Nokia 2011 Annual Report Download - page 102

have gained market share by leveraging their low cost advantage in tenders for customer contracts. In
recent years, the technological capabilities of those vendors, particularly Huawei, has improved
significantly, resulting in competition not only on price but also on quality.
The pricing environment remained intense in 2011. In particular, the wave of network modernization
that has taken place, particularly in Europe but increasingly in other regions including Asia Pacific, has
experienced some aggressive pricing as all vendors fight for market share.
Nokia Siemens Networks’ net sales are impacted by those pricing developments, which show some
regional variation, and in particular by the balance between sales in developed and emerging markets.
While price erosion is evident across most geographical markets, it continues to be particularly intense
in a number of emerging markets where many operator customers have been subject to financial
pressure, both through lack of availability of financing facilities during 2011 as well as profound pricing
pressure in their domestic markets.
Pricing pressure is evident in the traditional products markets, in particular, where competitors may
have products with similar technological capabilities, leading to commoditization in some areas. Nokia
Siemens Networks’ ability to compete in those markets is determined by its ability to remain price
competitive with its industry peers and it is therefore important for Nokia Siemens Networks to continue
to reduce product costs to keep pace with price attrition. Nokia Siemens Networks continued to make
progress in reducing product and procurement costs in 2011, and will need to continue to do so in
order to provide its customers with high-quality products at competitive prices. There is currently less
pricing sensitivity in the managed services market, where vendor selections are often largely
determined by the level of trust and demonstrated capability in the field.
In November 2011, Nokia Siemens Networks articulated its regional strategy, identifying three markets,
Japan, Korea and the United States, as its priority countries where it will target growth. The Middle
East and Africa, where political, financial and competitive pressures have led to particular weakness in
2011, will be the focus of turnaround efforts. In the remaining regions, Latin America, China, Asia-
Pacific, Canada and Europe, Nokia Siemens Networks goal will be to defend market share and find
areas for future profitable growth.
Over recent years, the telecommunications infrastructure industry has entered a more mature phase
characterized by the completion of the greenfield roll-outs of mobile and fixed network infrastructure
across many markets, although this is further advanced in developed markets. Despite this, there is
still a significant market for traditional network infrastructure products to meet coverage and capacity
requirements, even as older technologies such as 2G are supplanted by 3G and LTE. As growth in
traditional network products sales slows, there is an emphasis on the provision of network upgrades,
often through software, as well as applications, such as billing, charging and subscriber management,
and services, particularly the outsourcing of non-core activities to companies that provide extensive
telecommunications expertise and strong managed service offerings.
In the following sections we describe the factors and trends that we believe are currently driving Nokia
Siemens Network net sales and profitability.
Mobility and Data Usage
Over recent years the two most evident trends in the telecommunications market – the rise in use of
mobile services and the exponential increase in data traffic – have converged. One result is that
services once regarded as available primarily, if not exclusively, through fixed or wireline network are
increasingly in demand from wireless networks also.
Alongside traditional voice and data services, such as text messaging, end-users access a wealth of
media services through communications networks, including email and other business data;
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