Silicon Hutong

Telecom Reform: The Sound and the Fury

On the Airport Expressway

Experiencing a tan-out

1445 hrs.

The government has finally announced the broad strokes of the long-anticipated plan for the restructuring of the telecoms industry, and a quasi-definitive time frame for the government to finally issue the coveted 3G censes. The business and industry media are having a field day with it, arguing about what it will mean for everyone in the industry, from China Mobile to Cisco to Nokia and, yes, even to Apple.

Here is what it really means: 

Nothing.

Oh, don’t get me wrong. This edict, which treats some of the world’s largest telecommunications operators like so many LEGO sets, is going to have some major short-term repercussions. Analysts and investors will spend the next 18 months figuring out what effect all of this has on the valuations of the carriers, opportunities for equipment vendors, and challenges for management consultants. Economists, for their part, will nod sagely about the creation of “more competitive entities,” “a more rational industry,” and so on. 

But in the end, these changes aren’t going to amount to much. And here is why.

First, the changes do nothing to alter the fundamentals of the market. No matter what sort of beasts this process creates, consumers and businesses are going to continue to suck up bandwidth, cellphones, and services about as quickly as they can be delivered. Wireline will continue to be a tougher business than wireless. None of the three merged firms are going to get instantly smarter about expanding overseas. Efficiency will continue to be a less important issue that keeping up with demand. The managers of these companies won’t automatically get wiser about delivering services. 

Second, the changes do not address any of the really pressing issues the industry faces. How do we deliver more services for less money? How do we get mobile phones the billion or so Chinese who have yet to place a call, much less buy and own a mobile phone? How do we make money on IPTV? What role do cable operators have to play in delivering telecommunications services? How do we connect the unconnected? How do we deal with the growing pile of e-waste coming from the industry?

Third, the mergers are taking place in complete disregard for the customer, the consumers and businesses who depend on these carriers to provide the communications infrastructure of their lives and livelihoods. Apart from the fact that these changes will cause a disruption that will throw the customer into fourth place behind the government, employees, and investors for the foreseeable future, aspects of the industry plan look to be designed - if not to make life tougher on consumers - at least to ensure that they reap as few benefits from the changes as possible.

Just one example: we will not only have three different mobile carriers, we will also have three wireless networks operating on incompatible technologies - one on WCDMA, one on CDMA-1X, and one on TD-SCDMA. Such incompatibility not only means that roaming across networks will be more difficult - if possible at all - it also substantially negates the potential benefits to the consumer of competition among three carriers. If everybody offered the same network, switching would be easy. This raises churn for the operators, but it also forces them to be more customer-focused. Now, buying a phone locks you into a carrier for as long as you carry that device. 

Nothing in the mergers is designed - or intended - to improve customer service, to lower rates, drop costs, or broaden the scope of services available to consumers or business. Now, it is conceivable that one or more of the companies will come across opportunities to improve service. But for the foreseeable future, each company will be engrossed in the simple effort of completing these disruptive changes without having the wheels fall off.

The fundamentals don’t change. No major problems are addressed. Not only are these changes not market-driven, they ignore customers completely. 

At best, things are going to look a bit tidier as the Minister of the reorganized MII looks out his window. 

Hollywood Icon Comes East

In the Hutong
Rolling with the changes
1842 hrs.

The Hollywood Reporter, long essential morning reading for the entertainment industry in the United States, Europe, and elsewhere, has had permanent roots in China for a couple of years now, with an official bureau led by Jonathan Landreth. The THR staff have provided a much-needed addition to the coverage of the music, film, television, and new media industries here in China. With occasional exceptions, however, much of the fine reporting coming out of THR in China has been trapped behind a firewall.

That all changed today, when THR launched The Hollywood Reporter Asia, a website that not only allows us to see the superb coverage coming out Jonathan and his team here in China, but also regional and global industry news. One other thing I really like about THR-Asia is that it is edited right here in Beijing, underscoring Beijing's growing role as the media center of the region.

Give it a look. Personally I'm adding it to Danwei.org as part of my daily routine. If I have one quibble, it is the lack of an RSS feed, but I understand that with THR offering their content for free, they want you in the site for the ads. A small price to pay.

