As mobile phones get cheaper Shailendra Bhatnagar and Jennifer Tan predict only the strong will survive...
Your new handset is certainly better and may be cheaper than your previous phone, but the choice of brands will reduce drastically in the coming years as smaller players exit the cut-throat market.
High research and development costs and a trend towards low-margin but high-volume phones are likely to force further consolidation among mobile handset makers.
The global top five - Nokia, Motorola, Samsung Electronics, LG Electronics and Sony Ericsson - already make roughly 75 per cent of all mobile phones.
Around 45 vendors are left fighting for the remaining 25 per cent share, which analysts say is clearly untenable.
"In general, consolidation will probably happen. The question is when and how. We have been acquiring as well," said Simon Leung, Motorola's senior vice-president of Asia, at the Reuters Global Technology, Media and Telecoms Summit.
"Partnership is probably the norm going forward rather than the exception. If the right opportunity presents itself we will not hesitate."
In February, top handset maker Nokia and Sanyo Electric said they would jointly develop and make phones for the CDMA standard, which is dominant in the United States and popular in parts of Latin America and Asia.
The same month, Motorola chief executive Ed Zander said the company was considering a partnership with a Japanese phone maker to launch handsets to boost its presence in Japan.
Taiwan's top mobile phone and computer gear maker, BenQ, took over the loss-making mobile phone unit of Germany's Siemens in October last year.
Analysts say technical expertise, mega advertising budgets and multiple manufacturing sites, mainly in fast-growing markets such as China and India, will separate the men from the boys.
"The winners will be a handful of mega-vendors with global economies of scale," said Neil Mawston, analyst at Strategy Analytics.
"They have such massive strengths in brand, products and distribution that it is hard to see how any competitor can overturn such power in a globally maturing market. Nokia has a huge marketing budget that most competitors can only dream of."
Analysts say Chinese and Japanese handset makers are especially at risk as they battle sliding margins and rising competition from European, American and Korean rivals.
One analyst, who declined to be named, said firms such as Kejian, Soutec (Group) Technology and Nanjing Panda Electronic were struggling with the effects of falling margins, flattening sales and intense competition from foreign brands in the Chinese market.
Last year saw the emergence of ultra-cheap phones that opened up the market for low-income and cost-conscious subscribers in emerging economies such as India and Africa.
To tap these galloping markets, where margins are razor-thin and logistics generally a nightmare, handset majors need to set up plants locally to meet soaring demand.
"A company like Nokia, based in Europe, will have difficulty in reducing the average price per unit which is necessary to compete in developing Asian markets," said Daniel Longfield, analyst at Frost & Sullivan.
"That is why Nokia is building a factory in India - to reduce both shipping costs to Asia and also greatly decrease manufacturing costs."
India, the world's fastest growing wireless market, is expected to soak up at least 53 million handsets in 2006.
Nokia, which is setting up a plant in the southern city of Chennai, has more than two-thirds of the market there.
Handsets are going to get cheaper still, pushing second and third tier players to the fringes of the exploding market where more than 850 million units are expected to be sold in 2006. A soon-to-be-sold single chip by Texas Instruments, the world's third biggest chipmaker, is likely to push entry-level handset prices down to around $20.
Second-ranked Motorola, a Texas Instruments buyer, has won two projects to supply operators in emerging markets with at least 12 million cheap handsets, which sell at less than $30 at wholesale prices.
Motorola expects to ship 20 million such units this year.
"As we move forward pricing pressures will be huge and vendors that are not able to cut costs will be unable to compete," said Frost & Sullivan's Longfield.
Pricing pressures are also severe at the top end. Market research group iSuppli estimates the average wholesale price of a mobile phone - the price paid to the manufacturer - will fall to $129 in 2006, down nine per cent from $142 in 2005.
After pouring billions of dollars on third-generation (3G) networks, mobile operators are demanding cheaper phones that can deliver video and other multimedia services to handsets.
Analysts say only those players who have strong research and development bases at cheaper locations such as India can withstand these price pressures.
Motorola's Leung said at the summit, held in Hong Kong, that he did not think a Chinese player would emerge in the top five in the near future.
"The Chinese are going backwards in terms of market share," he said. "Handsets are all about scale. The top two are more than 50 percent - there is not enough market to go around. I personally think it is going to be very difficult."
