Cell Phones Becoming Profitless

saccade.com writes "EE Times has a fascinating article on how electronics companies are being sucked into a profitless spiral by the cell phone market. More and more of the small consumer gadgets are being folded into the phone: camera, music player, PDA, GPS, etc. So the market for non-phone gadgets is slowly going away as the phone picks up more functions. However, consumers don't buy most phones; they are given away (or sold very cheap) by the service providers as hooks to get people to sign up for mobile service. So the service providers are demanding (and getting) rock-bottom prices for fancy phones they can give away, and the micro chip companies are forced into brutal competition for a market that is shrinking into a single commodity gadget, the phone."

Comments

Very misleading and uninformed

[adzoox]

Most cellular services providers take the loss on phones NOT the manufactuer - they make this up by locking you into a contact and hoping you either go over in minutes or buy a plan that makes them money - which 75% + do.

I know this because I had a girlfriend that worked for phone acquistion and deployment for Cingular. THEY almost ALWAYS paid full wholesale price for the phones. The Ericcsons they used to give away cost them $45 each. They cost Ericcoson something close to $19 to make.

Re:Very misleading and uninformed

[starworks5]

hey all, i work for the lnp department at veizon wireless, and i have to concur with the gentlemen here. verizon and most other carriers dont break even on a contract until about 5 months into it on a typical 2 yr contract. and being that most carriers have a trial period. when the customer returns the phones to us, its costs us ALOT OF MONEY. several hundred dollars in most cases. just figure out the time of all the parties involved. the depreciation (phones can not be sold as brand new). and what the FCC charges (last time i checked they charge 10$ for each time i query the national portability administration database). really the carries initially take a loss.

now this may sound like a shock, but actually you get cheaper service by these contracts than you normally would. imagine if everyone could change thier service whenever they wanted (easier with lnp), our overhead would be massive.

but in my humble professional opinion, if you really want to get screwed, choose nextel. they have the highest prices, least minutes, the most overhead, and they have to have phones especially designed for thier company, thier cell towers are propietary, no service level agreements (minimal tower sharing). the thing i hate the most, is that people cant port thier numbers easily because of 'number gaurd' meant to protect fraud. but really meant to keep you from switching carriers, and keeping your tel#.

Re:Very misleading and uninformed

[AstroByte]

I've got one word for this : bollocks.

Unlike your girlfriend, I WORK for a mobile phone handset manufacturer, designing the next gen phones. The article is completely accurate.

Handset manufacturers are very aware of market share, and are always trying to increase their share by exploiting new markets, under-cutting whatever. The key factor is that this is all dependent on the operators within each domain. This means the operators can demand almost anything, and the handset manufacturers compete themselves into the ground to win the contracts.

The operators may pay for the phones, but the manufacturer with the lowest price for the features will win. Margins are razor thin. Last quarter Nokia lost market share, and ended up slashing the prices on handsets to try to win it back. This led to other manufacturers having to drop prices to compete, leading to even faster price reductions than normal.

Design cycles are getting shorter and shorter. The number of phones we have in design at any one time is going up and up, as is the number of features. Each operator has their own testing, and their own particular sets of requirements.

As a fashion accessory, phones are now in the bargain-bin only a couple of months after we finished them! The ability to make money in this environment is almost zero, and the work soul-destroying.

I can't say what measures my company has made to cut costs in case it can be traced back. But people and resources were already cut to the bone. The unlucky ones are now those left behind.

I hate cell phones

[pHatidic]

More and more of the small consumer gadgets are being folded into the phone: camera, music player, PDA, GPS, etc. So the market for non-phone gadgets is slowly going away as the phone picks up more functions.

Here's a simple solution. Build a camera with a cellphone in it. Build a music player with a cellphone in it. Build a PDA with a cellphone in it. Build a GPS with a cellphone in it. And quit your kvetching.

Seriously though, all of these cellphone toys are such crap. This is what I want. A cellphone that makes phone calls. And when it rings I want it to sound like a phone ringing, not Paris hilton getting fucked to german techno porn music. And I want it to be black and white. With no camera, games, or web browser. That has excellent reception and battery life, that does not accept text messages, that is easy to set to vibrate mode, that does not take 20 seconds to start up and shut down while playing an animated movie that is impossible to disable. Can someone please point me to this phone?

