Wireless

Panasonic and NEC announced nine new cell phone on Tuesday that use the open-source, Linux-based mobile operating system called LiMo.

As the mobile phone market evolves, software is becoming more crucial to handset development.

Apple set the bar high with its iPhone, which uses a form of Apple's own proprietary operating system used in its computers. Other companies have followed suit with advanced software of their own, namely Google with its Android mobile software. Like LiMo, Android is based on open source Linux. So far only two devices have been introduced running the Android software, but several handset makers including Motorola and Samsung are expected to release new Android-based devices.

Still, Nokia, the number one handset maker in the world, leads the market with its Symbian software platform.

Linux is the most popular type of free or open source computer software available. And it has had some success in the computer environment where Linux suppliers are earn revenue by selling improvements and technical services to support Linux. This is a very different model from Microsoft, which licenses its Windows operating system and does not share its code openly with developers.

Now Linux is coming to the mobile market, where it promises to help lower costs for handset makers. The LiMo foundation, which is made up of a consortium of companies, has been shepherding development for mobile devices in the hopes that it can become one of the major operating systems used in the handset market. So far, LiMo has not been a huge success, as competition from other software and handset makers has been fierce.

The announcement of the new Panasonic and NEC phones is seen as a positive sign that handset makers are starting to support the new software. Other handset makers, such as Samsung and LG Electronics, are also members of the LiMo Foundation. But so far these companies haven't introduced phones using the LiMo software. In 2008, Motorola introduced some devices using LiMo.

Meanwhile, most of the world's largest cell phone makers, including Samsung, LG, Nokia, and Motorola, have said that they will soon introduce phones using the Android operating system.

Still, LiMo does have support from some of the world's biggest mobile carriers, including Vodafone, France Telecom SA's Orange, Japan's NTT DoCoMo, South Korea's SK Telecom, Telefonica and U.S. operator Verizon Wireless, which is jointly owned by Vodafone and Verizon Communications. LiMo also said Japanese mobile carrier KDDI Corp and touch screen company Immersion Corp have joined the not-for-profit foundation.

Updated 8:57 a.m. PDT with information from the conference call.

Despite improvements in its network reliability and customer service, Sprint Nextel is still losing high-value customers as the company reported a wider-than-expected loss for the second quarter of 2009.

The company reported a loss of $384 million, or 13 cents a share, compared with a loss of $344 million, or 12 cents a share, during the same quarter a year ago.

Revenue also fell about 10 percent to $8.14 billion. Analysts had expected a loss of 2 cents a share on revenue of $8.13 billion, according to the Reuters news service.

As it has done in recent quarters, Sprint lost valuable post-paid customers--that is, subscribers--in the quarter just ended, albeit at a slower rate. CEO Dan Hesse said during the company's conference call with investors and analysts that Sprint has made significant progress in improving its customer satisfaction ratings, but he admitted the company is still dogged by continued customer losses.

Over the past seven quarters, Sprint has lost nearly 7 million subscribers--during the second quarter it shed about 991,000 of them, an improvement over the 1.25 million lost in the first quarter. These are high-value customers who typically sign a contract and pay monthly for their service. They tend to spend more per month than customers paying in advance for services.

Meanwhile, competitors AT&T and Verizon Wireless each added subscribers during the second quarter. AT&T added 1.4 million customers in the second quarter and Verizon Wireless added 1.1 million subscribers.

Sprint managed to improve its churn rate, or the rate at which the company's post-paid subscribers ditch its service for another provider's service, in the second quarter. But this rate was still higher than it was a year ago and still higher than rivals AT&T and Verizon Wireless. Sprint's churn rate in the second quarter was 2.05 percent, down from 2.25 percent in the first quarter. This was also higher than the 1.98 percent churn rate the company reported for the same quarter a year earlier.

Hesse said that retaining existing customers and adding new ones is a priority for the company.

"We have to increase the number of gross adds on the post-paid side," he said. "We need to have more customers coming in and a higher percentage of customers on contract. The overall issue for us is to turn around this post-paid trend."

Hesse said that the company has greatly improved customer service and network reliability. As a result its service is scoring higher in customer satisfaction surveys, but he said that it will take a long time for these improvements to manifest in improved subscriber numbers and churn rate.

