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What the Downturn Means for Mobile

Mobile-communications execs fretted about the downturn at the Mobile World Congress in Barcelona, but they haven't lost faith in technology

If you had to sum up the mood at this year's Mobile World Congress in a Twitter message, it might be: The struggle continues. Yes, the mobile communications industry, in Barcelona for its biggest annual networking and dealmaking extravaganza, is fretting about the global downturn. At the same time, though, major players such as Nokia (NOK), Microsoft (MSFT), and Ericsson (ERIC) continue to invest big in businesses where they see an opportunity to steal a march on competitors—or the need to defend their turf.

"We're all trying to figure out how to respond to the global economic downturn," Microsoft CEO Steve Ballmer told listeners Feb. 16 at a packed presentation, where he unveiled a new version of the Windows Mobile operating system. But Ballmer added, "Whatever happens with the economy, nothing is going to slow the advance of technology."

Case in point: Nokia. Although the company said Feb. 11 that it is cutting jobs in its home base of Finland, it is also increasing investment in some crucial areas. For example, the company is stepping up investment in the U.S. market as part of a renewed push there, Executive Vice-President Kai Oistamo told BusinessWeek. Though Nokia is the largest handset maker globally, it has traditionally been weak in the U.S. market.

No Slowdown for Ericsson

There's no question that companies at the Mobile World Congress are very apprehensive about the state of the world economy. "It would be unrealistic to believe that, in the worst slowdown in many, many years, the telecom sector would not be affected," Carl-Henric Svanberg, CEO of Swedish mobile infrastructure maker Ericsson, told reporters at a press conference.

But Svanberg said that Ericsson hasn't felt the slowdown yet, and that many wireless carriers still have money to expand their networks. "The vast majority of operators are in a good financial position," Svanberg said. "They can invest if they like." Ericsson is aiming to cut costs by $1.2 billion in 2009—after all, memories of its dark days after the 2001 dot-com meltdown are still fresh—but also continues to invest in areas such as powering remote mobile base stations with wind and sun power.

In some ways, the downturn could even be healthy for the industry, forcing companies to take a more disciplined look at their operations. Tero Ojanpera, Nokia executive vice-president in charge of entertainment and communities, says he has detected a new willingness to cooperate among wireless network operators as they look to share the cost of new services they might previously have tried to monopolize. "When the money runs out, the thinking starts," Ojanpera quipped.

Priced for the Recession

Recession notwithstanding, Nokia unveiled several new handset models at the show. Nokia's Oistamo denied that the new high-end devices are priced for the downturn, but both will be relatively accessible to mid-market buyers. Nokia is asking $340 before operator subsidies for the new E55, aimed at both business users and ordinary folks who want mobile e-mail. The E75, an update of the Communicator, which was the company's first device capable of surfing the Internet and sending e-mail, will cost $480 without subsidies. Originally known as "the Brick" because of its bulk, the device is now almost as small as a standard mobile phone but includes a full keyboard and larger screen.

Nokia's U.S. push is also an acknowledgment that the company needs to invest to stop the relentless progress by newcomer Apple (AAPL) into the profitable smartphone market. The iPhone has helped turn the U.S. into a global incubator for new ways of using smartphones, and Nokia needs to be stronger there to hold its own. "The U.S. is where a lot of application development is happening," Oistamo said in an interview.

At the same time, the downturn presents Nokia with an opening in the U.S.—an example of how crisis breeds opportunity. Rival Motorola (MOT), traditionally dominant in mass-market mobile phones in the U.S., is struggling. As part of its drive in North America, Nokia has refocused a research and development center in San Diego solely on products for the U.S. market, and the company is increasing investment in the U.S. substantially, Oistamo said, though he would not give a figure.

Microsoft's iPhone-Like User Interface

Like Nokia, Microsoft is under pressure in the smartphone market and needs to spend money to do better. In a hotel auditorium packed to overflowing, Ballmer unveiled the latest update to the company's decade-old handset software platform, due out later this year. The new Windows Mobile 6.5 operating system for mobile devices—the details of which were largely known before the conference —features an iPhone-like user interface including menus that scroll with the swipe of a finger. Microsoft, whose operating system has only 12% of the smartphone market, also will stamp the Windows brand on handsets made by partners such as LG Electronics and HTC.

The branding, which will be accompanied by a big marketing campaign, could prove to be the most significant new Microsoft initiative, says Ian Fogg, analyst at market watcher Forrester Research (FORR). Previously users may not have been very aware of what operating system their phone used. "They are just saying, 'this is a Windows phone.' It is refreshingly clean," Fogg said.

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