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Mobile Phone Industry to Weather Economic Woes


Analysts say the mobile phone sector, while it will feel some turbulence, will be as close to recession-proof as any in the tech industry.

 

But the army of mobile developers working on applications for Apple’s iPhone and Nokia’s 3G phones may be the first to feel pain.

 

“There is a lot of flexibility built in to the cell phone market, so while consumers are going to watch their pennies and cut back on expensive data plans, they are very resilient about buying new phones,” said Joe Nordgaard, director of wireless consulting firm Spectral Advantage.

 

Hot demand for high-end smartphones may not continue, but consumers will still buy cheaper phones, he said.

 

And handset makers are going to offer carriers better deals to get the upgrade market going. Carriers are going to offer subscribers bigger handset subsidies, and they will spend more on advertising to stimulate demand.

 

“The cost of the handset is really small compared to the service cost they are going to get back, so if they lower the cost of the iPhone to zero, that will take $200 away but they still get $70 per month for two years,” said Allen Nogee, principal analyst with In-Stat.

 

Still, there is little doubt that the global economy is in a major rut and the recession will have a serious effect on the cell phone market.

 

On Friday Nokia, which represents about 40 percent of global handset sales, predicted that 2008 volume would be 1.24 billion, which represents an increase from 1.14 billion last year. But the Finnish firm had to lower its sights from its earlier prediction of 1.26 billion for 2008.

 

Its projection for 2009 will also be adjusted downward.

 

“But the industry overall is still strong although it will absorb some bumps over the next couple of years,” Mr. Nogee said.

 

High priced applications such as GPS-assisted applications will feel the pinch fairly early in the recession, according to Mr. Nogee, while some of the cheaper or free applications would do a lot better.

 

“But developers will take a hit because fewer phones mean fewer people to buy their apps and a more cost-conscious consumer will choose cheaper over expensive,” he said.

 

Location-based apps usually involve recurring charges through the carrier’s billing system and when consumers review their bills, those kinds of costs can be the first to go.

 

The economy is also impacting the carriers, many of which have recently invested billions in 3G networks, and now the recession is going to extend the time it will take for them to recoup their investments.

 

“So this recession comes at a bad time for them because they want people to buy their services like 3G and WiMAX, and that may not come at the pace they expected,” Mr. Nogee said.

 

But the networks are already built, so all the carriers are losing is time, he said.