Immovable Force Meets Immovable Object

La Capilla de San Pedro de las Migas
(aka Peter's Tex Mex, Beijing)
Thawing out
1300 hrs.

News now coming in suggests that China Mobile and Apple couldn't reach an agreement on revenue splits. No surprise there. The odorless-feces-factor in the negotiating venue must have been off the scale.

There are three ways of looking at this:

1. Apple has been offered another thick slice of Humble Pie, and it needs to wake up and realize that it is no longer the only guy on the block.

2. China Mobile will regret this. Deeply.

And my personal favorite:

3. The parties walked away from the table because they don't really need each other to succeed.

China Mobile will continue to be the largest (and possibly most profitable) mobile operator in China in the coming years, so they're not worried about kick-starting their business in a hyper-competitive environment.

What is more, the operator has a long line of people coming to their shiny new headquarters on the 2nd Ring Road, hat in hand, with ideas on how their devices and services can bring China Mobile even more revenue without lifting a finger. All of which makes Mr. Jobs' model of "you-sell-our-phones-we-take-your-cash" seem just a little unappealing.

(Apple will get a different reception in Japan, where DoCoMo, KDDI, and SoftBank - for their own, seemingly perverse reasons (that of course make complete sense in a Japanese cultural context) have managed to create three services with the minimum of compelling differentiation. Of course, the Japanese are no slouches at bargaining, and you can bet that if anything they will restrain the iPhone from it's maximum level of success in the market by either restraining availability or jacking up the price. But we digress.)

Apple has several options:

1. Cut a deal with Unicom, who are increasingly desperate in their search for a decent partner (the problem with THAT, of course, is that as of this writing Apple is not offering a CDMA-based iPhone, much less a CDMA-based iPhone with a SIM-card slot, and CU knoweth not GPRS.);

2. Wait until 3G rolls out in China and all (both) carriers are looking for ways to recoup their investments in network upgrades;

3. Go with one of the Hong Kong carriers, counting on growing China's already thriving gray market in unlocked/hacked iPhones.

4. Cave in and do it China Mobile's way.

My bet is on the waiting game, or a combination of #2 and #3). Apple has enough on its plate worldwide, ramping up production, working the bugs out of the iPhone, and bringing developers into the ecosystem.

In the meantime, Motorola, Nokia, Samsung, dopod, and the local guys creating iPhone look-alikes will be doing all they can to eat into the iPhone's potential market.

Indeed, we may find that the iPhone will radically increase the number of people in China willing to upgrade to a new and cool smartphone without even being in the market, creating a Halo Effect for the entire industry.

Why is this man suddenly talking?

Starbucks Guomao 2
Discovering foreigners are a rare species
1144 hrs.

From atop Ogilvy's digital watchtower, Kaiser Kuo points us to a highly readable Clay Chandler story in Fortune introducing China Mobile's Wang Jianzhou as "China's Mobile Maestro."

The story is a bit of a fluff piece (Chandler comes off as a bit of a fanboy), but it is interesting beyond the content. Wang is not normally a talky person with the foreign media. For that reason, one wonders why he's suddenly making himself more accessible to the global media.

You could attribute it to a long-overdue realization that the CEO of such a company needs to have some global visibility, but I wouldn't buy it. For all of their global ambitions, China Mobile's cash-cow - and its best near-term growth prospects - are in China.

There are probably a host of reasons for Wang to raise his profile, but one of them has to be a desire to buy for China Mobile greater independence from the fickle whims of regulators in Beijing. Having a moderately high profile amongst influential audiences overseas, and having a voice among those audiences, is a route to enhanced power and influence here in Beijing. A few pieces like Chandler's, and people will start to see Wang as a cross between Craig McCaw and Jack Welch.

Of course, his old colleagues at the Ministry of Information Industries can't be happy. In the eyes of the regulators, China Mobile responds first and foremost to the direction of the government. Wang's quiet, deliberate creation of a base of influence in China and abroad inveighs against that.

And well it should. If China is serious about creating companies that are both local and global champions, the enterprises that began as the wards of their respective ministries must leave the nest, no matter angst that might cause the aparatchiks. China Mobile will never be a world-class company until its responsiveness to its customers and the capital markets is no less - if not more - than what it gives government officials.

