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Mobile Industry Has an Innovation Emergency

As they meet in Barcelona on Monday, the main players in the world's mobile telephony, Internet and technology companies will have a sense that innovation is an urgent business.

The 60,000 participants are expecting a plethora of brand new services and products from the World Mobile Congress, which will be attended by representatives of more than 1,000 companies and CEOs of top world corporations.

But among the buzz about the latest gadgets and services, they are all likely to be obsessed about one thing.

"The problem is the same, there is no growth in the industry," Erste Bank telecom analyst Vera Sutedja told CNBC.com. "Mobile telephony growth is slowing, broadband growth is slowing, fixed-line growth is slowing."

"They have to come out with innovative ideas. And they have to cut costs no matter what," Sutedja added.

Slashing Costs

There have been many attempts to cut costs.. One of the most prominent is the announcement made by Nokia, the world's biggest handset maker, that it will shut down its factory in Bochum, Germany, with the loss of more than 2,000 jobs.

The factory has moved to Romania, where salaries are nearly ten times lower, and will become operational in mid-2008.

Upset, the authorities in the German state of North Rhine-Westphalia asked Nokia last week to give back subsidies of over 40 million euros ($60 million) that that it used to turn a TV plant into the handset factory.

Nokia said it was "astonished" by the request, insisting it had invested more than 350 million euros in the site over the years, but it had become uncompetitive.

"Cost control is becoming the name of the game right now," Michael Kovacocy, telecommunications analyst at Daiwa Securities SMBC Europe, told CNBC.com.

Players in Western Europe's mature mobile telephony industry have two ways to grow, Kovacocy said. They can go abroad, where they can add subscribers, and they can boost the data segment in the mature markets, and this is why operators will look into reducing costs throughout their business.

"One way to cut costs is the reduction of subsidies for handsets," he said.

Plenty of Bad News

The bad news in the mobile world abound, especially in today's jittery economic context.

Sprint Nextel , the third-largest U.S. mobile service provider, said last month that it would cut about 4,000 jobs while Sweden's Ericsson plans to cut around 1,000 jobs in its home market and some 4,000 globally.

Ericsson's operating profit fell to 7.6 billion Swedish crowns ($1.2 billion) in the fourth quarter, from 12.2 billion a year earlier, while its operating margin fell to 14 percent from 22.5 percent in the same period.

Alcatel-Lucent reported a net loss of 3.5 billion euros ($5.12 billion) for its first year as a combined entity, making some analysts wonder where the cost savings promised to shareholders are and sending its shares down in U.S. trading.

Ensuring growth in a world where markets mature quickly will be the main challenge for this year, and participants in the Barcelona congress will look into how to do that.

"The key point is driving mobile data revenue, making products and services available and desirable not only to businesses and corporate customers but also to consumers," Kovacocy said.

Innovation

One way of doing that is inventing new products and services, and there will be plenty of announcements of new or innovative ways to do business in the mobile world in Barcelona.

Web search giant Google is likely to upset the wireless industry with its software system aiming at making the Web as readily accessible from the mobile telephone as it is from the computer, taking a shot at Nokia, Microsoft and Apple .

T-Mobile, the mobile arm of Deutsche Telekom, and High Tech Computer from Taiwan have already said they plan to offer phones based on the open-source Andoid software platform.

Between 55 million and 60 million mobile phone subscribers use social networking services such as chat rooms or more sophisticated multimedia environments and that number could be seven times higher by 2012, market research company Informa Telecoms & Media said.

Nokia has already begun a push into social networking with its "Mosh" service and last week launched its "N-Gage" gaming service and "Share on Ovi" media sharing site.

And British chip designer ARM will show a prototype mobile phone based on Google's Android platform, sources close to ARM told Reuters.

Among service providers, the focus is likely to shift from the big names such as Orange or Vodafone, which dominate much of Europe, to Mobile Virtual Network Operators, or MVNOs, smaller operators that do not own the spectrum or the infrastructure but can buy wholesale minutes from the big providers and sell them on.

"The conditions are perfect for MVNOs to finally have an impact - slowing growth will make network operators turn from chasing customer acquisition towards pushing minute volume on their networks," Kovacocy said.

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