NAICS: 33-4210 Telephone Apparatus Manufacturing, 33-4220 Communication System and Broadcast and Studio Equipment Manufacturing
SIC: 3661 Telephone Apparatus Manufacturing
NAICS-Based Product Codes: 33-422012, 33-42201201, 33-42201204, 33-42201207, and 33-42201209
A cellular phone is a handheld, wireless receiver that is connected to a nearby radio transmitter and receiver station. This wireless connection allows the user to move about freely, and the user may place and receive telephone calls. More expensive versions of this device allow the user to check email, store photos, play music, and browse the Internet. Cellular phones (also called cell phones, mobile phones, wireless phones, and handsets) resemble the receiver on a standard, analog phone. There is a mouthpiece, ear piece, and keypad. Display screens are an important feature of the cellular phone used for inputting information to be recorded and for other data management purposes. Cellular phones are also much smaller than traditional telephone receivers.
How Cell Phones Work
Cellular phones operate with radio frequencies, a form of electromagnetic energy located on the electromagnetic spectrum between FM radio waves and the waves used in microwave ovens, radar, and satellite stations. The geographic region served by a cellular system is subdivided into areas called cells. Such cells are supposed to be uniform regions but in fact frequently overlap. Each cell has a central base station and two sets of assigned transmission frequencies; one set is used by the base station, and the other by mobile telephones. Each area or cell contains an antenna. When a person moves within the network area carrying a cell phone, the cell phone keeps contact with the local antenna.
Each cell has its own base station, which is identifiable by its transmitting and receiving antenna located on a tower at the top of a hill or building. When a call is placed from a cellular phone, a signal is sent from the cell phone antenna to that cell's base station antenna. A special frequency, the control channel, is used when cell phones and base stations communicate. The base station sends a System Identification Code (SID) to the cell phone over this control channel. This code, a unique five digit number assigned by the Federal Communications Commission (FCC), identifies the cell phone carrier in that cell. If the SID sent from the base station is the same as the SID programmed in that phone, then the phone is using its home carrier's cell. If the SIDs do not match, then the phone is roaming, using another carrier's cell.
In addition to the SID, the cell phone antenna transmits a registration request. This request is sent to the Mobile Telephone Switching Office (MTSO). The MTSO tracks the phone's location in a database. It then assigns a frequency pair in that cell with which the phone will communicate with another phone. When the phone moves close to the edge of a cell, the base station in the cell in which the phone is in identifies the signal as getting weaker and, through the MTSO, coordinates with the base station into which the phone is moving to signal to the phone to switch frequencies to those that will work in the new cell. This coordinated switching allows users of cell phones to communicate with each other while traveling from cell to cell and city to city.
The first cellular phone was available from Motorola in 1983. However, the first integration of radio and telephone communications took place shortly after the turn of the twentieth century. Bell Labs (which would one day be part of AT&T) created the first version of a mobile, two-way, voice based radiotelephone. The first ship-to-shore radiotelephones were used in 1919. A radiotelephone was installed in a Detroit Police Department police car in 1921; the technology would be introduced into other dispatch services in later years. In Europe, radio-telephone communications were also used on first-class passenger trains about 1926.
Bell Labs claims the first truly mobile telephone call was made in St Louis, Missouri, on June 17, 1946. The systems operated under the push to talk format. A user selected a channel, used the push button feature to speak, and had to be connected by an operator. By 1948, wireless telephone service was available in almost 100 cities and highway corridors. Customers included utilities, truck fleet operators, and reporters. There were only about 5,000 customers in the United States at the time making 30,000 weekly calls.
The wireless network could not handle large call volumes. A single transmitter on a central tower provided a small number of channels for an entire metropolitan area. A handful of receiver towers handled the call return signals. No more than three subscribers could make calls at one time in any city. The service cost $15 per month, plus 30 to 40 cents per local call, and the equipment weighed 80 pounds.