"The trend line we've seen for the past three years is a reduction sequentially in gross subscriber additions," he said. "We've been working hard to mitigate that and slow the decline. We are making significant progress. But it takes a while for customer perception to catch up with reality."

Hesse blamed much of the recent customer declines on the ailing U.S. economy. A large portion of Sprint's post-paid subscribers are business customers. While these customers tend to be more loyal and generate more revenue than consumers, currently these customers are spending less on services as companies layoff employees. Hesse explained that these corporate customers aren't canceling their contracts entirely, but they are deactivating phones, which affects the company's overall subscriber count and revenue.

A boost from Boost Mobile
On a positive note, Sprint did gain strength in its prepaid business. The company added some 938,000 new prepaid customers to its Boost Mobile brand during the quarter. This was more than analysts had expected, which forecast a gain of between 500,000 and 900,000 new customers. Boost's $50 unlimited voice and data plan, which launched in January, likely helped attract many new prepaid customers.

Executives on the conference call said that Boost customers, which use Sprint's iDEN network, are starting to spend more per month on their service. And the churn is improving. But the company does see that these customers use about twice as many voice minutes and data services than post-paid iDEN customers. Still, Sprint says that it has upgraded the network to ensure it can keep up with demand.

When the unlimited service first launched, some Boost customers complained of delayed text messages. But that issue has supposedly been resolved.

In an effort to bolster its prepaid business, Sprint announced on Tuesday that it plans to spend $483 million to buy prepaid provider Virgin Mobile USA. Hesse wouldn't provide details about how Sprint will integrate the Virgin Mobile service into its overall prepaid strategy, but he said that the acquisition should help the company grow this part of the business.

"We see an opportunity to use the two brands (Boost Mobile and Virgin Mobile) very effectively," he said. "The Boost brand has traditionally been strong in its segments, and our unlimited offering is expanding the relevance of that service, which is why gross additions are up. Virgin has historically been very strong in the youth market. And we think that these two brands are better than one."

Some analysts question the profitability of prepaid services and inexpensive unlimited services like the one Boost offers. But Hesse said that the company is already making profits on the Boost unlimited service. He argued that it's easier and less expensive to acquire prepaid customers because they don't have to sign long-term contracts. Prepaid services also help mitigate the company's exposure to customers who rack up large bills and don't pay them, he said.

He added that the key to making prepaid more profitable is reducing the churn rate on this service. And he explained that the unlimited plan has helped do that.

"You get big profit swings on prepaid by improving churn," he said. "We see big changes here with improvements in network quality and the simplicity of our plans. We don't think we can get to post-paid churn levels. But we can get closer. And then we'd expect prepaid to be even more profitable even as we increase capacity on the network."

Getting a grip on the Palm Pre
Sprint also launched the much anticipated Palm Pre during the second quarter. Hesse said he was very pleased with the sales of the device, calling the launch of the device in early June the most successful the company has ever had. But he would not provide specific numbers about how many devices have been sold.

He did say that the early sales of the device were mostly to existing Sprint customers, who were looking to upgrade to new devices. Most of these customers were loyal Palm customers who had been waiting for a new and improved smartphone from Palm. But now, he said the company is starting to stock its non-Sprint retail channels, such as Radio Shack and Best Buy, with Palm Pres, which should help expand the customer base to attract people not yet using Sprint's service.

Hesse acknowledged that the introduction of the new iPhone 3GS on AT&T's network in mid-June caused a slight increase in customer churn, but he said the launch of the Palm Pre and the BlackBerry Tour helped stem the losses.

"When there is a new device launch, like the iPhone, which is a real hero device, we see a blip in increased churn," he said. "So I don't want to lead you to believe there was no impact with the iPhone 3GS. But I think we mitigated the impact with our new devices.

Currently, the Palm Pre is exclusive to Sprint. But that exclusivity is likely to run out at year's end. Verizon Wireless's chief operating officer Denny Strigl announced on the company's conference call earlier this week that Verizon Wireless plans to offer the phone starting in early 2010. Hesse would not comment specifically about when the exclusivity deal with Palm would expire, but he reiterated earlier assertions that the deal will run into 2010.

