Despite the unrelenting advance of the global mobile communications industry, its regional fortunes have been far from consistent. Europe, once the commanding force behind mobile telephony, has capitulated to Asia and North America in innovation, manufacturing, and market share.
According to the latest figures from researcher Gartner (IT), only two European handset makers now rank among the top 10 vendors by units sold. Nokia (NOK) remains No. 1, but is struggling and has lost more than five percentage points of market share in the last year alone. Korea’s Samsung (005930:KS) and LG Electronics (066570:KS) are No. 2 and No. 3, respectively, while Apple (AAPL) and Research in Motion (RIMM) are fourth and fifth. ZTE (000063:CH) and HTC (2498:TT) are in sixth and seventh place, followed by Motorola (MMI) at eighth. Sony Ericsson has slipped to ninth, and Huawei has risen to No. 10.
The league table for overall handset sales tells only part of the story. The most important battle today is in the market for smartphones and tablets, where Nokia is losing even more ground—and where Apple, Samsung, and HTC are entirely focused. The strategic core of such devices is their software, and in that department Europe has lost the fight to define the global gold standard. After a decade of development, Nokia’s Symbian operating system is being sidelined, while the user base grows daily for Apple’s iOS and the Android operating system from Google (GOOG). The only viable challenger on the horizon is Windows Phone 7 from Microsoft (MSFT), which is also American—and to which Nokia has hitched its fortunes.
The infrastructure market, too, has emigrated. Driven primarily by cost, fast-growing Chinese companies are very much in front. Ericsson (ERIC) alone from Europe still has power, largely attributable to its strong presence and success with Tier-1 mobile operators in North America and Asia, but also because its business model is focusing more on managed services—one area where it is still ahead of Chinese competitors.
Bleeding a Fading Mobile Sector
Europe’s historic supremacy in mobility has clearly been broken. We are today seeing the overwhelming influence of heavyweight North American innovators and the growing dominance of Asian players. European governments may now make the situation worse by auctioning off spectrum for next-generation mobile services—sucking money out of the industry to fill depleted fiscal coffers and driving up costs for everyone.
What a different picture from two decades ago, when Europe led the charge into the preeminent digital mobile phone standard, GSM. Europe’s success at promulgating GSM owed much to close cooperation among equipment vendors, operators, and regulators. They agreed on technology standards, spectrum allocation, and even launch dates. Crucially, they also set up an industry body—now called the GSM Association (GSMA)—that was instrumental in building a continent-wide market of common services, phone type approvals, roaming, and billing.
While Europe was pioneering a cooperative model, North America embraced a degree of competition that ultimately harmed its market. In the analog era of the early 1990s, the U.S. was the world’s largest mobile market. Standards then fragmented into multiple incompatible flavors such as n-AMPS, iDEN, and CDMA while the government used expensive auctions as the primary means of allocating spectrum.
The result was a lost decade for the American mobile industry. Multiple, incompatible technologies raised costs and complexity for equipment sellers and consumers, while at the same time they limited interoperability and undermined the emergence of seamless nationwide services and applications. America lagged Europe in mobile penetration and usage for years.
Don’t Auction LTE, Coordinate It
Now it appears that Europe has failed to heed the lessons of the U.S. Not only have handset makers lost their power to set direction in software and services, but regulators are pursuing the potentially damaging approach of auctioning spectrum to dole out licenses for fourth-generation mobile services—known as Long-Term Evolution or LTE.
Allocating licenses via auctions is detrimental for operators and ultimately, for their customers. When governments primarily focus on generating as much money as possible from spectrum auctions, they neglect a larger responsibility to develop the economy. Regulators should instead be coordinating spectrum allocation across Europe and aligning launch dates, coverage, minimum data speeds, and breadth and stability of services. That would help LTE technology develop more rapidly.
A true pan-European market would give operators reason to invest significantly in infrastructure and devices, which in turn would reenergize European makers of mobile products. Those manufacturers and developers could then invest once again in innovation, secure in the knowledge that European operators have a solid base for investment without needing to recoup punishing spectrum-license costs.
We can’t turn back time. But if Europe is ever to regain its place as an innovator and leader in the mobile communications market, it needs to go back to the strong cooperation between governments, vendors, and operators that underpinned the development of GSM. That’s important only if people think it matters for Europe to have a meaningful stake in the global mobile communications industry. Meanwhile, the rest of the world is quite happy to continue its takeover.