Wang is going to need the support of cool heads, and soon. The worst kept secret in China's mobile industry is how much the country's operators and handset manufacturers hate TD-SCDMA, which was described to me by one insider as "a politician's dream and an engineer's nightmare." Worse, there is growing rumbling about another forced restructuring of the mobile phone industry that would give Wang stronger competition and may even see him compelled to shed some chunks of his own company.

If I were to make a prediction for 2008, I would say we will be seeing many more puff pieces about Chinese CEOs. The importance of China, the business media's need for a stream of stars, and the tsunami of foreign journalists coming to China in the next eight months makes that a sucker bet.

One of the best profiles I've seen so far is James Fallows' profile of Broad CEO Zhang Yue in The Atlantic last March.

The iPhone and China: Possibly Not a Match Made in Heaven

The Mezzanine, China World Tower 2
Sitting at a coffee-free Starbucks
1022 hrs.

Longtime Hutong readers will remember that right after Steve Jobs announced the iPhone in January, a very noisy hedge fund guy emailed around an article saying that the iPhone was the "ultimate China-friendly gizmo."

Despite being an Apple partisan for over two decades, I took detailed exception to his point. I thought the iPhone and China were a gross mismatch.

Negotiations between China Mobile and Apple hit a snag earlier this month over the business model, and there is a rumor in the Chinese press that the parties have walked away from the table.

Realistically, I think Apple and China Mobile will reach an agreement at some point, and I also think that eventually Apple will introduce an iPhone that can be successful in China.

The only question is: will Nokia, Motorola, Samsung, and LG have eaten into the iPhone's differentiation by the time they do?

Blackberry: Not Exactly DOA, but Close

In the Hutong
Munching peanuts
2035 hrs.

About a week ago I was listening to somebody on CNBC (I don't remember whom, but he was in New York, not Singapore or Hong Kong) tout Research in Motion (RIM) because they are about to launch in China, and that's going to mean big things for the company.

With respect to the folks at CNBC, the guys over at Reuters have run a much more sober piece (via CNET) about the challenges RIM faces in marketing its BlackBerry devices and services here in China. Reuters correctly notes:

• Local push e-mail services already exist that are price-competitive.
• Chinese businessmen who can afford the device do not, in many cases, feel the same compulsive need to be hooked into e-mail. The phone is enough.

That's all quite true. But it gets worse.

Moose in the Shark Pool

The article implies that RIM is considering stepping beyond its core market of high-end enterprise users. That would be a bad move. The sharks are out for RIM.

I have no doubt that BlackBerry will have an appeal among many expatriates - at least, those who don't already have service from overseas - and senior Chinese executives of global firms. That's not a giant market, but it is one that will be willing to cough up nearly US$1,000 a year for the service. (And lest you think I'm just an old cynic, I walk around China with a BlackBerry myself. Of course, It's an unlimited global service plan from T-Mobile, but that's beside the point.)

• Device Cost - While pricing has yet to be set, a good indicator is Hong Kong. All devices are purchased in Hong Kong and China on pretty much the same basis - unlocked but no subsidy. My 8707, purchased from CSL, set me back the equivalent of RMB 4,000. There is no camera, no music, no external memory.
• Device Competitors - Unlike when BlackBerry launched in the U.S., there are very real competitors in China who have prepared for BlackBerry's arrival with devices that arguably match BlackBerry in email functionality and beat it in a host of other areas - for a lot less money. In fact, it is entirely possible that the launch of BlackBerry devices with China Mobile - delayed as it has been - will be accompanied by simultaneous launches of QWERTY devices from Nokia, Motorola, Samsung and Palm.
• No Brand - The percentage of potential customers who know RIM is tiny. Not only does this mean that there is a minimum "anticipation" factor that will drive initial sales, but also that RIM has a long battle to fight to build the BlackBerry name. There are over 80 brands fighting for attention in China, and all of them have a better brand than him. In the case of companies like Motorola and Nokia, we're talking decades more experience and billions in brand equity that RIM doesn't have yet - and would have to spend millions to build.

RIM's Smart Road to China

If the guys at RIM are sitting in their offices in Canada eagerly expecting China Mobile to reach into its cash hoard and pay to market BlackBerrys, they are in for a crushing disappointment. I suspect that, whatever their original beliefs, RIM now understands that this is not going to happen. If they don't push Berries, nobody will.

