report - February 2010). Mobile access to the Web will overtake PC access (assuming the present expansion of 3G networks and availability of Internet-ready phones continues) because mobile phone penetration outnumbers fixed Internet users. In the developed world, only 21% of people have Internet access, lowest in Africa at 9.6%. The price of fixed broadband in developing countries remains prohibitively expensive. There are more mobile Internet users in China than any other country. In developing nations where access to other media has been limited, mobile is the great enabler. Mobile and will be their only access to the Internet and all the services such as online banking, money transfer, email, up-to-date weather and news, commodity prices, commerce, government services. In developed nations, mobile is an alternative to PC access, it's the Internet while on the move. One thing that needs to be clear about the definition of mobile access is that not all people with smartphones can access the mobile Web. Many conventional handsets can surf the mobile Web as well but a smartphone will deliver provide a richer Web-surfing experience. 2.1.2. SMS Rules According to International Telecommunication Union research, the most number of texts are sent in The Philippines and the United States. In 2010, the SMS (Short Message Service) has been used by 4 billion mobile phone users and estimated that 6.1 trillion messages were sent worldwide. This is triple the number sent in 2007 (1.8 trillion). It means that 200 000 text messages are sent per second. If the average cost of 1 SMS is 7 cents, the earnings of the phone company gained are estimated up to USD 14.000 in respective year. The Portio Research forecasted that the traffic usage of SMS in year 2013 will exceed 10 trillion. MMS, mobile email, mobile web and instant messaging are all growing strongly in 2010 and rapidly this year with the Blackberry and iPhone as the mobile internet phone players in the market. Mobile email takes important role for business people to do their works outside the work place. IM (Instant Messaging) is popular among the young people for them to maintain their social networks. In developed countries (where smartphone penetration is higher), people use mobile Web.

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57% of Japanese use mobile email for sending messages and 41.6% with SMS. The remaining 3% prefer using IM for messaging. While for European people, 82.7% are still using SMS to send messages, 22.2% use emails and 14.2% use instant messaging. In United States 68% of mobile phone users use text message, 30.5% with emails, 17.2% with instant messaging.

From here we can see that high frequency of conservative messaging such as SMS in developed countries is still popular even though there are other services for messaging as MMS, email and IM. Research estimates that the global mobile messaging business will reach over US$150 billion worth of business, and will hit US$233 billion by 2014.
United States Used connected media (browser, app or download) Used browser Used application Used messaging Sent text message Instant messaging Email Accessed entertainment/social media Took photos Social networking or blog Played games Recorded video Listened to music Watched TV and/or video Accessed financial services Bank accounts Financial news or stock quotes Accessed news, sports, weather, search, retail, travel, reference News and information Weather reports Search Maps Sports news Restaurant info Traffic reports Classifieds Retail site Travel service 39.5% 25.2% 21.4% 17.8% 15.8% 10.0% 8.4% 7.3% 6.5% 4.4% 32.2% 16.4% 14.9% 13.0% 12.0% 6.5% 7.4% 4.8% 5.2% 4.6% 57.6% 34.7% 31.5% 17.1% 18.2% 9.7% 14.0% 3.6% 8.5% 2.9% 52.4% 24.7% 23.2% 20.2% 15.7% 5.6% 11.4% 10.2% 57.5% 18.0% 25.3% 26.1% 25.0% 5.7% 8.0% 8.0% 62.9% 19.3% 16.3% 15.8% 12.9% 22.8% 7.0% 16.5% 68.0% 17.2% 30.5% 82.7% 14.2% 22.2% 41.6% 3.6% 57.1% 46.7% 36.4% 34.4% Europe 41.1% 28.8% 28.0% Japan 76.8% 55.4% 53.3%

Figure 3 - Mobile behavior in United States, EU5 (UK, Germany, France, Spain and Italy) and Japan October, November, December 2010

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Another fact that supports the statement that SMS is still popular compared to other messaging service. The research took place in India. Nokia invested in a series of services of text messaging for India. The idea was to be customer-driven, not just technology-driven. The tools are: We Meet :

We Meet social networking will not require the user to have any data/GPRS plans for connecting to friends and networking around. The application specifically developed for Indian markets bypasses GPRS connection, which is still a prohibitively costly option in India and allows one to chat/IM through text messages. The effect is something like an instant messaging conversation, but at the fraction of the cost and on devices with no data plans. We Meet is also designed to be location-aware. But instead of pricey GPS, which is typically found only in high-end phones, it tracks peoples location via towers. The system works because, in India, operators give cell towers geographic names. Even low-end phones can detect the basic vicinity of specified contacts and display the information in the form of a word or phrase. When people move, the location updates. Its not a digital map, but it serves the same function. MoMart :