In December 1947 W. Rae Young and D. H. Ring, Bell Labs engineers, proposed a system to support a network of wireless phone systems throughout the country. They proposed regions be divided into a series of hexagonal cells; these regions would be comprised of multiple low-power transmitters spread throughout a city. There would be automatic call handoff from one hexagon to another and reuse of frequencies within a city. Phil Porter, also of Bell Labs, felt that the cell towers should be at the corners of the hexagons rather than the centers and have directional antennas that would transmit/receive in three directions. However, the technology at the time was unable to support such a move (that system, it should be noted, would eventually be adopted).
That same year, 1947, AT&T proposed that the FCC allocate a large number of radio-spectrum frequencies so that widespread mobile telephone service would become feasible. By doing so, the FCC would provide incentive for telecommunications companies (namely AT&T, historians have pointed out) to research the new technology. The FCC decided to limit the amount of frequencies available in 1947. Their limitations allowed only 23 phone conversations possible simultaneously in the same service area. These frequencies were used for emergency services such as police, fire, or medical emergency.
1950s through 1980s
By the 1950s, the electronics industry was starting to advance. Transistors and miniaturization had progressed to the point that a radio might be carried in the palm of one's hand, for example. In 1956 the first car phones were put into use in the United States (the system had been used in Sweden a few years earlier). The systems were bulky and an operator was needed to switch calls. A 40-pound transceiver was typically stored in the trunk. By 1964 customers could dial phone numbers directly from their cars, which removed the need for push-to-talk operators.
By 1967 mobile phone technology was available throughout the country; however, the user had to stay within one cell area. Base stations could not yet hand a phone call off from one cell tower to another. This problem was solved by Amos Edward Joel (again, an engineer from Bell Labs), who developed a method for a tower to hand off a phone call to another tower while keeping the user connected. Users could now move from cell to cell and not lose a phone call.
In 1968 the FCC initiated an inquiry on whether to allocate part of the TV UHF band (channels 70-83) to mobile services. AT&T submitted a proposal, detailing the hexagonal cell plan and describing how phone calls might be handed off from tower to tower as a caller moved about with his portable handset. The FCC proposal met with considerable resistance from television and private radio (police, ambulance) broadcasters, who were unwilling to lose part of their broadcasting spectrum. There were some lawmakers who were uneasy with AT&T's powerful influence in the market. The FCC would not resolve the matter for roughly another decade, when the FCC made cellular service possible to the public in March 1982. In that agreement 20 megahertz each were set aside for Wireline Common Carriers (WLCCs) and Radio Common Carriers (RCCs) (Baby Bells and smaller phone companies), 30 megahertz for private radio, and 45 megahertz were held in reserve for cellular service.
As the FCC sorted out the bandwidth issues, Bell Labs continued its research. In 1970 it filed a patent for a mobile communications system. In 1977 experimental systems were launched in Chicago, Illinois, and the Baltimore/Washington D.C. corridor. Meanwhile, the cellular industry moved forward in other countries. In 1979 the first commercial cellular system began operation in Tokyo, Japan. Cellular systems in the Nordic countries also entered service about the same time.
Dr. Martin Cooper of Motorola created the prototype of a cellular phone (Motorola and AT&T were frequent partners). On April 30, 1973 Cooper and John Mitchell, a fellow engineer, introduced the first cellular phone at the New York Hilton. The audience consisted of about 50 reporters. Cooper placed a call to Joel Engel, head of research at AT&T's Bell Labs, while walking the streets of New York City talking on the first Motorola DynaTAC prototype. According to Cooper, sophisticated New Yorkers gaped at the sight of someone moving around while making a phone call. The Motorola DynaTAC 8000x would not be available until 1983. It cost $3,995. The phone, dubbed the brick, had one hour of talk time and eight hours of standby.
Consumer demand was initially underestimated. The Motorola prototype had a waiting list of 25,000 people in 1980. Farley cites some of the industry forecasts. In 1980 consultants McKinsey & Company estimated that there would be 900,000 subscribers by the year 2000; the actual total was 109 million. Donaldson, Lufkin, Jenrette in 1990 guessed no more than 67 million by 2000. A 1994 estimate by Herschel Shostech Associates estimated 60-90 million by 2004; the actual total was 182 million. Nobody believed the average citizen would be interested in such a service or be able to afford it.