The company faces a choice: invest millions in a sales, marketing, and advertising effort in China in an attempt to expand its natural market into the hyper-competitive heart of the mobile phone industry, or focus entirely - at least initially - on building and defending its home turf with lawyers, professionals, and the local offices of their global customers.

Those "low-hanging fruit" could do a lot to jump-start positive cash flow and begin building brand, a basis from which RIM could later build with more targeted offerings.

Stay away from the temptation of the big numbers, guys. Remember your market and stick with it. Doing so will make the difference between you having a business in China, and China sending BlackBerry home to North America in a body bag.

The Future of the Internet in China

The Grand Ballroom
Renaissance Beijing Hotel
1642 hrs.

During the panel at Under the Digital Influence, one of Matt Roberts' questions to my panel was what we saw as the biggest factor that will change the Internet in China over the next five years.

My response was that while there are a lot of trends that are affecting China's Internet, the biggest one I can see is mobility and wireless.

Unwiring China

The last part first.

China is in the final stages of upgrading its Internet access from dial-up to broadband, but over the next five years we're going to see wireless access start to displace wireline access for a growing portion of the individual's online day. By "wireless," I mean a combination of access via cellular networks, access via the growing number of publicly accessible Wi-Fi (free or paid), and via the quietly emerging WiMax wide-area wireless broadband.

That shift is already beginning, but I see it accelerating over the next half-decade.

Handsets Across the Divide

I'm prepping a longer post about this, but my firm belief is that while talking about the digital divide is no longer a fashionable topic among the digirati, the problem is growing in China. While a decade ago all of China was on the unplugged side of the gap, today about 12% of China has managed to leap across, on the back of a massive expansion in China's broadband networks.

But as the networks grow, the problem of access has devolved to the problem of the terminal. The 160 million people we see online in China today is an impressive number, but the number of people with access to computers is not growing fast enough to ensure that the unplugged 88% of China will have a hope of getting online in the near future.

Crossing the digital divide - and avoiding the long-term social and political implications of excluding 8 out of 9 Chinese just because they can't afford to shell out a year's salary on the price of a computer - is not going to be a matter of super cheap computers like the One Laptop Per Child (OLPC) program, or about creating stripped down computers with stripped-down operating system. It's going to be all of that, but more is needed. Given the success of the mobile phone industry in driving the costs of handsets down into a few tens of dollars, the easiest footbridge across the divide is clearly going to be the mobile handset.

More on this later.

A Blade Runner Shows His Age

In the Hutong
Digesting Subway
1830 hrs.

Director Ridley Scott has in his career delivered a body of work that includes some of my all-time favorite movies (Alien, Blade Runner, Black Hawk Down) and some movies that I enjoy as occasional guilty pleasures (Black Rain, Gladiator, Matchstick Men). He is the unapologetic master of the high-end Guy Flick. (And let's be honest - even his Thelma & Louise was just a gender-bent buddy movie.) And, of course, he directed the commercial that introduced the Apple Macintosh to the world.

So it is particularly disturbing to hear the aging auteur getting all medieval on people who watch movies on their mobile devices. In an article in today's Sydney Morning Herald, Scott is quoted from the Venice Film Festival as saying that the shift to the small screen would kill cinema.

"I'm sure we're on a losing wicket, but we're fighting technology," Scott, the force behind Alien, Thelma & Louise and Gladiator, said.
"While it has been wonderful in many aspects, it also has some big negative downsides."

I'm Not In the Business. I Am The Business.

Now, filmmakers have been pulling their hair out over technology destroying cinema since the introduction of talkies, but here we are, eight decades after he introduction of sound, sixty years since the introduction of television, and thirty years since the first VCRs began landing in homes, and each one of these "horrible" developments with their big negative downsides has only brought more opportunities to filmmakers and more revenues to Hollywood.

The ugly fact is that the movie business is in grave danger, but to blame mobile phones is the reddest of herrings.