Re:I hate cell phones

[servognome]

Here's a simple solution. Build a camera with a cellphone in it. Build a music player with a cellphone in it. Build a PDA with a cellphone in it. Build a GPS with a cellphone in it. And quit your kvetching.
So instead of building a camera into a cellphone, build a cellphone into a camera. Reminds me of the 80s transforming robot craze. Some of the toys were robots that transformed into cars, and others were cars that transformed into robots. For some odd reason the public preferred the robot transforming into something than the other way around, crazy kids.
Seriously though, most people prefer crappy camera into a decent cellphone than a crappy cellphone in a nice camera. The mp3/camera/gadget company would most likely have to recruit and hire new people (ie antenna experts), and reinvent themselves to compete at the same level as established players. And with the non-existant margins it doesn't make much sense.
Seriously though, all of these cellphone toys are such crap. This is what I want. A cellphone that makes phone calls
One of the things to remember is that cellphones are one of the few technology markets that is not highly dependent on the US. In fact the US is behind on advanced cellphone adoption, in part because we have enough money to buy digital cameras, PDAs, MP3 players seperately.
If you go to some 3rd world countries, the cellphone has become THE electronic gadget to have. All the added pieces of technologies are a big draw to people who couldn't otherwise have email (text messaging), digital cameras, or MP3 players.

Re:I hate cell phones

[bob_dinosaur]

I'm assuming you're from the USA. If so, here's a Nokia 1100. Simple, cheap, small. All good.

Re:Cheap my eye

[PeterChenoweth]

SprintPCS does not charge you for the amount of data used. It's a flat $15/month for Vision, which gets you unlimited internet at about 10-15K/sec download speeds. Storage isn't an issue on my Treo 600. The built in memory can handle 300+ photos, and I have unlimited storage on Sprint's picture servers. The couple of SprintPCS Picture phones I've had the pleasure of using could save 20-40 photos internally, but of course there's unlimited storage when you upload there too. But yeah, the camera is crap compared to a real digicam. When I want to take photographs, I bring along my 5mp Minolta Dimage 7HI. When I just need to take a picture of something interresting and get it to anyone I want quickly, a cell-phone cam is very handy.

Re:No, I did not read the article...

[ipfwadm]

Unless, of course, someone like Canon start making those integrated cameras which come with the phones.

It doesn't matter who makes it. There are physical limitations of optics at work here. Correcting for aberrations takes a lot of glass, and glass isn't particularly light. There are currently limitations in the sensors such that larger sensors give better quality than smaller sensors. This will probably always be true to some degree or another (large format film camera give better results than 35mm, but for most of the market, who cares?). Sure, phone cams could potentially someday be enough for a lot of people, but they will NEVER take over the camera market as a whole. Just imagine holding a phone w/ attached 5 pound telephoto lens up to your ear.

Re:Crossing the Chasm

[Joe U]

Verizon will find some way to cripple that phone and still get me to sign a two year contract.

They're good like that.

Verizon has, by far, the best network in my area. Also, the rates are not too bad. Problem is, they tend to turn off some of the nicer features of the phones.

My phone has GPS and Bluetooth, VZW turned them both off for some reason. Not sure why. Also turned off the WAV ringers, I guess they like MIDI better.

Cell phones geared for global market

[servognome]

Cell phones are one of the few pieces of technology that is truly global. There are 1.5 billion cell cell phone subscriptions in the world and only 140 million are in the US.
While many people in the US can purchase better cameras, music players, & PDAs than what's on the cell phone, people in most of the world cannot. The cellphone has become their electronics center and they otherwise could not afford those accessories if they were not on the cellphone.
Text messaging is annoying to do, I'd rather take my laptop to a hotspot, or just connect via modem through my cellphone, but in some countries it is the primary form of electronic communication (cellphone air times are too expensive, and many places do not have traditional internet access). The 1Mpixel camera phones take poor quality pictures, but for people in 3rd world countries, its the only digital camera they have.
I know many americans complain that cellphones are getting to annoyingly complicated with 2nd rate gadgets, the reason is the cellphones are not being designed for the US market, they are being designed for what much of the rest of the world wants.

If I could own the phone and switch _carriers_

[MagikSlinger]

If I could own the phone and switch providers, I'd be more inclined to buy a fancy phone at a higher price. But since a phone usually only works for the company that issued it, why would I care about who made the phone?

