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Round table with Anssi Vanjoki, Nokia’s Vice-President

It hasn’t been long since my last visit to Russia, when I met with some of the people present here today, but, of course, the world keeps moving at an amazing pace, even during this meltdown, and new developments in the mobile industry and Internet are already being implemented. I'm sure that you have all seen the announcements we have made throughout this year, including all our new services and OVI Store initiative that is set to launch in June. And we are pleased to see that there's been quite a lot of excitement around these products. So, even in this recession, we think that Nokia is very well positioned to go through it, and come out of it even stronger than ever. Certainly, fast-developing markets, like Russia, play a very important role in our plans.

Speaking of the economic downturn you have just mentioned – what measures does Nokia plan to take over the next couple of years? You’ll cut some jobs, but what about your product line? Will it be shrinking as well?

Of course Nokia is not insular to the economic development, and we also have to weather these conditions, in a good way, though. That means that we have to adjust our operations to the economic climate and we have already announced a number of measures, which are designed to keep our company competitive Also, every company needs to clearly define its priorities, because in the current conditions we all have to make choices, and we can’t afford to play with various options anymore. As far as “big” choices go, we are absolutely convinced that the mobile phone market is now turning into the mobile computer market, so we are stepping up our activities with Symbian, Series 60, and all the different products that utilize this platform. On top of that we are expediting the move to an open source environment, as best we can.

Then on the other hand, it's very clear that the traditional mobile phone business has become more of a cost game. So the other part of our focus is to ensure that at the lower end of the spectrum, we are absolutely the strongest force driving that market up. Because, the fact is, the global penetration is still somewhere in the neighborhood of four billion, which leaves quite a few people without a device. And we have to be innovative enough to deliver them exactly the solutions they need.

During our last meeting you commented on Nokia’s strategy for the North American market. Have you seen any progress there already?

I see what you mean. We are definitely moving forward on this market; for example, just yesterday we announced a new product for Verizon. Like I said, you will not see us making a revolution in the US, we prefer a bit more slow-paced step-by-step approach. There will be similar steps, and you will surely notice them. We are working with all operators in the US, and I believe we are on track to improve the business in that region.

Have you received any feedback from AT&T regarding your previous joint efforts?

I cannot share any details with you, because it’s not customary for us to comment on individual products and our affairs with operators. I’d like to repeat here that we have very specific programs going on with AT&T, Verizon and other companies, and soon you’ll see the results of our work.

One of the most rapidly growing markets in 2008 was the netbook segment. Does Nokia have any plans to step in?

It’s important to understand that there are at least 3 different product types – mobile phones, personal computers and what many call “tablets” (or ultraPCs). The latter are computers too, but I want to emphasize that they are not “personal” computers, since they are originally designed for multiple purposes and continuous use. PCs don’t allow for that as their architecture implies session-based usage pattern. This means that these netbooks you have just mentioned are simply downgraded personal computers, because they have the same kind of software, and the same flaws. Obviously, this is not the architecture that we believe is going to be dominant among mobile computers in the future. However it’s true that this is a rapidly growing segment of relatively cheap and low-performance devices that can come in handy during daily commutes or trips. So this is an interesting tactical opportunity for anybody and over at Nokia we have been studying this market very closely. We’ll see, maybe something will come along later on. But I want to put a special emphasis on the fact that we don’t view these netbooks as our strategy-defining market.

According to some market reports that have already come out, in Q1 2009 the lower end of the market has expanded considerably, while the top segment remained unchanged, and the mid tier suffered severely from the meltdown. Can you comment on these results?

Unfortunately I can’t give you any specific comments on the financial-related issues because we still don’t have the results ourselves. All I can say is kind of re-iterate what I said in January, that we expect the market to shrink by 10% or more. Our strategic view of the market, however, is that there is going to be a massive movement towards mobile computers and that this trend will continue through this crisis.

Have you reached any definitive agreements with third-party companies regarding their involvement into OVI Store?

Each company has to make this kind of announcement on its own, but what I can say is that thousands of companies and applications are going to be available in OVI Store right from the beginning and nobody will have to wait.

And as you probably know, Russia is among the first 9 counties that will get OVI Store in June.

How are you going to deal with billing issues in Russia?