MoMart, stand for Mobile Mart, another mobile texting based marketplace. It consists of product listings delivered by text message. Interested buyers would subscribe to the service and specify the goods they want; the program would then push matches directly to their phones. Listings could be text-only or include an image embedded into the message. They could also be targeted to particular areas using cell-tower location technology, enabling buyers and sellers to meet in person. The programs run on Nokias Series 40 software platform, giving them a potential audience of hundreds of millions of phones. Nokia also has some experience it can reference. Last November, the company introduced a set of mobile programs called Life Tools that provided agricultural information and educational material to people in rural areas. Life Tools routes information to users via text message and was tested in India before being publicly released. However MoMart and WeMeet target urban users and encourage people to communicate with each other, not just consume content pushed to their phones. 2.1.3. Nokias Position Top handset suppliers in the global market are Nokia, Samsung, LG, Sony Ericsson, Motorola and Research In Motion. Nokia still leads with a market share of 36.3% in 2011. Asia Pacific, Middle East and Africa will experience faster growth than other regional handset markets over the next two years (VisionGain).

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Market Share
Others Apple RIM LG Samsung Nokia

Market Share

0.0%

10.0%

20.0%

30.0%

40.0%

Figure 4 - Market Share

Based on Telecom market research, if we look deeper into regions, only North America (United States and Canada) has a different top 6 handset suppliers. The handset suppliers are: Samsung, LG, RIM, Motorola, Apple and HTC. The market dynamics are clearly different from the overall global market where Nokia is the dominant leader. Nokia is the number one supplier in both China and India. It is forecasted that Nokias handset shipments in Asia Pacific will rise to 222.6 million in 2011. 2.1.4. Application on Smart Phones Over 300,000 mobile apps have been developed up to December last year. These applications were downloaded 10.9 billion times. It is predicted that global downloads will reach 76.9 billion in 2014 and the business will be worth US $35 billion. Demand for app stores is expected to peak in 2013. However, mobile application stores will slowly decline as subscribers migrate from download apps to mobile Web sites and more popular download apps, such as social networking, like Twitter and Facebook are preloaded on mobile devices. The average price of downloading a mobile app is falling rapidly on all vendor app stores, except Android. One in four mobile apps once downloaded is never used again. Many apps are downloaded, tried once and then discarded. Tracking downloads is often a first step to gauging an apps success, but download stats often provide an incomplete and inflated view. High download numbers always feel great, but if those customers never open the application or abandon it after just a few uses, those high download numbers are really part of a high churn rate. Some app stores, including the largest, Apple, keep download stats for individual apps a secret, which saves the publishers from embarrassment. Thus you will only hear download figures for the more successful apps, but while these sound impressive, they dont mean much without the retention rate i.e. how many people are still using the app a week, month, or year later. The most used apps across all smartphones: Facebook (The Facebook App has been downloaded 100 million times from the independent app store GetJar, according to GetJar (December 2010). Making this the most downloaded app from any app store). Google Maps

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The Weather Channel (TWC).

The most popular categories are: Games, News, Maps, Social Networking, and Music. On average US feature-phone users have 10 apps on board and smartphone users have 22 apps (of which iPhone users have the most with 37). However, Nokia still hopes users will get hooked on doing more with their phones. Consumers who sign up for his apps will be more likely to adopt data plans in the future. When data plans become mass market, these users can easily transition.

2.2.Social Demographic
2.2.1. Explore new opportunities in Africa As part of the ITU (International Telecommunication Union) program Connect the World a global multi-stakeholder initiative set up within the context of the World Summit of Information Society, ITU has identified 3 key areas that constitute primary building blocks needed to reach the goal of connecting the unconnected worldwide by 2015, as follows: Enabling environment that promotes good governance, fair, technology-neutrak policy and regulatory framework, intellectual property protection, consensus building/dispute resolution mechanism, national e-strategies, national business and social development models, standardization. Infrastructure and readiness that promotes network infrastructure and development, capacity building, national ICT awareness raising, funding of universal service/access and local content development. Applications and services that basically, provide e services that ranges from governance, health, learning, business, employment, environment, agriculture and science, disaster preparedness and response system, child and youth initiatives, cultural and linguistic diversity and local content.