The FCC, frequently criticized for dragging its heels in the decision making process, was completely overwhelmed when it came to issuing licenses for the new cellular industry. In 1981 the FCC announced it would issue licenses to 306 Metropolitan Statistical Areas and 428 Rural Statistical Areas, a non-wireline company and a wireline company. It took the FCC nearly a year to process the 190 applications for the top 30 areas. It expected a similar period of time to process the 353 applications for markets 31 through 60. It estimated licenses for the next thirty markets not to be processed until the end of 1985. Another 567 applications existed for the next 30 markets. In 1986 the FCC switched to a lottery system to award the applications. It also allotted another 10 megahertz of spectrum. By 1987 the industry saw more than 2 million subscribers and more than $1 billion in revenue, according to the Cellular Telecommunications Industry Association.
1990s and Beyond
Technological developments with electronics in the last decade of the century were rapidly implemented by the mobile phone industry. Smaller, more powerful components were integrated into cell phones. The compression of digitized information also made it possible to make more efficient use of precious bandwidth. Calls could be multiplexed, which allowed more than one call to be carried on the same line. Sound quality would also be improved. The handset could be smaller and even more portable. These technological advances helped usher in the second generation technology: GSM (Global System for Mobile Communications), TDMA (Time Division Multiple Access) and CDMA (Code Division Multiple Access).
In 1982 the Conference of European Posts and Telecommunications (CEPT) hoped to create a mobile standard in Europe. By 1987, the GSM standard was created based on a hybrid of analog and digital technologies. This allowed for fast bit rates and more natural-sounding voice-compression algorithms. GSM was launched in Finland in 1991. GSM is now the world's leading wireless phone format, with more than 2 billion users as of June 2006. It operates on the 900-megahertz and 1.8-gigahertz bands in Europe and on the 1.9-gigahertz band in the United States. GSM is the only service that permits users to place a call from either North America or Europe. The GSM standard was accepted in the United States in 1995.
The major difference between TDMA and CDMA is how they handle multiple users. TDMA chops the channel into sequential time slices. Each user of the channel takes turns transmitting and receiving signals. CDMA assigns a unique code to each conversation, allowing for some overlap along the spectrum. CDMA provides three to five times the calling capacity of GSM and TDMA and has become the standard in North America.
CDMA2000 is a slightly newer, second generation technology that provides voice and data capabilities between mobile phones and cell sites. It nearly doubles voice capacity over second-generation CDMA networks and supports high-speed data services. A few European carriers in the former Soviet bloc have rolled out CDMA2000, as have carriers in Japan and South Korea. Verizon and Sprint were the first to use this technology in the United States.
With increased processor power and lighter, better designed parts, manufacturers began creating phones with other functions integrated into them. Computer companies, it should be noted, about this time were creating the first personal digital assistants—handheld computers that could run a calculator, clock, alarm, and any number of personal organizing functions. The same could be done for phones. In the late 1990s, several efforts were made to integrate camera and cell phone functions. Philippe Kahn did so in 1999, as did Olympus with its Deltis VC-1100 model in 1994. In both cases, however, digital cameras and phones were linked by wires, which allowed for the uploading and transmission of digital photos. Kyocera and Sharp were the first companies to work on a handset with an integrated camera in 1999. Sharp released the J-SHO4 in November 2000. Camera phones started shipping to North America in 2002.
IBM and BellSouth introduced the first smart-phone, the Simon Personal Communicator, in 1994. Smartphones are combination mobile phones and PDAs (Personal Digital Assistants). Such phones provide cellular service, email, text messaging, Internet access, multimedia services, and organizational capabilities. Most phones are so multifunctional that the distinction between smart-phones and high-end handsets has blurred considerably. The devices are more popular in Europe than in the United States.
