Report About Cellular Phone

During the last few years cell phones have become an important part of our increasingly busy lives. They have changed the atmosphere of our workplaces facilitating contacts between employee’s and their co-workers. We use cell phones to call for help when we are in danger or a difficult situation. Thanks to cell phones, parents can find out at any moment what happens to their children when they are late home. Nowadays, these small and easy electronic devices are the things we cannot imagine our lives without.

            The evolution of cell phones has a relatively recent but interesting history. 1947 is considered to be an important year for the cellular phone industry. «In that year researchers first developed ideas as to the possibility of creating mobile phones that used «cells» that would identify a user in whatever specific region he or she was initiating the call from» (Cell Phones: History of). Separate radio frequencies for mobile calling were opened up by the Federal Communications Commission (FCC) in the United States. But because at that time only twenty-three cell phone conversations were allowed in a given calling area, there was no market incentive for further research to be carried out in this field (Cell Phones: History of). Later in 1968 the FCC reconsidered its position and decided to increase the frequencies allocation «freeing the airwaves for more mobile phones». Shortly after that «AT&T and Bell Labs proposed a cellular system of many small low-powered, broadcast towers, each covering a «cell» a few miles in radius and collectively covering a larger area. Each tower would use only a few of the total frequencies allocated to the system. As the phones travelled across the area, calls would be passed from tower to tower» (Mary Bellis, History of Cellular Phones).

It is considered that the first modern portable cellular phone was invented in 1973 by Dr Martin Cooper, a general manager for the systems division at Motorola. It was a «brick»-like heavy thirty ounce cell phone that Cooper used to make the first call to his rival Joel Engel, head of research at Bell Labs. Motorola and Bell Labs had been rivals from the very beguinning and were competing with each other to hold leading positions in the phone industry for a few decades.

«Bell Laboratories introduced the idea of cellular communications in 1947 with the police car technology. However, Motorola was the first to incorporate the technology into portable device that was designed for outside of an automobile use» (Mary Bellis).

As Gareth Marples writes in «The History of Call Phones», this first cell phone call caused «a fundamental technology and communications market shift toward the person and away from the place» (Gareth Marples, The History of Call Phones). If we take a look at the companies that were operating on the mobile phone market, we will see that by 1973 Motorola was the undisputed leader both in terms of revenue and market share ($350 million of revenue and a 64.2% market share) (Table 1).

It is to be emphasized that in the United States the Federal Communications Commission often made the process of development difficult for the mobile phone industry for reasons which are sometimes hard to explain. In1975 the FCC finally permitted the Bell System to begin a trial system. «It wasn’t until March, 1977, though, that the FCC approved AT&T’s request to actually operate that cellular system» (Tom Farley, Mobile Telephone History). In 1977, AT&T started public cell phone testing in America. The first trials began in Chicago with 2000 customers and then other cell phone trials appeared in the Washington D.C. and Baltimore area. In 1979, cellular phone service testing was carried out in Japan (Cell Phones: History of).

In 1981, Motorola and American Radio telephone started a second U.S. cellular radio-telephone system test in the Washington/Baltimore area. (Mary Bellis). In October 1983, the regional Bell operating company Ameritech began the first US commercial cellular service in Chicago, Illinois, using AMPS (Advanced Mobile Phone Service). Motorola’s analog system DynaTAC was first introduced commercially in Baltimore and Washington D.C. by Cellular One in December 1983 (Tom Farley). In that year Motorola introduced the 16-ounce DynaTAC phone into commercial service with each phone costing the consumer $3.500 (Gareth Marples). At this stage, high prices made cellular phones beyond reach for everage citizens.

Europe saw cellular service introduced in 1981, when the Nordic Mobile Telephone System or NMT450 began operating in Denmark, Sweden, Finland, and Norway in the 450 MHz range. It was the first multinational cellular system with the Nokia group playing an important role in it. In 1985 Great Britain started using the Total Access Communications System or TACS at 900 MHz. Later, the West German C-Netz, the French Radiocom 2000, and the Italian RTMI/RTMS helped make up Europe’s nine analog incompatible radio telephone systems (Tom Farley).

It should be pointed out that in early 1989s Europe and America had cellular phone services that were developping each in their own ways. Unlike America, Europe was seeing its future in digital systems. In the United States there was no variety of incompatible systems, roaming there was not so difficult as it was in Europe. So there was no point in working out and designing a digital system when the present one was working perfectly well. The American cellular phone industry grew from less than 204,000 subscribers in 1985 to 1,600,000 in 1988.

