The next billion people to connect to the Internet in developing
countries will do so largely via smartphones, prompting a battle that
could favour low-price Chinese manufacturers like Huawei and ZTE over
market leaders Samsung and Apple.
Fixed-line telephone networks are
often weak in emerging markets and building new ones is expensive, and
so smartphones are becoming a vital way to connect populations to the
web and bolster economic growth.
Consumers in markets from Nigeria
to Indonesia are hungry for features now standard in the United States
and Europe that allow them to tweet or watch video on the go.
The challenge for smartphone makers is offering those features at a price local populations can afford.
Manoj
Kohli, chief executive of Indian operator Bharti Airtel, said emerging
market consumers were ready to leapfrog basic phone models and go
straight for smartphones, but that prices could not come down fast
enough.
"People in the developing world are going straight to the
mobile Internet," he said in a keynote session at the Mobile World
Congress in Barcelona.
The focus on low-price smartphones could
step up the challenge to market leaders Apple and Samsung, which are
best-known for their top-end iPhone and Galaxy S3 models.
Lenovo, known for its PC business, has quietly become the
fifth-biggest smartphone maker in the world by almost exclusively
focusing on a single market: its home country China.
It is now expanding into Indonesia, India and Russia in a bid to appeal to the rising middle classes there.
And
Huawei and ZTE have built share by bringing features pioneered by Apple
and Samsung such as touch screens, fast processors and better cameras
to the market at prices around $100.
Opportunities
The opportunities in emerging markets appear huge.
Just
4 percent of Africans had smartphones in 2012, according to research
group Informa. The figure was slightly higher at 11 percent in the
developing countries in the Asia Pacific region. In comparison, North
America had the highest take up of web-connected phones, at 47 percent.
Between
2012 and 2017, telecoms consultancy Ovum expects that there will be 1.6
billion new mobile connections across the world, with 61 percent of
these coming from Asia-Pacific. Africa will be the fastest-growing
region, with mobile connections growing at a compound annual rate of 6.5
percent.
Lenovo's Chief Executive Yang Yuanqing said strong price
competition among Chinese players had resulted in a smartphone boom in
the country of 1.3 billion. Of all the phones sold in 2012, he said 70
percent were smartphones, and he's looking to repeat the trick elsewhere
in Asia and Russia.
"We have been very successful in China, so we know how to win in emerging markets," he told reporters.
"In
a mature market you need to build a very strong relationship with the
carriers so they can give you a subsidy, but in emerging markets you can
sell in the open market."
He pinpoints a problem for the big
players. Top-end devices, like the iPhone and Galaxy S3 attract
subsidies from network operators in Europe and the United States, hiding
the cost of around $500-600 over a two-year contract. Such deals are
much harder to find in emerging markets.
The result of a lack of
subsidies means the appeal of a phone largely comes down to its upfront
cost, which combined with the Chinese companies' growing ability to
match and in some cases surpass the technical specifications of the
market leaders, could prove troublesome for Apple and Samsung in
emerging markets.
Ben Wood, chief of research at CCS Insight, said
the Chinese players, which also include TCL Corp, were already raising
concerns at Samsung, which leads the Chinese market.
"If Samsung
is worried, you've got to imagine that Nokia is terrified," he said.
"The Chinese companies can find enough volume in the Chinese market to
sustain the volumes they need and the money they need to keep pushing
internationally."
Companies like Nokia, Samsung and Apple are not standing still, however.
Nokia,
which has for years been strong in emerging markets with basic devices,
is introducing new lower-priced phones with email and basic web
browsing to target consumers in Africa and Asia-Pacific countries in
particular.
At the same time, though, Chinese manufacturers like
Huawei and ZTE are trying to shake off their copycat reputations by
introducing marketing slogans and top-end devices in Barcelona.
Huawei's
Ascend P2 is billed as the fastest smartphone on the market, and has
other innovations, such as power saving technology, priced at 399 euros.
Wan
Biao, chief executive of Huawei Device Co, said the high innovation
level in the Ascend P2 had already started to attract the attention of
operators.
France Telecom's Orange appeared on stage at the launch. It will sell the device in France from June 2013.
The
operator's VP of devices, Yves Maitre, said Orange was placing a bet on
Huawei just as it had in the past with Apple and Samsung.
© Thomson Reuters 2013
MWC 2013 in pictures