Third Generation Technology
The third generation (3G) technologies are those items that include handsets with increased capacity and high-speed data applications up to two megabits. Companies from South Korea introduced such phones to the United States in 2003. Third generation wireless employ wideband frequency carriers and a CDMA air interface. Networks must be able to transmit wireless data at 144 kilobits per second. One example of third generation technology is W-CDMA (Wideband Code Division Multiple Access), which uses 5-megahertz channels for voice and data with peak data speeds of 384 kilobits per second. Another is TD-CDMA (Time Division CDMA), which uses increments of 5 megahertz of spectrum, each slice divided into 10 millisecond frames containing fifteen time slots (1,500 per second).
In early 2007 the GSM Association launched a campaign called 3G for All. The purpose of this program was to gain wider distribution of third generation phone technology. This would be attained through various major economies of scale in manufacturing, logistics, and marketing.
Modern mobile technology has been introduced in various levels of sophistication known as generations. The exact years of these generations are open to debate in the industry. The first handsets shipped were analog phones in the 1980s. These phones are considered first generation. Digital phones, the second generation, were shipped in the 1990s. Third generation phones started to be shipped between 2001 and 2003. A more advanced level of phones, the 3.5 generation phones, started to ship in 2005. Analysts expect fourth generation phones to start shipping about 2009.
Market research firm Handelsbanken Capital Markets estimated that there were 415 million mobile phones shipped worldwide in 2000. Shipments fell slightly to 405 million in 2002. Industry shipments experienced double-digit growth through most of the next few years, climbing to 978 million in 2006. The company estimated shipments of 1.1 billion phones in 2008 as can be seen in Figure 51. Other market research firms come up with slightly different figures when analyzing the same industry. For example, Informa Telecoms & Media estimated 942.7 million phones shipped in 2006 and anticipated shipments of 1.1 billion in 2008. Piper Jaffray estimated 982 million units shipped in 2006 and 1.2 billion in 2008.
According to Handelsbanken, Nokia took 30.9 percent of global shipments in 2000. It was forecast to take 36.8 percent of shipments in 2008. Motorola had an 18.1 percent market share in 2000; its share in 2008 was expected to be 22.9 percent. Samsung had a 6.2 percent share in 2000 and was anticipated to have a 12.6 percent share in 2008. Sony Ericcson had a 10.4 percent market share in 2000. It was expected to rank fourth in 2008 with a 9.3 percent share.
The handset industry is expected to see strong (but slowing) growth in the coming years. Wireless penetration is high in developed countries, and increasing in less developed ones. Figures vary, but over 70 percent of the U.S. and Japanese population use a cell phone, compared to 40 percent in Latin America and 90 percent in parts of Europe. Consequently, as penetration rates rise, an increasing percent of the sale of new phones will be generated by the need for replacement handsets rather than handsets for new subscribers. About 55 percent of handset sales were replacement models in 2002. By 2007 this figure was expected to increase to 57 percent.
GSM will be the dominant technology standard through the end of the first decade of the twnety-first century at least. In 2007 there were expected to be 1.02 billion phones shipped. About 808 million, or 78 per-cent, will be in the GSM format. Approximately 190 million phones were shipped using CDMA technology, which represents 18.5 percent of total shipments. Other technologies, including TDMA (Time Division Multiple Access), PDC (Personal Digital Cellular), PHS (Personal Handy-Phone Systems) and IDEN (Integrated Digital Enhanced Network) represented the remaining 3.5 percent. These technologies have a larger presence outside the United States.
Piper Jaffray places total handset sales in North America at 170 million units in 2007. Motorola was the leader in the North American market that year. Gartner Dataquest and Piper Jaffray estimated that Motorola had 38 percent of the market in 2007, up from 23 percent in 2002. Nokia was the leader in 2002, with a 36 percent market share. The company lost share from 2002 to 2003 falling from 30 percent to 21 percent. In 2007 Nokia's share was forecast to be 15 percent. Samsung was third in the market; Samsung had a 10 percent market share in 2002 and was forecast to have 16 percent of the market in 2007. LG had an 8 percent share in 2002, which grew to 14 percent in 2007. Together, all other firms represented 23 percent of the market in 2002 and 16 percent in 2007. Figure 52 presents the Piper Jaffray market share estimates for 2007 graphically.