Because, you see, the problem is not technology. It is Scott and people like him, people who really like Things the Way They Are, because Things the Way They Are have made them rich and famous and lets them make expensive movies and take home little trophies. These folks do not particularly like technology (watch Scott's movies - he hates tech), do not understand people who do, and are deep down in places they do not talk about at Malibu parties they are just plain scared of anything with a microchip.

They see all of this change happening and are smart enough to understand that it means The End of the World As They Know It. And they are terrified. Hence Ridley's mobile device fixation.

The fact is, technology will save the motion picture industry.

Would you...like to be upgraded?

The movie business is beset with problems that could fill a library. Films have become too expensive to make. The industry is structured - from finance to production to distribution - to quash all but a small number of entrepreneurs carefully screened (pardon the pun) and selected at film festivals. The business is overwhelmingly American in an increasingly global/local culture. The cinema experience is outdated, overpriced, and of little or declining relevance in much of the world.

None of this is to suggest that movies are going away. Something is, however, very wrong when people (especially young people) are spending far more money and time on other forms of entertainment, and those alternatives are growing - and fast. Cinema is losing its share of our wallet, but equally important it is losing our attention. (Hell, I'm an old guy, but I've spent more on games for my Sony PSP this year than I have on movie tickets for my entire family.)

Technology, in its different forms, is getting set to bring about a cinematic renaissance. More people can make films, make them cheaper, and get them in front of audiences faster and easier today than anytime since Mayer, Zukor, Laemmle, Cohn, Fox, Warner, and Disney showed up in L.A. and started buying orange groves. Green screens, cheap gear, and powerful software means that you don't have to spend $200 million to make an epic - you just need a script, a camera, and a Macintosh.

Starting to see what's bugging Ridley?

I have the choice of watching movies in a theater, on my big-screen TV, on my desktop, my laptop, my PSP, my iPod, or my ROKR E6. I can buy a film from a store, order from Amazon, or download from iTunes, not to mention the illegal channels. In short, I'm in control of how I decide to experience a motion picture, not the National Association of Theater Owners.

The future of Hollywood is lean, streamlined, personal, and technology based, and there are dozens if not hundreds or thousands of filmmakers who are following this road. Today they may be uploading 5 minute clips to YouTube. Tomorrow?

Do you like our owl?

Nowhere does technology offer a greater opportunity to build the film industry than right here in China, if for no other reason than there is less legacy infrastructure to stand in the way. There are other reasons, of course.

Technology substitutes for mass in China the same way it does elsewhere. Despite being the most populated country on the planet, there is a dearth of talented people both in front of the camera and, more critically, behind it. Stars may get all of the attention, but a pool of talented craftspeople - from the director down to the make up girl - is essential to sustain a traditional movie industry, and China's pool is frustratingly shallow. The good people are expensive, and their lack forms an artificial bottleneck. The technologies that substitute for talented and experienced crew are the only way forward in the near term.

Production finance is another constraint to the growth of China's film business, and the value of technology as a substitute for cash cannot be overstated. As with Hollywood, big budget flicks might get the attention, but the future will come from people who make films with a small handful of people.

If technology is important for production, it is essential for distribution, because without those small screens, the movie will probably be seen by a tiny number of people - if at all.

China has one cinema screen for every 466,000 people. (By contrast, the U.S. has one screen for every 8,000 people.) There are around 300 movies released each year in China, meaning that these films are all fighting for screen time, not just audiences. Even at the current rate of production, the only way many of these movies is going to be seen is on the small screen.

Real estate prices and personal habits in China further inveigh against the movie theater experience becoming as common as it is in the US. In short, mobile phones aren't going to kill movies in China: they - in combination with other "small screens" - are going to give them their only possible market.

A tortise lays on its back, belly baking in the sun....

Ridley Scott will celebrate his 70th birthday on November 30 of this year and look back on a 42 year career of achievement that is the envy of many others who have sat - or dreamed of sitting - in the director's chair. As he celebrates his septuagenarian status with friends and loved ones, perhaps he will pause to consider that Louis B. Mayer, the founder and longtime steward of MGM studios, found himself sidelined by Hollywood days short of his own 69th birthday. Louis B, once the most powerful studio head in a day where the studios ran the show, couldn't change fast enough when the change started happening.

