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Mobile Phone Industry

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Chirag Shah

on 12 February 2013

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Transcript of Mobile Phone Industry

By Chirag & Arunth Mobile Phone Industry Reasons For Market Dominance in the Industry Outline of Industry Impact of Dominance on Consumers Regulation & Control In May 2010, Orange and T-Mobile merged to form the new firm Everything Everywhere, or also known as EE. However, there were job losses as the merged business did not require as many employees – it only required 16,500 staff. They were originally the UK’s third and fourth largest mobile phone companies in terms of market share but, due to the merger, went up in market share due to combination of the firms. With 27,000 mobile phone masts across the country, Everything Everywhere has a larger footprint than rivals O2, Vodafone and 3, which already shares its network with T-Mobile. T-Mobile, unlike rivals Orange, O2 and Vodafone, has never had a residential broadband offering, something which Tom Alexander, the chief executive of EE, said will be rectified.

Another merger took place in February 2011 between Nokia and Microsoft in order to try and compete with the operating systems of Google which is Android and Apple.

http://www.bbc.co.uk/news/technology-12499308 (video) Increasing Dominance by Mergers An example of regulation here is the court case between Apple and Samsung. Samsung was fined £664m for infringing 6 out of 7 Apple patents, most covering design. As competition may create rivalry between two firms, one may play in an anti-competitive way, and take the ideas and innovation that another firms has created, as shown here. However, it may be possible that Apple wished to cause Samsung harm by finding small things to harm the rival company and win market share. An example of this is that Samsung were fined for apparently copying the ‘round corners’ design from Apple, but obviously Samsung may have done this to prevent a safety hazard of sharp corners, and the fining of this particular design aspect is ridiculous. Apple is the dominant of the two, and so wishes to stay dominant, and so in turn will not allow other companies to get hold of their own technology, which will slow growth in the sector, hence acting as a barrier to entry as well. Apple vs Samsung Barriers to Entry Price Quality Key Players History A barrier to entry is an obstacle which prevents new firms from joining the market and competing with existing firms.

Economies of Scale- Current large firms receive Financial Economies as Banks see them as less risky customers so they are willing to lend money at a low interest rate thus reducing average cost, Marketing Economies as they are able to 'buy in bulk' and receive discounts and Technical Economies as they are able to purchase and employ specialist workers and machinery which are more productive.
Ability to Advertise- Large businesses are able to advertise to the masses which means that large numbers of customers will find out about the product.
Research & Development- New Technology and Production Processes can be discovered . Intellectual Property Rights- Firms are able to take out Patents, Copyrights and Trademarks which gives the owner of the IPR a temporary monopoly over his invention, idea or design.
'Natural' Monopoly- When innovation occurs one firm is dominant which creates a temporary 'natural' monopoly until other firms catch up e.g. Apples first gen IPhone where it had a period of time when released of being the only touchscreen mobile.
High level of Brand Loyalty- Customers are unlikely to switch to a different firm as they trust there current firm however it can be challenged with innovation e.g. Apples first gen IPhone where lots of customers switched phones to get it. Barriers to Entry (Cont) The main firms in the mobile phone industry are:
Apple, Samsung and HTC, who all have solid market shares.
Samsung, as of November 2012 remains the most dominant firm with a market share of 26.9%.
It is closely followed by Apple, whose’ market share (in November 2012) was 18.5%
The less dominant firms in the mobile phone industry are: LG (market share of 17.5%), Motorola (market share of 10.4%) and HTC (market share of 5.9%). In recent times, Nokia’s market share and status in the mobile phone industry has significantly declined.

Nokia had an 8.2 percent sales share of the smartphone for the first-quarter of 2012 according to IDC, but this was down by more than 50 percent year over year. 

Nine months later, Nokia’s market share fell below the 4.3 percent market share figure, where fifth-place Huawei currently stands.

Nokia's market share has declined—in both smartphone and feature phone categories—despite aggressive pushes to the developing and emerging markets, notably Indonesia for BlackBerry, and Africa and China for Nokia. 

Nokia retained its second place hold on the feature phone segment, but declined by 23.9 percent year over year, with just 17.9 percent of the market.