Total handset sales in Western Europe were forecast to reach 185 million in 2007. Nokia had a 37 percent market share, followed by Motorola with 16 percent, and Samsung and Sony Ericsson with 15 percent each. Nokia's market share declined since 2002, when it led the market with a 48 percent share. According to Piper Jaffray, however, it still enjoys considerable brand loyalty. Sony Ericcson's line of third generation (3G) phones is expected to take market share as the 3G technology gains market penetration.
The Asia-Pacific region (excluding Japan) is expected to see double digit growth in 2007. Handset sales will exceed 350 million units. Much of this growth will be in China, the world's largest handset market. Handset unit sales grew 40 percent in 2006 from both new and replacement handset sales. In 2007 Nokia had an estimated 42 percent of the Chinese market, Motorola 19 percent, Samsung 11 percent, LG Electronics 5 percent and other firms 24 percent. Nokia brought its share up from 32 percent in 2002 to 42 percent in 2007 because of improved distribution channels. Motorola followed Nokia's lead; improvements to its supply and distribution structure brought its share up 8 percent from 11 percent in 2004.
Japan has a high handset penetration rate. Consequently, growth will come largely from replacement sales as wireless users switch to 3G technology. In 2007 Sharp had an estimated 19 percent of the Japanese market. Panasonic and NEC each had 12 percent.
Latin America saw strong growth in subscribers during 2004 and 2005. Growth was expected to continue in the double digits. Piper Jaffray noted that the Middle East had 20 percent of the world's population; the region is thus expected to represent a similar share out of the next billion subscribers worldwide. Handsets are important in Africa because of the unreliable telecommunications infrastructure on that continent. In all these regions, however, replacement sales will outpace new subscribers after 2008. Nokia was forecast to be the leading handset provider in Latin America in 2007. Its share was expected to take a third of the market. Motorola was expected to be close behind with a 31 percent share, Sony Ericsson a distant third with 9 percent. Nokia was anticipated to have nearly half of the market (48 percent) in Eastern Europe, Africa, and the Middle East. Samsung was forecasted to be second with 15 percent.
The Asia-Pacific region had 1.06 billion subscribers in 2007, or 44.5 percent of the 2.38 billion subscribers worldwide, according to Informa. Europe had 521.4 million subscribers, or 22 percent of the total. Africa/Middle East had 298.5 million subscribers and 12.5 percent of subscribers. Latin America had 259.3 million subscribers and 11 percent of the total. North America had 233 million subscribers and 10 percent of total subscribers.
The total number of mobile phone subscribers is expected to exceed 2.6 billion in 2009, according to PricewaterhouseCoopers. NTT DoCoMo, China Mobile, KDDI, Cingular Wireless, and Verizon Wireless were the leading carriers based on wireless revenues for the first half of 2006, according to Chetan Sharma Consulting. The United States added about 23 million new subscribers in 2006. The consultancy reports that Verizon and AT&T each had a 26 percent market share, Sprint had a 23 percent share, T-Mobile an 11 percent share and other firms 14 percent of the market.
This company operates in four segments: mobile phones, multimedia, enterprise solutions, and networks. The mobile phones segment offers mobile phones and devices based on GSM/EDGE, 3G/WCDMA, and CDMA cellular technologies. It has its operations in Europe, the Middle East, Africa, China, the Asia-Pacific, North America, and Latin America. The company was founded in 1865 and is based in Espoo, Finland. It employed 68,483 people and generated revenues of $55.2 billion for the fiscal year ended December 31, 2006.
Providing wireless and broadband communication products worldwide, the company manufactures cellular infrastructure systems, associated software and services, application platforms, switching technologies, two-way radios, and a variety of voice and data systems. Motorola offers its products through direct sales, distributors, dealers, retailers, licensees, and agents. The company was founded in 1928 and is based in Schaumburg, Illinois. It employed 66,000 people and generated revenues of $48.2 billion for the fiscal year ended December 31, 2006.
This company makes many kinds of consumer devices, including DVD players, big-screen televisions, digital cameras, computers, color monitors, LCD panels, printers, semiconductors, flash memory, and communications devices ranging from wireless phones to networking switches. Samsung generated revenues of $78.9 billion in 2005 and employs 128,000 people.