In OVI Store we are trying to implement different methods of payment and business models. In some regions, where we are integrating with local carriers at full speed, we are employing their native billing systems, plus there will be other ways of indirect advertising-based business models. So the whole suit of options depending on application and content will be made available to our partners.

Also we are looking to introduce easier-to-use payment solutions – we have already implemented premium SMS system for N-Gage games, and we’re sure it’ll cover a large number of applications that will be available in OVI Store as well. Also we are looking to integrate that into kiosks. Basically, easy-to-use payment options will be the key factor driving our growth here. And there’ll be free content there as well.

What about Nokia Comes with Music in Russia?

Let’s say that technically we could launch it any day now, but we need to make sure that we have cleared all copyright issues and partnership deals. We’ll have the Music Store, which is the enabler for Comes with Music, up and running here in June, and following that we’ll be introducing Comes With Music itself. There is no hesitation on our part, although the exact date is yet to be announced, but it’ll happen some time in the second half of 2009.

Will all your music be free from DRM?

Currently all music we have in our store comes with DRM protection. This decision is made by the copyright holders, and that’s how they want their property to be treated.

Could you possibly comment on revenue sharing models you’ll use in OVI Store?

We have very clear business rules, stipulating that the majority of revenue actually goes to developers (around 70%), so Nokia gets a very small cost-covering share in between. But if an application developer has a certain kind of commercialization method in his mind, we’ll let them have it their way.

Nokia has been working with so-called Premium Partners here in Russia for some time now. How is it working out? Will you implement this scheme world-wide down the road?

Even though we started exercising this approach only in 2009, we have already seen a great deal of progress, and this scheme will give huge advantages to our customers very soon. One has to remember that every distribution structure is a child of its time and that’ exactly what’s happening now.

The field where Nokia, along with all other phones makers, are lacking these days in Russia is customer care. How are do you plan to rectify this shortcoming?

When conditions are such that some of your business partners can’t guarantee their financial stability and go belly up or simply disappear overnight it leaves a big hole in our network. We are a very responsible brand, and we can’t afford to leave our customers all alone at a time like this. And this is the commitment we have for the Russian market. But there might be occasional hiccups, such as that with GadgetService. But I’m happy to report that we have already found an effective solution to this problem.

Nokia has a well-performing Flagship Store, but have you ever considered establishing a Flagship Service?

It’s an interesting thought, and we have already had some trials in other markets, where customers were allowed to submit an “insurance payment” and get a guaranteed top-notch level of service immediately. Basically, there are people who can’t afford to spend even an hour without their device, so this service might become very crucial for them.

Will Nokia open an Online Store in Russia?

Certainly! If we have OVI Store here for digital merchandise, why can’t we decide to sell phones online? I can’t be any more specific than that, but we are working on this.

What kind of impression did this year’s MWC make upon you?

I can say that I felt the economic downturn there, because it wasn’t as crowded as before – there was less traffic, that’s for sure. But on the same token I need to note that probably the quality of visitors was a bit higher on average. As strange as it sounds, the audience was better overall because of the meltdown.

One of the most exciting events that took place at MWC 2009 was Mobile Short Film Festival, however Nokia wasn’t involved. How do you feel about this type of mobile content?

My view is that the length of such videos doesn’t really matter – be it 30 seconds or 3 hours. To me it’s all the same. The form and format of the content don’t matter in mobile. And my own attitude towards mobile video has changed fundamentally after first phones with large memory banks saw release. So now it’s more about quality rather than length, and it’s a misconception many people have about mobile phones – these devices are no longer constricted in terms of video quality or clip length, they actually allow for PC-esque experience, and it’s a big leap forward.

Last year we saw a lot of hype around DVB-H, however these days it doesn’t seem to be as popular among phone makers and carriers, why?

It’s an issue we have with the right holders – there are a number of countries where licenses have already been issued and all involved parties are willing to invest but they can’t come to an agreement about rights and some business-related nuances. Quite often the discussion seems to be centered on how one should interpret the use of such signal, whether it’s redistribution or simulcast. And of course broadcasting companies would like it to be the latter, because then they would be able to focus their business more or less on the same content, but quite often the right holders insist that it’s treated as redistribution. Until these red tape issues really get resolved in a big way, this market will not move on. So we feel that the need is already there, but the business is still in its infancy.

