Chicken Little Wasn't Kidding

One day, Chicken Little was walking in the woods when — kerplunk — a handset fell on her head.

“Oh my goodness!” said Chicken Little. “The sky is falling, and it's raining handsets. I must go tell the king that the bottom is falling out of the market.”

As if things aren't grim enough over in Indebted Infrastructure Land, the Handset Kingdom faces its own set of death-defying plot twists.

Last year, according to IDC, handset sales grew by 88% to 13.6 million units (www.idc.com). However, this year, the analyst group expects that growth rate to plummet by nearly half.

Why is that? Two reasons. First, hype has hurt. Consumers listened while we touted like snake-oil salespeople the miracles that future handsets would perform.

Ah, to finally stash the laptops, Palms, Blackberries, VCRs and voice handsets.

Oh, to have a new pocket-size handset to answer our e-mail or to watch “Jurassic Park III” or to see Britney Spears' new Pepsi commercial.

Wahoo for the day when laptop-lugging backaches are things of the past.

Hip-hip-hoorah for no more belt stripping at security check points. For in the not-to-distant future, we will be streamlined and lightweight.

Sure, consumers know they still may carry their laptops or use their Palms. But the promise of having options and choices about what essential gear they might wear is just too compelling. With that hyperbole floating about, is it any wonder consumers are waiting?

All of this falderal leads to the second painful reason. The new-order handsets are being recalled at unprecedented rates. If subscribers actually can lay their hands on them, chances are pretty good that their handsets will be recalled.

“Yes, but I just entered the phone numbers of 150 of my closest friends!”

To call them chaotic launches would be an understatement. Faulty battery packs, schizy software and short-circuiting performance have cost Japan's handset makers such as Panasonic (www.panasonic.com) and Sony (www.sony.com) millions, if not billions, of dollars.

DoCoMo (www.nttdocomo.com), first 3G king to come to market, has been battered publicly. It has recalled more than 420,000 phones, while its counterpart KDDI (www.kdd.com) pulled back nearly 700,000. Still smarting from the handset disgrace, NTT DoCoMo recently issued a warning to its i-mode subscribers regarding malicious e-mails circulating the DoCoMo network. Apparently, the e-mails were causing phones to freeze and dial emergency phone numbers, as well as appropriating address books, copying and forwarding themselves to other users on the network.

Sadly, the hype and rush to market have tested carriers in the toughest court of the land — the court of public opinion.

Aside from these most public and hair-raising handset spectacles, other phone vendors are sweating as well. Sanyo Electric (www.sanyo.com), wanting to rise in world market sales, faces trying this feat while the U.S. economy is in a stall mode, and Chinese trade sanctions keep generating “No, thank you” responses. Also, U.S. handset market share dominator, Nokia watched sales in its (www.nokia.com) homeland — the land of the wirelessly addicted — plunge 22%.

In response, or perhaps looking for a healthy scapegoat, large world carriers such as Vodafone are predicting (www.vodafone.com) 3G launches to be delayed another 12 months because of problems with handset supplies.

To the handset companies that have invested billions of dollars in R&D, Chicken Little wasn't kidding. The sky is falling. The only way they can make money in this fragmented vendor environment is to sell lots and lots of phones. With consumers in the wait-and-see mode, numbers will be down. And if vendors keep tripping over their own rush to success, there won't be many consumers clamoring for their products.

Is the sky falling on the handset market? Or is it just a temporary atmospheric condition? Write me at rwickham@primediabusiness.com.