This company was established to draw on the cellular technology of Ericsson, the world's leading maker of wireless infrastructure equipment, and Sony's expertise in developing popular consumer electronics. Sony and Ericsson each own half of the venture, which began operations in 2001. The company generated $8.6 billion in revenues in 2005 and employed 5,000 people.
MATERIALS & SUPPLY CHAIN LOGISTICS
Several market experts have noticed that while the industry was still performing well, growth in the number of subscribers will start to slow. This is to be expected as cellular penetration increases in developing markets and reaches near saturation levels in mature markets. iSuppli reports that global mobile phone subscriber growth increased an average of 25 percent in 2004, 2005, and 2006, but will only be at about 12.8 percent in 2007. Similarly, unit production grew an average of 19.3 percent from 2004–2006. In 2007 iSuppli forecast growth slowing to 9.1 percent, and 6.9 percent in 2008, 4.8 percent in 2009, and 3 percent in 2010. Industry growth will be sustained through replacement handset sales rather than through new subscribers. Consumers will replace their handsets as they fail or as they are encouraged to do so by attractive new features.
In short, the industry needs to make handsets that are attractive to the user. This has begun to change the structure of how handset makers design and build their products. Informa Telecom notes that a supplier previously shipped its goods to the handset maker. A chipset supplier put little emphasis on when or how the chips would be used. Some suppliers are now part of the design process, working more closely with handset makers on how to optimize handset construction.
A good example is in the construction of entry-level phones. One source of new subscriber growth will be in developing markets of Africa, Latin America, and the Asia-Pacific region. The populations in such regions typically have low incomes and so handsets shipped to these countries must be inexpensive, costing $30 or less. Sup-pliers and handset makers have worked to design such a phone. The handsets contain very basic processors. More circuitry is combined on one die, an efficient structure that dramatically cuts the bill of materials (manufacturing cost). Such low cost models may see sales of 28 million in 2007, according to iSuppli.
Higher-level phones present greater challenges to the handset manufacturer. Consumers are drawn to phones that are multifunctional. Such phones might have digital cameras, gaming capabilities, high-resolution screens, and GPS/Bluetooth functions. Such handsets also require powerful processors. These features drive up the cost of manufacturing a cellular phone and increase the complexity of both the hardware and software components.
The average bill of materials (BOM) costs were $61 for an entry level phone, $66.03 for low-end, $91.49 for a mid-range phone and $135.09 for a high end phone, according to iSuppli. Displays are the most expensive part of a phone, followed by digital logic chips and then memory. The percent of total cost varies depending on the type of phone, however. In a low-end phone, the baseband (digital signal carrier) represents 28 percent of the cost of materials, the bill of materials cost, followed by the RF/IF circuitry (integrates the radio signal with the processor) with 12 percent and displays 11 percent. In a high-end phone displays take 28 percent, followed by the baseband with 16 percent and the RF/IF circuitry with 4 percent. The battery made up 10 percent of the cost in the lower-end phone, but 3 percent in the high-end model. A camera made up 4 percent of the materials cost of the high-end phone. Generally, low-end phones do not include cameras. Other costs included memory, user interfaces, and power management applications. Various electrical components represented about 20 percent of the cost of phones on both ends of the cost spectrum.
Software is a vital part of high-end phones. Companies must pay royalties to software developers for operating systems, application platforms, browsers, and predictive text software. Such royalties are becoming an increasingly expensive part of handset manufacturing. Informa Telecoms & Media estimates that the percentage of intellectual property and software royalties will reach 20 percent of total cost for 2.5G (2.5 generation) phones and could be as high as 30 percent or more of total cost for 3G phones by the end of 2006.
Handset makers must distinguish themselves in a crowded market. There are numerous models on the market, many with similar features. Gartner reports that the number of new models in Japan increased 30 percent in 2005 as manufacturers rushed out models to appeal to every possible end user. Many experts are curious to see how Apple's iPhone, released in 2007, will ultimately transform the market. Apple has had great success with the iPod and many analysts expect similar success with the iPhone. The size of the demand for music-enabled phones is estimated to be large and manufacturers are attempting to fill this demand with hundreds of music-enabled cellular phone models. As many as 835 models are expected to be on the market in 2007. Roughly fourteen models have features that closely resemble the features on the iPhone.