Connect the World is a complementary initiative; it will not overlap the existing effort by each region, but rather leverage the strength of its diverse membership to focus on activities so that communities worldwide get what they need the most. ITU divided the world into 5 Connect the World series, Africa, CIS, America, Arab States and Asia Pacific. This paper will focus on Connect Africa that was held in 2007, with the aim of accelerating progress in the implementation of the Plan of Action established during the World Summit on the Information Society and the UN Millennium Development Goals, assembled Heads of State and Government and Ministers from African countries have shown their willingness to collaborate with partners from industry, financial institutions, international and regional organizations and civil society towards achieving the following Connect Africa Goals: Interconnect all African capitals and major cities with ICT broadband infrastructure and strengthen connectivity to the rest of the world by 2012. Connect African villages to broadband ICT services by 2015 and implement shared access initiatives such as community tele-centers and village phones. Adopt key regulatory measures that promote affordable, widespread access to a full range of broadband ICT services, including technology and service neutral licensing/authorization practices, allocating spectrum for multiple, competitive broadband wireless service providers, creating national Internet Exchange Points

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(IXPs) and implementing competition in the provision of international Internet connectivity. Support the development of a critical mass of ICT skills required by the knowledge economy, notably through the establishment of a network of ICT Centers of Excellence in each sub-region of Africa and ICT capacity-building and training centers in each country, with the aim of achieving a broad network of inter-linked physical and virtual centers, while ensuring coordination between academia and industry by 2015. Adopt a national e-strategy, including a cyber-security framework, and deploy at least one flagship e-government service as well as e-education, e-commerce and e-health services using accessible technologies in each country in Africa by 2012, with the aim of making multiple e-government and other e-services widely available by 2015.

Based on the ITU statistics in Africa region, there 5 striking facts as follows:

Fewer than 4 out of every 100 Africans used the internet, compared with 1 out of every 2 people living in the G8 nations The G8 is home to less than 15% of the worlds population, yet it is home to 45% of the world's internet users. At present (2004-2005) growth rates, nearly 25 % of people living in the developing world will be online by 2010. An estimated 30% of all villages worldwide still have no access to telephone services. 79% of Africas 27 million fixed phone lines are located in just 6 of its 54 nations. An estimated 30 countries still rely on a single 10Mbps international internet connection (or less) to serve their entire population, compare to in wealthy countries, consumers can now buy their own personal 10Mbps connection at very affordable prices Accounted for 14% of the worlds population, but for only 5.6% of all fixed and mobile subscribers worldwide. By far the worlds lowest penetration of fixed lines, with a continental average of around 3 main lines per 100 people. Had 221 million total telephone subscribers, 198 million of which were mobile cellular subscribers. The continent has the highest ratio of mobile to total telephone subscribers of any world region, and has been dubbed "the least wired region in the world". The region with the highest mobile cellular growth rate. Growth over the past 5 years averaged around 50% year on year. The total number of mobile cellular subscribers continent-wide at end 2006 was 198 million. Had some 22 million Internet users, for an Internet penetration of just 5%. Europes Internet penetration is 7 times higher.

Please refer to the graphs on appendix 2 for more detail information Africa ICT regional profiles. The opportunity for Nokia in this situation is involvement in building infrastructure, network upgrade and expansion and high speed internet connection. Nokia, through its Nokia Siemens Network which already has 25% of the worlds population connect using its infrastructure and solutions, can increase their market sharing by exploring this opportunities. Just as Africa started building their telecommunication infrastructure, to complement this initiative, they can provide telecommunication devices such as conventional handset, which already their strong market worldwide. Developments in the mobile sector have been able to change the ICT landscape. In Africa only one out of 4 African have a mobile phone. As an

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indicator, mobile growth remains strongest in the developing world. Contrary to what is happening in the mobile sectors, Internet use is not growing as quickly in the developing world as in the developed world. A high level of competition and a decrease in prices have been able to reduce the digital divide in mobile telephone, substantially. Fixed telephone lines remain the exception and penetration is at 3 per 100 inhabitants, still the lowest in the world and will remains as the least dynamic sector. The limited availability of fixed lines has also been a barrier to the uptake of fixed broadband and it is most likely that Africas broadband market will be dominated by mobile broadband. Internet use, in general, remains low in Africa especially, where only 5 percent of the population is online, compared to over 40 percent in Europe, the Americas, and Oceania. The case will be the same with India where they see the opportunities of providing the textmessage based service. This emphasize not in the sophisticated type of technology, but how people are involved in telecommunication progress in their region by adopting simple means of communication. The approach is the need for handset that can provide this basic service.

