April 13, 2009 11:54 AM PDT

Report: Carriers 'pass' on forthcoming Dell handset

Whenever Dell does unveil its much-hinted-about new handset, it will apparently be taking a nontraditional route to the market, according to an analyst report Monday.

Dell has decided to sell its new product through retailers only, Ashok Kumar of Collins Stewart said. While that's certainly interesting, and in line with Dell's recent record of testing new ways of approaching the market with its products, the reason Kumar gives is far more tantalizing: he says U.S. and European carriers were none too impressed with Dell's effort when the company tried to sign up some wireless partners during a meeting at the Mobile World Congress in Barcelona last month.

Dell hasn't sold a handset since it axed the popular Axim in 2007.

(Credit: CNET)

"The carriers, who see products from all the leading handset vendors, have decided to pass on Dell's handset," he wrote in a research note Monday. "Some carriers are citing a noncompelling product with a road map that lags competition."

Dell hasn't responded to a request for comment. But if Kumar's claims are true, this presents serious problems for Dell. The company already has relationships with some of the major carriers, including AT&T and Verizon Wireless, to sell wireless-service plans for its notebooks and Netbooks in the United States and in Europe. Rejecting what will, by its very nature, be a high-profile product from a current business partner doesn't speak very well of the product's competitiveness.

Having been rejected from the major carriers will also handicap the device from the start, since U.S. consumers are conditioned to buying subsidized phones and may balk at paying a full price. But the bigger problem is that there's just not that much market share left to grab, especially without the marketing might of large carriers behind it.

"It's a crowded market. Two years ago, (Dell) may have had an opportunity, but (Research In Motion), Nokia, and Apple have been joined by HTC, Samsung, LG, Palm, Motorola, (and Acer)," Kumar said in an interview. "The market is extremely crowded just as it's slowing down."

Another report on Monday says Dell is in talks with China Mobile to develop a partnership for its device in China. If a partnership pans out, Dell's phone could launch in China by the end of the year, according to Zhang Jun, an analyst at research firm Wedge MKI. In such a scenario, Dell's device would use Open Mobile System, China Mobile's operating system, which is based on Google's Android, he wrote.

But even with a carrier, the Chinese market could be quite challenging for Dell, Kumar said.

"China is a more difficult nut to crack because the market is dominated by white-box and local vendors," he said. The largest part of the market is for phones that cost around $150, and Kumar says the bill of materials for Dell's handset will likely make it cost "well north of $200."

Dell has been targeting the Chinese market heavily in the past year with its PC products. The country is now Dell's second-largest market overall. On a recent trip through Asia, company founder and Chief Executive Michael Dell addressed rumors of an upcoming handheld product, saying, "It wouldn't be unreasonable to expect that we would have smaller mobile Internet devices or smartphones in the future."

Erica Ogg is a CNET News reporter who covers Apple, HP, Dell, and other PC makers, as well as the consumer electronics industry. She's also one of the hosts of CNET News' Daily Podcast. In her non-work life, she's a history geek, a loyal Dodgers fan, and a mac-and-cheese connoisseur. E-mail Erica.