With slowing subscriber growth has come declining revenues for mobile operators. The average voice per user revenue fell 7 percent in 2006 while the average data revenue per user increased 50 percent, notes Chetan Sharma Consulting.
According to iSuppli, revenues from mobile content (games, video, services, and music) will grow to $43 billion in 2010, up from $7.7 billion in 2005. Music is the most downloaded form of content, representing about 40 percent of sales. Music's market share may drop slightly by 2011 as mobile television and other video become more popular. Global text messaging service revenues are expected to increase from $60 billion in 2006 to $93 billion in 2011. Informa Telecom & Media anticipated that by 2011, just under half of all mobile subscribers worldwide will use mobile browsing.
The distribution of mobile content is available to the consumer from the manufacturer, service provider stores, or consumer electronics stores. New sites, such as mall kiosks, online vendors, and store-within-a-store players, have made the industry even more competitive. Mobile operators have controlled most of the distribution for mobile content, but there are signs that third party players are gaining ground in these mobile data sales. Handset makers are also making a stronger effort to deliver this content to consumers though direct marketing and Web sites.
According to Mintel, about 62 percent of phones and plans were sold through service provider stores in 2003. Cellular specialist stores selling more than one brand sold 10.2 percent and electronics stores had 7.3 percent, and Web sites had 3.1 percent. The balance was sold through department stores, drug stores, and other outlets. Among large retailers, Wal-Mart, Radio Shack and Best Buy were the most popular outlets from which to purchase a wireless phone.
About 76 percent of U.S. households reported having a cell phone in the third quarter of 2006, according to research by ACNielsen. Recent research notes that cell phone owners are replacing their handsets sooner than in the past. Piper Jaffray reported that as of early 2007 the average cell phone user held onto his or her handset for 30 months.
Market tracking firm Mintel reports that among those 18-24 years of age, 54 percent had a cell phone in 2003. Among those 25-34 years of age, 60 percent had one. About three-quarters of those 35 to 44 years old did. As well, 62 percent in the 45 to 54 age group owned a cell phone compared to 52 percent in the 55 to 64 category. Forty-four percent of those 65 years of age or older reported having a cell phone.
The Mintel report did not address cell phone ownership among children and young teenagers. The company Firefly makes phones aimed at preteen users that have flashing lights and Mom and Dad on speed dial. Robin Abrams, the company's CEO, estimated that 10 percent of children between 8 and 12 years of age (about 23 million people in all) had a cell phone. Parents may find some merit in children having phones. Working parents often feel that such devices keep them better connected to their children, for example. Phones are also helpful during emergencies. But the phones can be a distraction for young people as well. School districts have been instituting cell phone limitations (or complete bans) in schools. Teachers cite the disruption phones bring to the classroom, and with text messaging functionality, the possibility of cheating.
A cellular phone without a service package—a phone number and connection to a service provider—is little more than a fancy looking toy for a child. Consequently, the most direct market adjacent to cell phones is the mobile phone service provider market. These two markets are, in fact, dependent on one another. Cell phones have, in fact, become a sort of loss leader for phone service providers. For a multi-year contract, a service provider in the latter years of the first decade of the twenty-first century will give the customer the actual phone itself.
The market for electronic components is another adjacent to cell phones. The transition to third generation technology will place demands on makers of semiconductors, transceivers, digital baseboards, power amplifiers, and memory makers. This demand helps stimulate various electronic component markets. Baseboards had sales of $13.4 billion in 2005, while amplifiers and transducers had sales of $6 billion, according to Gartner. However, these industries also face strong competition, the cost of research and development, and short life cycles of products. Such challenges do make it difficult to predict how well these markets might ultimately perform.