3. Conclusion
Telecommunication is a commodity which fully understood by Nokia. Currently, they have almost all chain in telecommunication started from the network, platform, content, and also handset. To survive for a long term, several steps might be thought by Nokia as its business microscope. Scenario which might be the path as below:

3.1.Put the network up, send the other into rubbish basket
Nokia network currently occupied 25% of telecommunication infrastructure over the world. It sounds great for Nokia network business. Therere two aspects which can be fundamental for this choice. Africa as new market of conventional telecommunication ITU as a union of telecommunication industry proposes a program which named Connect Africa.

Figure 5 - Cellphone Subscriptions (2010)

According to the graph, it means that Africa has many potential to be utilized by telecommunication companies, which means that infrastructure development required. And what type of telecommunication technology might be applied here? To win the

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Africa market, the technology which will be implemented must suit the economy situation in most Africa countries, which are not the latest technology, but the earlier one, such as 2G, 3G. And Nokia can put their value in it. Data traffic which becomes higher from day to day due to human demand on information and internet-ing devices will increase congestion and utilization of telecommunication operator network. Furthermore, Nokia is in proposing their LTE technology too many telecommunication operators, and they have signed agreement with many of them. Why LTE can be a grace to telecommunication operators, the answer as picture below:

Figure 6 - LTE cost per MB

Figure 7 - LTE Performance

As an operator perspective, what they can conclude as below: Cost which they need to provide data traffic for the customer will be lower. In a long term, it means that the operating expenditure which they need will be lower also, And we can conclude that profit that gathered by the operator companies will be higher. Satisfaction of telecommunication subscriber will get better which are supported by the improvement in peak throughput and latency. What does it mean to telecommunication companies? The answer is lower churn rate, more new subscriber activations. Then the next question is what does it mean to them? The most feasible feedback to them is more profit for telecommunication companies. From 2 (two) points above, theres no reason for operator company not to take this technology. Why they have to do it? The answer is simple: profitability will be improved, and while they dont take LTE, they will be behind of the queue. Nokia as one of the earliest network company which propose LTE might have a large portion of cake. So think about it Nokia. Maintain the handset and network business, handshake with other company in platform and content. As we have demonstrated above Nokia network is so highly advantageous business for Nokia. For other business part, they might think handset as the next commodity. Nokia handset currently encompasses these following segments: Smartphone handset Recently, many platforms for mobile were built and shared without any charge, except for Apple with its iPhone which treat their platform as valuable one. With

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lack of limitation in Nokia current platform we might predict that Nokia will throw the business away and cooperate with other parties in this part. And we think Microsoft with its Windows is a appropriate candidate for it, while their platform is using widely over the world, furthermore will give compatibility advantage to Nokia Handset. Conventional handset Not all the community needs the handset with high capabilities. Several reasons might be caused by uncomfortable, inappropriate, or unaffordable. Lets take a clear example which we have described above about Africa Connect program. As the economy situation is not widely available for smart phone option, Nokia conventional handset might be suitable for this segment. A question emerged from these condition is which one that Nokia should take? Referring to Nokia current market share in conventional handset, in developing countries, they should utilize it rather than try to compete in smart phone. And for developed countries which will adopt LTE technology, smart phone might be the answer to compete with the other handset manufacturer.

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References
Wikipedia. 2011. Ecosystem Services. http://en.wikipedia.org/wiki/Ecosystem_services Dixon, Patrick. 2011. Convergence or Divergence Innovation Video. http://www.globalchange.com/pdf/convergence.htm

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Appendix 1 Key Global Telecom Indicators

Key Global Telecom Indicators for the World Telecommunication Service Sector in 2010 (all figures are estimates)
Global Developed nations 1,436 Developing nations 3,846 Africa Arab States 282 Asia & Pacific 2,649 CIS 364 Europe 741 The Americas 880

Mobile cellular 5,282 333 subscriptions (millions) Per 100 people 76.2% 116.1% 67.6% 41.4% Fixed telephone 1,197 506 691 13 lines (millions) Per 100 people 17.3% 40.9% 12.1% 1.6% Mobile 940 631 309 29 broadband subscriptions (millions) Per 100 people 13.6% 51.1% 5.4% 3.6% Fixed broadband 555 304 251 1 subscriptions (millions) per 100 people 8.0% 24.6% 4.4% 0.2% Source: International Telecommunication Union (October 2010)

79.4% 33 9.4% 34

67.8% 549 14.0% 278

131.5% 74 26.6% 72

120.0% 249 40.3% 286

94.1% 262 28.1% 226

9.7% 8

7.1% 223

25.9% 24

46.3% 148

24.2% 145

2.3%

5.7%

8.7%

23.9% 15.5% via: mobiThinking

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Appendix 2 Africa ICT Regional Profiles

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