Nokia however are trying to catch up and are after posting profits once again.
http://www.bbc.co.uk/news/business-21180430 (video) Leaders- Samsung Samsung accounted for one in four of all mobile phones shipped worldwide last year, as its shipments rose nearly 20% to almost 397 million units, a report by Strategy Analytics says.

The Korean company said its profits surged 76% in the last three months of 2012, helped by sales of its Galaxy smartphones.

Samsung became the world's biggest smartphone maker last year, overtaking its main rival, Apple.

Computer Weekly's Editor-in-Chief, Bryan Glick, told the BBC News Channel the firm's success was down to its wider range of products.

"Samsung have got products which can match Apple and are very popular at that high-end, but they've also got smartphones and lower-end phones that appeal to people that don't have so much money."

http://www.bbc.co.uk/news/uk-21205625 (video) Choice Regulatory Authority The Mobile Industry does not have a specific Regulatory Authority like the Energy, Water, Rail… industries because mobiles are not a necessity but a luxury good. As mobiles are not a public good but a private good the Office of Fair Trading and Competition Commission regulate anti-competitive practices and price exploitation, which are the biggest threat to consumers.

Also as it is not a natural monopoly, hence there is a lot of competition between the firms in order to sell as many mobiles as they can. So it is in the best interests of the firms to create quality products at cheap prices which benefit both the consumer and the firm. Also firms use Intellectual Property Rights to enforce Copyrights, Patents and Trademarks in order to create a temporary monopoly over their competitors. HTC is claiming victory in a patent dispute with Apple after a ruling by the High Court in London.
The judge ruled in HTC's favour across all of the four disputed patents in the case. The judge ruled that HTC had not infringed four technologies that Apple had claimed as its own. He said Apple's slide-to-unlock feature was an "obvious" development in the light of a similar function on an earlier Swedish handset.
Apple has also cited the patent in disputes against firms using Google's Android system software.

The four patents at stake were:
Unlocking a device by performing a gesture on an image.
The use of a multilingual keyboard offering different alphabets on portable devices, including mobile phones.
A system to determine which elements of a screen were activated by single-finger touches; which were activated multi-finger touches and which ignored touches altogether.
Letting a user drag an image beyond its limits and then showing it bounce back into place to illustrate that they had reached its furthest edge.

Apple had claimed HTC's Arc unlock mechanism infringed its technology.

The judge ruled that the first three patents were invalid in this case, while the fourth did not apply to HTC's devices. Lawyers fighting other lawsuits against Apple are likely to pay close attention to the decision regarding its slide-to-unlock patent. The judge said that HTC's "arc unlock" feature - which also involves a predefined gesture along a path shown on-screen - would have infringed Apple's technology had it not been for a device released in 2004.

The judge said it would have been an "obvious" improvement for the developers to have offered users visual feedback in the form of a "slider" in the way that Apple later used. He added that the concept of a "slider" was not new since it had already appeared in Microsoft's CE system. As a result Apple's claim to the innovation was rejected. HTC defeats Apple in swipe-to-unlock patent dispute As the Mobile Industry is an Oligopoly as there are few firms, they will be able to increase their prices and keep them high as consumers will have little choice to buy the product from another firm. As they customers will be faced ultimatum to buy the mobile at a high price or go without it.

However prices can also be reduced as fewer firms mean that less money will be spent on advertising and other Barriers to Entry to attract customers, resulting in costs being lowered and consumers should therefore benefit if the firm reduces price which is not always guaranteed thanks to profit motive. Also having few firms in a market can mean there is large economies of scale meaning that the firms have the ability to keep prices low. As the Mobile Industry is an Oligopoly as there are few firms meaning that there will be less competition, so there will less incentive to innovate and keep products at a high quality.

However to stop new firms entering the market, dominant firms may need to keep quality high resulting in a large amount of money spent on Research & Development, consequently meaning that consumers will receive better quality products. It is actually quite likely as due to market dominance, firms have large profits which they can invest into development. As the Mobile Industry is an Oligopoly as there are few firms meaning that there is less products are available for consumers. This is bad for consumers as there may not be a mobile which is best suited for them. Dominant firms can do this as they do need to offer a wide range of styles because consumers will have little choice from other firms to buy from.

However more choice is not necessarily better, as it may simply confuse consumers and make it even more difficult for them to choose exactly which product best suits them.
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