Qualcomm Inc (QCOM)

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Mobile Carriers Move to Put Their Names on More Phones
By MATT RICHTEL and KEN BELSON

Published: November 29, 2004

http://www.nytimes.com/2004/11/29/technology/29cell.html?ex=1102395600&en=341e83193bd25d9e&e....

nited States cellphone operators, hoping to bolster their brands, are flirting with selling handsets that feature their names exclusively.

The effort, which follows a trend in Asia and Europe, means the companies may eventually sell more models that do not include the names of popular manufacturers. In October, T-Mobile released a device, the Sidekick, that send and receives e-mail messages and is made by Sharp but it features only the T-Mobile brand. In August, Sprint started selling a mobile phone built by Pantech, a Korean company, without the maker's name.

More of these handsets are likely to follow, analysts say, because United States cellphone carriers want to better manage and tailor features and services on the phones. And by working directly with "no name" manufacturers in Taiwan, South Korea and elsewhere, they might also gain leverage over phone makers and potentially reduce their costs.

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The operators "are looking to control the hearts and minds of the end user," said John Jackson, an analyst with the Yankee Group, a market research firm. "It's an exercise taking place worldwide as operators look to build consumer affinity."

Still, the strategy could threaten the long and fruitful, but in some ways fragile, relationship of phone operators and makers. The five largest United States carriers buy about $12 billion a year in handsets from the manufacturers, Mr. Jackson said, and the two sides have an interest in keeping each other alive.

Consumers know the manufacturers' brands, and studies show they choose a phone based partly on who makes it. The biggest makers, like Motorola, Nokia and Kyocera, spend heavily to market their phones. They also develop features for their phones that the operators would be hard pressed to replicate.

While Asian carriers in particular have eliminated the brand names of phone makers and use low-cost manufacturers, similar efforts in the United States are only starting. With the American market reaching saturation, competition to retain customers has intensified so operators are trying to build brand loyalty.

About a year and a half ago, Cingular Wireless, the largest United States cellular phone company, began internal discussions about whether to produce its own branded phone, said a spokesman, Clay Owen. The company, he said, wanted to create lower-cost phones using off-brand manufacturers and make Cingular's name more prominent.

"If you've got any brand loyalty you can leverage, that's a factor in creating phones with exclusive brands," he said.

In the end, Cingular's research showed that consumers continued to buy phones based on the reputation of the manufacturer, Mr. Owen said, though he added that Cingular continues to consider building phones featuring its brand exclusively.

Sprint generally sells phones that share the brand with manufacturers like Samsung and Sanyo. However, last August, the company began selling a phone made by Audiovox that bears only the Sprint brand.

John A. Garcia, Sprint's vice president for sales and distribution, said the handset was an aberration, not a sign of things to come. "That one must have slipped out," he said. Sprint, he said, likes to keep two brand names on the phone, to appeal to consumers who like a specific brand and to give the manufacturer an incentive to built the best phone.

Still, he said, the dynamics have shifted considerably between operators and makers. Until a few years ago, he said, phone operators accepted more generic models. But as carriers have grown and defined their strategies more, they are now dictating more terms.

"It used to be that Motorola would stack up the shelves and say, 'This is what we've got; take it or leave it,' " Mr. Garcia said. Now, he said, manufacturers customize their phones for each operator and for different tiers of service, depending on whether an operator wants to focus on games, business applications and so on.

This is what has gone on in Japan and South Korea for many years. For example, NTT DoCoMo, Japan's largest provider, puts out a list of features and services it wants in its new handsets. With its latest 900i series, DoCoMo asked five makers - Fujitsu, Mitsubishi Electric, NEC, Panasonic and Sharp - to build phones that included cameras with resolution of at least one megapixel and video functions, a slot for memory cards, a Web browser and software that enables e-mail, games and other services.

For all that, the only sign of the manufacturers' work is a letter in front of the number 900. For instance, the DoCoMo F900 is made by Fujitsu, and the S900 by Sharp.

The bulk of the changes being made are inside the phones. The computer chips are so sophisticated that they become the off-the-shelf innards for a cellphone maker, Mr. Jackson of the Yankee Group said. This means that manufacturers can build basic phones at lower costs.

"You plop it in and wrap plastic around it and you've got a cellphone," he said, though he added that the rigorous standards demanded by network operators do not make it simple for any manufacturer to begin making phones.

Jeffrey K. Belk, senior vice president for marketing at Qualcomm, which makes chips for mobile phones, said the number of manufacturers was growing quickly, especially in Asia. Visiting phone stores in Shanghai or Beijing, he said, he did not recognize some of the makers.

The operators are taking advantage of a growing number of manufacturers and models, he said, and the same thing may be coming to Western markets. This would be in Qualcomm's interest because it gains influence if it is less beholden to the specifications of a few big manufacturers.

Nokia, the world's biggest handset maker, is working harder with the operators to customize its handsets with software and features they request. "It used to be no more than a logo on the phone," said a Nokia spokesman, Keith Nowak. "But now we're working deeper into the development process with the carriers. The larger the carrier, the more we can do that."