George Pitcher: Sound marketing is what the telecoms sector needs

The telecoms sector is not nearing its Armageddon, but to survive and grow it must market goods that consumers really want and will buy, says George Pitcher

It’s all too easy to see job losses in a sector where growth is slowing only in terms of their effect on company earnings and the economy. Swedish telecoms leviathan Ericsson has just announced 12,000 redundancies. Let’s be clear what sort of scale of rationalisation this company is working on – 12,000 is the kind of crowd that turns up for a good First Division football tie; when Crystal Palace meets Huddersfield for instance. That’s a large crowd.

Although large, it doesn’t amount to much in terms of an overall percentage of redundancies in the sector. The telecoms industry, for example, has made some 100,000 people redundant over the past ten weeks. That’s about 20 per cent more, as it happens, than will be in the stadium for the European Champions League final.

So it is, perhaps, little wonder that there are those tempted to claim that the global telecoms industry is facing its Armageddon. But there is also an essential paradox facing such prophets of doom. The mobile-phone market still looks lively and prosperous. Even more people are very obviously using them in public than ever before. If you have a teenage daughter, she will be bugging you for the Nokia 3310 with interchangeable fascias that her friends have allegedly already been given – and she won’t even argue with a pay-as-you-go deal.

The truth, of course, is that the mobile telecoms market hasn’t collapsed. It is still growing very fast. It’s just not growing quite as fantastically and pan-galactically as it was this time last year. The problems facing the telecoms sector are nice ones to have. Let’s not call them problems – problems are what declining industries have. Let’s call them challenges. In the nature of industries facing challenges of growth, rather than problems of decline, the solutions are likely to be found in marketing rather than in the technology.

This is almost exclusively a marketing issue. The industry is working through an inventory cycle. Until nearly a year ago, the telecoms industry was raising stupefying loans from the banks. Much of this money was spent on giving phones away (as well as on new-generation GSM licences)

Whatever we would like to believe, many of these give-away mobiles have ended up being used as doorstops. A free phone is offered, so you take it and put it in the glove compartment; girlfriends are bought mobiles, but prefer the one they’re already using. Vodafone estimates that nine per cent of mobiles out there haven’t made or received a call for three months.

Then flotations, such as Orange’s, started to totter and the banks took fright, so the money dried up. The excessive stimulation of the market in the form of freebie subsidies meant that operators were horribly over-ordered. As the brakes have been applied over the past couple of quarters, retailers have found they have a mobile-phone stock mountain of probably well over 20 million units.

So, they’re selling those before re-ordering. Not surprisingly, the manufacturers sales figures have collapsed as a result. Some do worse than others. Nokia has made itself the trendiest, so the operators keep ordering them, but life is very much tougher for the likes of Ericsson or Alcatel, which reports this week.

What we are witnessing is a correction phase, as over-stocking is addressed at the retail end of the market. What we are not seeing is fundamental market maturity, far less a decline in demand. That is why the solutions to the current circumstances are to be found in marketing rather than in technology.

There is far more technology available in the mobile industries than is on the market. There is not only a stock glut of mobiles, but also a technology overhang. We could have palm-tops marketed to us now that would make e-mails as we know them at our workstations truly mobile. What we need to do is work out which technologies the market wants and, vitally, which it doesn’t.

Wireless application protocol (WAP) fell flat on its silly face precisely because it offered applications that people didn’t want. If I want to know what the weather’s like, I don’t want to spend 15 minutes on my mobile when I can look in the newspaper or out of the window. Technology for its own sake is far from a sound marketing principle.

But if I’m watching Crystal Palace beat Huddersfield, do I want to see the half-time scores of other matches on my mobile? Very probably. The next challenge for the mobile market is therefore not to downsize, nor to be unduly clever with the technology, but to give the market what it wants.

The Japanese have recognised this, with NTT DoCoMo providing something as prosaic, but heavily demanded, as cartoons on mobile networks. Maybe as the northern lights of Scandinavia dim, the Japanese marketing sun will rise. Such is the hope that Ericsson’s prospective joint venture with Sony holds out.

The inventory cycle will work its way through the market, but the new stock from the next generation of phones had better be focused on marketing, rather than technological, principles or Nokia will end up with fewer rivals than is healthy for the market.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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