Ridley won't be going away soon. He's got a film in the can and at least four projects in development. But the Hollywood that created him is going away, and if he is not prepared to accept the changes that are driving Hollywood and the world's film industry, he'd better start planning a career change.

China Leading the World in e-Tickets. M-Tickets anyone?

In the Hutong
Back from the Hutong Summer Holidays
1950 hrs.

After a month's physical holiday and a month's writing holiday - in succession, not in parallel - the issues surrounding air travel remain fresh in the mind. So it was with great interest that I read cNet's report noting that the International Air Transport Association (IATA) was confirming that it would meet its June 1, 2008 deadline to eliminate paper tickets everywhere in the world, completing a switch to e-tickets.

Here's the kicker: China will be the first country to completely switch over.

This makes a lot of sense. Chinese airlines need all of the help they can get: constant price wars have driven profits in Chinese air travel into the sewer. $9 per ticket may not sound like much, but I'm sure the airlines of the PRC will take it. China Eastern Airlines, for example, lost US$365 million last year on 35.04 million passenger journeys. In other words, it could eliminate $315 million of that loss. It would have nearly doubled Air China's profit for the year.

Needless to say, that's significant. The question is, how else can this technology be applied in the industry to either improve efficiency or make flying more convenient?

Today, E. Tomorrow M

The systems that were the toughest to put into place for e-ticketing in China were reimbursement policies and ways of handling travel agents and ticketing offices that were, er, technology-deficient. Stunning as it is to believe, there is actually still an embarrassingly large number of places to buy air tickets in China that don't have computers or printers. No single solution appears ready to bridge this technology gap.

What would go a long way, however, would be a system that would send the e-ticket information directly to a mobile handset from a central office. I have no hard data, but apocrypha and experience suggests that the vast number of airline passengers in China are shlepping cell phones. All that would need to happen to make this system work right now would be to whittle down the information so it would fit into 1 or 2 SMS messages.

This way, a travel agent without a computer could call a central office with the necessary information, and that office could generate the m-ticket and send it to the customer's mobile. There would be all kinds of other benefits as well, including the ability to buy a ticket without having to set foot in a ticket agency (or, indeed, buy it as you drove up to the airport.) In other words, it would go a long way toward making air travel more convenient.

eBoardingPass

The mobile handset is going to be the key to the airlines' next step as well: the eBoardingPass. IATA is helping to work out the kinks in a uniform system to allow passengers to print their boarding passes at home, using a unique barcode, with which some airlines are experimenting already. At the same time, IATA is pushing self check-in systems that have been installed in some two dozen airports around the world.

Combine the two, and self check-in with the mobile handset, with the airline sending an MMS with the bar code and some basic information would be a logical next development step for China's busy airlines and overcrowded airports.

At least it would eliminate the problem of a dozen people cutting into the check-in queue at the airport.

Restructuring Nokia: Reading Between the Lines

In the Hutong
Battling burnout
2052 hrs.

Nokia made a major announcement today, telling the world that in 27 weeks the company will significantly reorganize itself. Ostensibly, the reorganization is to focus on "future growth opportunities around converging Internet and telephony services."

If that sounds pretty innocuous, you can be assured that this is intentional. Using buzzwords like "convergence" and "Internet," and even aping Apple and Motorola by talking about "rich, mobile experiences," Nokia appears to be taking a logical step in its evolution.

I applaud Nokia's efforts to change with the times. But as I read between the lines in the reorganization announcement, I'm disappointed to find that this reorganization merely appears to solidify the Finns' traditional approach to the market, an approach that is, in my opinion, tragically misguided.

CEO Centric

Getting past the obligatory jargon-laden CEO quote and digging into the Tell You As Little As Possible details, some interesting points pop up. First, the company is moving to a more vertical structure, an approach that should give CEO Olli-Pekka Kallasvuo more direct control over the company. That could be good thing for Nokia, arguably making them more nimble.

They're also apparently pulling their supply chain, sales channel, and marketing activities into one unit, divorcing them from the product divisions. Whether that's going to work or not depends on the details - me, I'm a big fan for keeping the marketing close to the product and both of those as close to the ultimate customers as possible. But let's wait and see.