While North American groups concentrated on building out their analog network, Europe planned to create “a single European wide digital mobile service with advanced features and easy roaming” (Tom Farley). Europeans started a new cellular structured but fully digital service. The main reason for that was that “no new telephone system could accommodate their existing services in Europe on so many frequencies”. The new service was called GSM (Global System for Mobile Communications). In 1982 twenty-six European national phone companies began developing GSM.

By 1987, consumer demand quickly outstripped the 1982 system standards and it was clear that “something needed to be done about eventual overcrowding of cell phone frequencies”. There were already more than a million cell phone subscribers. The FCC’s solution was to allow companies to research different technologies that could somehow free the cell phone airways. Companies then began developing new alternatives to the current system. The year 1988 changed many of the technologies that had become standard in the past. «The Cellular Technology Industry Association was created to set realistic goals for cellular phone providers and research new applications for cell phone development» (Cell Phones: History of).

In Japan NTT’s monopoly on mobile phone service led to prices beyond reach and a market atmosphere where no competition existed. But in 1988 NTT’s monopoly was ended by Japan’s Ministry of Posts and Telecommunications and the cellular phone industry started to develop (Tom Farley). In March 1993 digital cellular comes to Japan and in April 1994 the Japanese market became completely deregulated and customers were allowed to own their own phones. Japanese cellular took off (Tom Farley).

In early 1990s cellular telephone deployment was world wide, but development remained concentrated in Scandinavia, the United States and Japan. The leading technology in America was IS-54 while GSM dominates in Europe and many other countries. By 1993 American cellular phone service was running out of capacity despite a wide movement to IS-54. Subscribers grew from one and a half million customers in 1988 to more than thirteen million subscribers in 1993. Room existed for other technologies to cater to the growing market. In August, 1993 NEXTEL began operating their new wireless network in Los Angeles. They used Motorola phones which combined a dispatch radio (the so called walkie talkie feature) with a cellular phone. NEXTEL began building out their network nation-wide, with spectrum bought in nearly every major market. The beginning did not go well. Their launch was delayed for several months when it was discovered by Mark van der Hoek that they were causing massive interference to the B band carrier’s receive band. Filtering was finally put in place that let them operate (Tom Farley).

            Among such giant cell phone producers as Motorola, Samsung, Sony Ericson and others, Nokia has been successfully strengthening its leading positions for the last few years and it is today a world leader in digital technologies, including mobile phones, telecommunications networks, wireless data solutions and multimedia terminals. “The international business world first recognized Nokia in the 1990s, portraying it as a lucky newcomer coming out of nowhere.” (Dan Steinbock, The Nokia Revolution).  However, Nokia’s story goes back to 1967 when the Finnish Rubber Works and the Finnish Cable Works companies were merged to form the Nokia Group. Nokia’s Cable

Work’s Electronics department started to conduct research into semiconductor technology and this was the beginning of Nokia’s journey into telecommunications (Tom Farley).

           In the early 1970s, the majority of telephone exchanges were electro-mechanical analog switches. Nokia began developing the digital switch (Nokia DX 200) which became a success. Nokia DX 200, which was equipped with high-level computer language and Intel microprocessors gradually evolved into the multifaceted platform that is still the basis for Nokia’s network infrastructure today. During the process of European integration, when a need for a common cellular standard came, the Nordic countries stepped in to promote GSM, and Nokia was there poised to come in as a market leader (Dan Steinbock).  In 1991 Nokia made agreements to supply GSM networks to nine European countries and by August 1997 Nokia had supplied GSM systems to 59 operators in 31 countries (The Founding of Nokia).

During the deep recession in Finland at the beginning of the 1990s, Nokia came to its feet quickly thanks to the telecommunications and mobile phones divisions and started streamlining its businesses. «In May 1992 Nokia made the strategic decision to divest its non-core operations and focus on telecommunications. The company’s 2100 series phone was an incredible success. In 1994, the goal was to sell 500,000 units. Nokia sold 20 million» (The Founding of Nokia).

            The penetration of highly competitive foreign markets with strategic partnerships has been one of Nokia’s key market strategies. The company first learned the structure and behaviour of overseas markets, then looked for a partner and penetrated the market. We can cite as an example Nokia’s partnership with Tandy & RadioShack in the United States – an existing distribution network on the American market (Dan Steinbock).

            Technological development has always been important for Nokia. But the company has also concentated on customers and studied their needs and requirements which were continuously changing. Nokia has looked for niches on the market and thanks to its flexibilitythe company was able to promptly modify its priorities and fill these market gaps with its products before its competitors could do it. Successfully performing in this way on the cellular phone market, Nokia was able to solidify its own strengths and weaken its powerful competitors’ positions (Dan Steinbock).

