Nokia leads race for next billion mobile users

The Nokia E65 is shown at the 3GSM World Congress in Barcelona, February 15, 2007.

SINGAPORE (Reuters) - Rivals to Nokia Oyj (NOK1V.HE) have their work cut out to catch the world's biggest maker of mobile phones in the race to win the world's next billion cellphone users.

Industry figures at the CommunicAsia telecoms trade fair in Singapore this week were eager to take advantage of the continent's huge untapped markets, where only one person in every three owns a handset.

But barriers to entry into markets such as India are significant and Nokia is already well established with a wealth of distribution channels and 40 percent of the Asia-Pacific market -- higher than its 36 percent overall global share.

Risks are also high -- as evidenced by Motorola MOT.N, Nokia's closest competitor in the lowest end of the market and overall, whose drive to win more of this type of business pushed it into the red last quarter.

Sony Ericsson (6758.T)(ERICb.ST) has already abandoned the very low end of the market to competitors.

"Nokia has access to a huge salesforce in emerging markets that no other vendors or operators can match today. Motorola, Samsung (005930.KS) and the rest remain some way behind," said analyst Neil Mawston of Strategy Analytics.

The cellphone industry expects the number of people owning a mobile phone worldwide will grow to at least 4 billion over the next three years from 3 billion currently.

Between 300 and 400 million of these new users are expected to come from India alone, where users can take advantage of call rates as low as 1 U.S. cent a minute.

Tens of millions of people living in rural areas of India are buying their first phone -- in most cases, an ultra-cheap model.

A strong retail presence is crucial in Asia, where more than 70 percent of consumers decide which phone to buy at the point of sale -- in contrast to Europe and the United States, where phones are often bought from operators who subsidize them.

"If rivals want to catch Nokia in APAC (Asia Pacific) they will need to expand their distribution channels," Mawston said, adding that the firms would need also to expand their product portfolios.

Samsung had a 16 percent share in the region in the first quarter, while Motorola held 12 percent, according to Strategy Analytics.

Nokia's much larger scale has also allowed it to keep its gross profit margin for low-cost handsets above 25 percent, close to its global average.

But adding tens of thousands of retail outlets or opening stores in just India is expensive, even for large vendors.

"I'm not saying it cannot be done, but it needs quite a bit of investment," said Urpo Karjalainen, head of Nokia's business in the area.