T-Mobile turns off free internet access

[n2rjt]

I guess that explains why T-Mobile just turned off free internet access. Last month (even a few days ago), you could go to any WAP site from a T-Mobile phone, without signing up for a special program, and with no cost. It was great! Too good to last, I guess, as they need another way to make money.
Starting today, when I try to go to my favorite sites via phone, I get a "friendly" message saying that I can't get to the sites unless I sign up for the $4.99/month T-Zones service. This move is bound to be unpopular, and might even be illegal, since they removed an actual (but not advertised) service from existing service plans. My feelings are mixed: "Corporate Greed" or "gee, they gotta make a profit" and "it's still a good deal". Sigh.

This has been the case for a while

[EvilStein]

When I worked at AT&T Wireless, people would sTILL complain that the phones cost too much - they had no idea (and sometimes refused to believe) that a lot of the cost of the phone was eaten by AT&T Wireless already, and they were already getting a substantially discounted price.

Too many people want everything for nothing.

I just want a damn phone that works in my apartment - or within a 1/2 mile radius. Dead zones are teh suck.

Re:Who hates that all-in-device

[Tryfen]

Nokia 1100. It's a plain old phone. No fancy gizmos.

Re:Price of phones

[Anonymous Coward]

In Japan, one year old camera-phones cost 1 Yen (about a penny).

Re:Good!

[tdemark]

Erie County (and possibly all of NYS, I'm not sure) has laws prohibiting the use of phones while driving... unless you have a handsfree set.

So, you are not allowed to hold on to a cell phone while driving because it is dangerous, but, these, evidentially, are not:

- smoke
- chow down on that big mac
- fumble with the radio
- read the newspaper
- tend to a crying child in the back seat
- apply makeup or shave (hopefully, the correct conjunction is "or")

That's why I hate cell phone driving laws - either target ALL driving distractions or target none of them.

It would be the same thing as having "assault with a knife", "assault with a bat", and "assault with a lead pipe" laws instead of "assault with a deadly weapon".

The only studies that I have seen quoted that supported cell-phone laws were ones that asked "Was a cell-phone in use during the accident?" not "What driving distractions were present during the accident?" Those are two completely different questions.

The studies that I have seen that list out all driving distractions clearly show things other than cell-phones are leading factors - I think "tuning radio" and "smoking" were the top two.

Re:Good!

[tdemark]

After I posted, I did a quick search on google and found this:

Driving distractions:

Outside person, object or event: 29.4%
Adjusting radio/cassette/CD: 11.4%.
Other occupant: 10.9%.
Moving object in vehicle: 4.3%
Other device/object: 2.9%
Adjusting vehicle controls: 2.8%
Eating and/or drinking: 1.7%
Using/dialing cell phone: 1.5%
Smoking: 0.9 %
Other distractions: 25.6%
Unknown: 8.6%

Source: University of North Carolina Highway Safety Research Center

My memory was a little off about the items (and order on the list).

Re:Cheap my eye

[ipfwadm]

Some info from 3 reputable sites:
http://www.photo.net/equipment/digital/sensorsize/
http://www.dpreview.com/learn/?/key=Pixel_Quality
http://www.luminous-landscape.com/essays/counting1 .shtml

As for lens quality, it ought to be obvious that a better lens will provide better image quality. If it's not, go here, click on a couple lenses, and look at their MTF chart. If you're not familiar with how to read an MTF chart, here's the low-down: a better lens has all the lines closer to the top of the chart (for a more detailed explanation, check out Canon's glossary). Pick a couple lenses of comparable focal length, look at their MTF chart, and then compare the price. For instance, look at the 80-200mm f/4-5.6 compared with the 70-200mm f/4L or f/2.8L. The 80-200mm is currently going for $120. The 70-200mm f/2.8L is currently going for a little over $1100. FYI, lenses with an "L" in the name are their pro series. There's a lot more to a lens than just its ability to resolve detail and show contrast, of course -- look here for more info on why pro lenses are so much more expensive (and better) than consumer-grade lenses. And by "consumer grade" I'm not even getting close to the level of a camera phone lens.

Re:Business in general close to profitless

[multimed]

This is no longer true--with the Bush's Jobs and Growth Tax Relief Reconciliation Act of 2003 capital gains rates dropped to 15% or 5% depending on income level and dividend rates are now 15% or 5% again depending on income level. But of course Bush's tax cut was all about taking care of the rich & screwing the poor.