            Flexibility and entrepreneurialism are perhaps Nokia’s most important features which have brought the company its success on the global cellular phone market. John Kania and Adrian J. Slywotzky in their article “Chasm Crossing: Motorola misses the call” describe the way Nokia anticipated and responded to emergence of the mass-market for cellular phone in early 1990s. The authors make an interesting comparison of Motorola and Nokia and the marketing strategies they chose to develop to promote their product. Motorola was a leader in designing and producing analog cellular phones in the late 1980s. At first, its main customers used to be senior executives or salespeople who travelled a lot. However, “between 1988 and 1991, cell phone penetration increased fivefold” and “another fivefold between 1991 and 1995”(Exhibit 1) (John Kania and Adrian J. Slywotzky Chasm Crossing: Motorola misses the call).

            While Motorola was busy developing the latest technology, Nokia’s main concern, apart from technological benefits, was to emphasise its product’s ease of use. The large majority of non-

business customers cared little about Motorola’s technology and came to like Nokia’s coloured cell phones with built-in phone directories, calendars and games. Such innovations as languages interface, special ringing melodies, more ergonomic design and longer operating time were extremely popular on the markets of Europe, Asia and Americas (John Kania and Adrian J. Slywotzky).

            Apart from technological inventions and customer oriented marketing strategies, Nokia’s products have always been largely and well advertised. The company’s heavy investments in advertising (from $2 million in media spending in 1996 to $28 million in 1998) also contributed to its success worldwide. “Nokia was securing movie tie-ins, sponsoring sports events, and carving out a position in the fashion world by hiring supermodel Nikki Taylor as a spokesperson and advertising in upscale trend magazines.” Its «Nokia connecting people motto» appealed to its customers emphasizing that Nokia stood for quality and liability. Motorola’s media spending, meanwhile, dropped from $20 million in 1996 to $13 million in 1998 (Exhibit 2). A decade after entering the mobile phone market, Nokia became a leader with a 30% market share. Motorola’s market share fell to 23%. “From 1989 to 1998, Nokia’s market value grew from $1 billion to $73 billion, while Motorola’s market value, which had been six times that of Nokia in 1989, was barely half Nokia’s by 1998.” (John Kania and Adrian J. Slywotzky).

            Nokia’s concentration on user needs, not only on current technology, can also be proved by its latest marketing moves and the new ideas it has come up with to attract mor customers. The copmpany has recently signed an agreement with Macromedia to work together to bring Flash content to its cell phones. Agreements with Microsoft and music content provider Loudeye will add significant new features to its cell line. Microsoft will provide wireless access to Exchange Server e-mail functionality, and Loudeye will provide music content.

            According to Dan Steinbock (The Nokia Revolution), there exist some threats to Nokia’s success. Nokia is a market-driven company and it is hard to predict what will happen to the company if the market falters. Thus «a driver of Nokia’s success could easily be a driver for its failure».

            As it was said above, Nokia’s chief strong sides have been its flexibility and capacity to quickly react to changes on the market and respond to customers’ needs and requirements. But the bigger company grows, the more difficult it will be to follow this important startegic policy (Dan Steibock).

            So far Nokia’s implementation of its bold dreams and its entrepreneurial willingness have paid off and «earned the admiration of industry observers and market analysts worldwide» (Dan Steinbock). Even though two Nokia’s chief rivals – Motorola and Samsung – has recently seen an increase in their share of the global market (Motorola’s share rose from 14.7 percent to 16.4 percent

and Samsung’s share rose from 10.8 percent to 12.5 percent), they have yet to make a lot of efforts to get closer to Nokia’s leading position, let alone overtake it.

BIBLIOGRAPHY

1. Bellis, Mary History of Cellular Phones http://inventors.about.com/library/weekly/aa070899.html
2. Cell Phones: History of http://www.eden.rutgers.edu/~cang/history.html (11 March, 2005)
3. Farley, Tom Mobile Telephone History http://www.privateline.com/PCS/history.htm (11 March, 2005)
4. Kania, John and Slywotzky, Adria J. Chasm Crossing: Motorola misses the call http://www.lippincottmercer.com/publications/a_kania01.shtml (12 March, 2005)
5. Marples, Gareth The History of Cell Phones http://www.thetechzone.com/?m=browse&id=3 (11 March, 2005)
6. Steinbock, Dan The Nokia Revolution http://www.smartinvestor.com.sg/livingconcepts.asp?livconid=278 (11 March, 2005)
7. The Founding of Nokia http://www.nokiainfo.net/nokiahistory.php (12 March, 2005)