The Rise of Services and Software

The real wake-up comes when you look at the structure underneath Nokia's consumer products division, Devices and Services. Devices, okay, that's handsets. We get it. The real juice of this reorganization is in the introduction of a new Services & Software unit. The wording refers to that unit as "reflecting Nokia's strategic emphasis on growing its offering of consumer Internet services".

This is not a small move. Creating an organization inside of Nokia that enjoys a status co-equal to that of the group that actually manufactures the mobile devices means that Nokia sees its future at least as much in the services side of the business as in the devices.

That's an announcement clearly designed to make investors wiggle. The problem is, the investors are not the only people Nokia needs to please.

Competing with Customers

Nokia believes the Services unit will help it "offer its customers complete solutions" that are "coupled" with their devices. Now, when Nokia refers to its customers, it is primarily referring to mobile network operators. So what it is saying here is that it wants its Services team to come up with end-to-end packaged solutions that it can sell to operators as is. One assumes Nokia will sell the software, or perhaps just partner with the operator.

In short, the justification for the services unit is so that Nokia can sell a single integrated solution to the operators - network gear, software, services, and devices. In other words, Nokia still dreams of owning the whole value chain, and selling it all as a package to operators.

The question - particularly in Asia, and especially here in China - is whether the operators are even interested in that proposition.

If anything, operators in Asia have demonstrated that they are willing to make mistakes - sometimes a series of very expensive mistakes - in their quests to develop bouquets of services that users find exciting, relevant, and worth spending money on. Initially these operators have tried to go it on their own, but most of them have come to the realization that they are better off working with a dependable group of service providers.

In the case of operators like SKT in South Korea and DoCoMo in Japan, the most successful mobile operators have created their own branded platforms that they have used to make their brands mean more than pipe providers. China Mobile and Unicom are studying them - and operators like Orange and Verizon - with great care, and are conducting their own experiments. And they seem to be getting closer to the right mix.

The question is - what does Nokia have to offer to mobile operators that the mobile operators cannot - or do not - want to create or acquire through partnerships with dedicated service providers? And why would they want prepackaged "complete" solutions over bouquets they assembled for markets and customers they understand far better?

Nobody Loves a Value-Chain Hog

As Nokia publicly preens itself for being different than what it derisively calls "point solution vendors," it risks alienating the entire mobile industry. It makes operators uneasy about letting them too close, service and software providers leery of working with them, and it hands their competitors all of the ammunition they need to sow fear, uncertainty, and doubt about Nokia's ulterior motives with everyone else.

Nokia may not care. Their scope of their vision is now clear. They are not satisfied with being the market leader. They want more. They want to own the ecosystem - or as much of it as they can get - and either lock out other players or force them to play on Nokia's rules.

In other words, Nokia wants to be Apple. Nokia hardware, Nokia software, Nokia back-end, Nokia services, all on Nokia's terms.

There are only a couple of problems with that. First, Nokia is not Apple. Despite pretensions to the contrary, it lack's Apple's cachet, design leadership, superior user experience, and history of delivering and selling a closed system.

Second, despite some resemblances, the mobile business is neither the computer industry nor the consumer electronics business. Apple has created an entire closed value chain because it has never had to work through a major intermediary. Nokia cannot realize its vision of service leadership without running afoul of its major customers - the operators.

Get Back To Where You Once Belonged

Nokia's market share leadership in mobile devices has served to obscure some fundamental problems in the business. The integration of Siemens on the networks is still unfinished, and the hollow-eyed looks among the lunch crowd at Pacific Century Plaza in Beijing underscore that layoffs are ongoing. In the mobile business, the design effort is still two years behind Motorola and a year behind Samsung. Nokia runs third in mobile entertainment behind Sony Ericsson and Motorola, and its leadership in entry level phones will be challenged by a resurgent Motorola and a Samsung that is now determined to take its fair share of that market. And, of course, Nokia is still recovering from its failures in mobile games and its perennial weakness in the US market.

Sure, none of these problems is insurmountable. But they are considerable, and collectively they argue for the company to focus on its fundamental business rather than undertake a major reorganization and shift focus to services and software.

Can Nokia do it all at once?

As I close this piece, Nokia's NYSE shares are up less than one half of one percent. That's far from a resounding endorsement, and Motorola is up by the same amount. It's clear the Street is as skeptical as the Hutong.