Have you already embedded a DVB-H network somewhere?

Yes, for example in Italy, where thousands of people are using it these days, it’s just the same as normal TV for them, especially when it comes to football matches. The same will hold true for all other regions, should the business system take off.

Clearly, DVB-H won’t do for all regions. What do you think about WiMAX and 3G as alternatives?

Like I said technology is not the limiting factor to delivering video signal to mobile devices, there are many different alternatives; the cheapest by far is some broadcast technology, like DVB-H. On the other hand, 3G, WLAN, WiMAX are all capable of delivering fairly good signals to your device, but not at broadcast capacities.

When it comes to OVI Store and your other services, do you have any intentions to team up with local carriers, such as MTS, Beeline or Megafon? Will one of them get an exclusive deal for this particular market?

I’m not really in the position to judge to what degree each carrier will participate in our projects, they need to make their own call. But we are talking about an online service, so it’s going to be available to everyone no matter what, however the mechanisms that are going to power it may be created by these local carriers, especially when it comes to billing schemes. Nokia has always been open to everyone and we’ll review all offers from all interested parties.

Any changes to Nokia’s monobrand store strategy?

I think that the whole retail chain in Russia is in such a state of flux that all players need to settle their affairs first before doing anything else. But of course we are continuing to push forward our own presence in retail networks in all ways, as we want to ensure that no matter who distributes our products, they are prominently placed.

Also there has been some impact on the economic environment so we are re-evaluating some of our business models. On top of that we have introduced the franchise scheme which we are piloting in Russia at this moment and we believe that it’s the right way to go. If it works out, we’ll start implementing it during the second half of this year and also in 2010, opening many more stores.

Is there any chance we’ll see a carrier-branded handset from Nokia in Russia?

For 20 years we have been making co-labeled products, and if some players on this market show any interest in our solutions, we will definitely look into it. However so far we have not received any requests of this kind from local carriers. I think most of them would say that they are lucky that the distribution here is not based on subsidized phones, but actually true consumer demand and when you look at their P&L reports, they are much better than those you see in countries with different practices.

Do you have any specific plans for LTE-powered devices on the Russian market?

One thing is for sure – the market for LTE devices will emerge very soon. However, at this point the economic downturn has slowed down all our operations and development of LTE, as well as cellular networks in general. As we see it, LTE-powered solutions will mostly be computer-esque devices based on Symbian and Maemo, since LTE is meant for this kind of platforms in the first place. Given the latest progress of LTE I believe it’ll be by far the most preferred technology for broadband wireless connectivity, since WiMAX didn’t quite take off in the US, so I don’t think it’s a viable option. So far, the evolution of product concepts has moved from feature phones to smartphones to computers and by the time LTE comes around (in 2010-2011), the smartphone paradigm will still be here, however mobile computers will be getting more popular, and that will be the time when our Maemo platform will be more important than ever.

As for mobile phones, this concept can’t be developed any further – they allow the user to make calls, send messages, but that’s about it. So in the future, it will become a feature within mobile computers, but it won’t be the application that will define the whole product.

Sony created their “Walkman” brand and then went on to develop a whole ecosystem around it, including Sony Music and other companies. Will Nokia follow in their footsteps? In other words, how are you going to develop the universe around your music store and services?

We distribute music, so for us it is a distribution business, not a service business. Services can be based on music and if you look at what we have already brought out, it’s all about context and when you start to give music some context, that’s where services come in. Let’s assume there is a concert somewhere: you attend it and then as you walk out you actually can get this concert into your device, so you’ll transfer these real feelings and experience into your device by paying a little extra. So Nokia is not planning to be a record label or copyright holder. Our idea is to enable other people to do that and then bring around this contextual element into this segment.

And I think the same answer applies for games – it’s about bringing contextual games, bringing reality and virtuality together. Traveling is always like a game and if you could actually get a game for you mobile phone that is related to the city you are in, then maybe you would be able to collect some points in it that could later on be redeemed for a drink in a bar, where, for example, we’d all meet at the same time, and immediately you’d have a lot of friends, not virtual, but real, in a completely foreign town. And I believe this paradigm will change the whole gaming experience.

Round table with Anssi Vanjoki, Nokia’s Vice-President

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