Again, mobile content providers will perform well. Sales of wireless applications processors increased 35 percent from 2004 to 2005, according to International Data Corp. Texas Instruments, Intel, and Renesas are the leading makers of chips that help phones play games, multimedia applications, and music. According to the Semiconductor Industry Association cell phones are the second largest market for semiconductors behind computers. The increased need for memory to run large applications and store audio and video will benefit the $20 billion flash memory market. Piper Jaffray anticipates rising volume and density in the market with declining cost per bit.
Ringtones have proven a popular accessory for cell phones in the early 2000s, and, often an annoying addition to the public space. Ringtones do have a practical purpose; a personalized ring can help a user distinguish his or her phone in a roomful of ringing phones. Broadcast Media, Inc. estimated that the market was worth $68 million in 2003, $245 million in 2004, $500 million in 2005 and $600 million in calendar year 2006. The analysts at Broadcast Media, Inc. anticipated a drop in the market, with sales slipping to $550 million in 2007.
RESEARCH & DEVELOPMENT
Wireless service and device providers are teaming with the holders of music and video rights to offer downloads, and they will be building relationships with broadcasters to deliver mobile TV without burdening the mobile network. On the handset side, a rapidly growing number of collaborations will be formed between hardware and software companies to build more complete, more reliable, and more feature-rich cell phone platforms. Fewer companies will be able to do everything required to build a platform on their own. Cellular baseband experts, for example, will collaborate with providers of global positioning system solutions, for installation in these basebands, to provide value-added functionality. These collaborations will help accelerate time to market while minimizing research and development costs.
NTT DoCoMo has run some tests on fourth generation technology. Such devices would build on the 3.5 generation technology high speed downlink packet access (HSDPA), which is used primarily in Japan. A downlink is the transmission signal from a base station to a cell phone. HSDPA is a packet-based data service with data transmission ranging from 8 to 10 megabits per second over a 5 megahertz bandwidth in W-CDMA.
Trends in the later half of the first decade of the twenty-first century show a leveling off in the number of new subscribers. One developing trend is the number of people who elect to dispose of their regular landline in favor of their wireless service. In 2003 the Federal Communications Commission (FCC) instituted stiff penalties against local phone companies that don't allow customers to keep their phone number when they switch to wireless service. However, in early 2007 wireless providers T-Mobile and Sprint Nextel complained to the FCC that many local phone companies are not allowing their customers to make this switch. Number transfers ideally should only take days. Some phone companies let the process drag out for months and some frustrated customers simply give up. About 10 percent of households had removed their landline in 2006, and Yankee Group expects this figure to climb to 15 percent by 2010. Just under half of those who are cell phone only are under 30, according to the Pew Research Center. They are also typically less affluent, young, and single.
TARGET MARKETS & SEGMENTATION
Vendors structure their marketing around various factors. They consider overall trends in cell phone usage, the frequency with which subscribers use phones, and the most utilized functions (checking e-mail or text messaging, for example). They consider basic demographics as well, such as gender, age, and geographical location.
Young people, for example, are typically drawn to technology and are willing to adopt new devices. They are often very brand conscious. They are typically drawn to a new phone that is multifunctional, allowing them to text message, play music, and browse the Internet. Manufacturers design cellular phone devices and services that cater to these features. Business users, on the other hand, typically have different needs. Those using cellular phones for business have needs that tend to involve handsets with a large screen, mobile e-mail functionality, and advanced calendar and synchronization capabilities. Manufacturers design devices accordingly for the business user and market them through different media outlets directed to a professional audience.
RELATED ASSOCIATIONS & ORGANIZATIONS
Federal Communications Commission, http://www.fcc.gov
Wireless Association, http://www.ctia.org
Wireless Communications Association International, http://www.wcai.com
Wireless Infrastructure Association, http://www.pcia.com
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"Cellular Phones." Encyclopedia of Products & Industries - Manufacturing. . Encyclopedia.com. (January 18, 2019). https://www.encyclopedia.com/manufacturing/encyclopedias-almanacs-transcripts-and-maps/cellular-phones
"Cellular Phones." Encyclopedia of Products & Industries - Manufacturing. . Retrieved January 18, 2019 from Encyclopedia.com: https://www.encyclopedia.com/manufacturing/encyclopedias-almanacs-transcripts-and-maps/cellular-phones