Despite Hesse's continued assertions that things are improving at Sprint, it appears that investors see the continued customer losses as a negative for the company. The company's stock was trading down more than 9 percent on Wednesday.

Sprint Nextel is doubling down on the growing prepaid cell phone market in an effort to better compete with rivals, AT&T, T-Mobile USA and Verizon Wireless.

On Tuesday morning, Sprint, the No. 3 nationwide U.S. wireless operator, announced plans to buy Virgin Mobile USA in a deal that is valued at around $483 million. At first it might seem strange for Sprint, which went into a tailspin after its last big acquisition of wireless competitor Nextel in 2005, to buy another wireless operator. But with a strong cash position and a management team determined to turn the company around, it looks like Sprint sees a big enough opportunity in the prepaid market to risk the pains of consuming another operator.

The strategy shift comes at a time when Sprint is still losing high value "postpaid" customers, who typically sign lengthy contracts and pay for service on a monthly basis. During the first quarter of 2009, Sprint lost nearly 1.25 million of these postpaid subscribers. Sprint reports its second quarter earnings on Wednesday, which should provide a clearer picture on where the company currently stands in terms of subscriber gains or losses.

But given recent second quarter earnings reports from AT&T and Verizon Wireless, the two largest operators in the U.S., it's likely that Sprint lost a substantial number of postpaid subscribers yet again. AT&T said it added 1.4 million new subscribers and Verizon Wireless said it added 1.1 million new subscribers during the second quarter.

The fact that AT&T and Verizon Wireless are still adding new wireless subscribers in a market that is more than 80 percent penetrated likely means they are stealing subscribers from other providers, such as Sprint and T-Mobile USA, which also hasn't reported second quarter earnings yet.

With this in mind, it makes sense for Sprint to go after the prepaid market, since that is where much of the subscriber growth is.

For years, the postpaid business model has dominated the U.S. cell phone market. Meanwhile, the prepaid market in the U.S. has been largely left to consumers who are young, price-sensitive, or considered credit risks.

"Prepaid is growing at an unprecedented rate with consumers keenly focused on value."

--Sprint CEO Dan Hesse

Now, it looks like the tide is turning. Early financial results this year indicate that consumers have been flocking to new all-you-can-eat prepaid plans instead of the contract-bound postpaid plans. Craig Moffett, an equities analyst with Bernstein Research, said after the first quarter that new subscriber growth for postpaid customers across all major carriers had fallen 58 percent from the first quarter of 2008 to the first quarter of 2009.

During this time, prepaid customers were on the rise with about 80 percent of new cell phone subscribers signing up to prepaid service instead of a traditional postpaid plan. A year ago this figure was about 50 percent.

Sprint Nextel was one of the operators that benefited from this shift. It reported during the first quarter that it had added about 674,000 new prepaid subscriptions in the first quarter, according to Moffett's estimates. Meanwhile, it lost about 1.25 million postpaid subscribers.

Prepaid gets a Boost
The growth in Sprint's prepaid base was largely due to a new promotion from its Boost Mobile brand, which in January started offering a $50-a-month unlimited voice and data plan. The unlimited plan was quickly copied by other prepaid brands including Virgin Mobile, which launched its $50 unlimited service in April this year.

The Boost Mobile service is available anywhere Sprint's iDEN network is available. And the service is largely geared to a young, urban demographic. Virgin Mobile uses Sprint's nationwide CDMA cell phone network, and its service appeals to a slightly different demographic. These are price-sensitive consumers looking for a good deal and no monthly contract.

Combining the Boost Mobile and Virgin Mobile brands means that Sprint will be able to reach more customers. And it also will make Sprint the second largest prepaid wireless provider in the market, with a combined subscriber base of 9.5 million.

Another mobile virtual network operator, Tracfone, which uses other carriers' networks to provide its service, is the largest prepaid operator with 12.5 million customers, according to reported second quarter results. T-Mobile USA holds the No. 2 position with 6.2 million prepaid customers at the end of the first quarter of 2009. And regional operator MetroPCS is in third place with 6.1 million customers at the end of first quarter.

Separately, Virgin Mobile USA and Sprint's Boost service trailed behind these operators and also trailed AT&T and Verizon Wireless, which individually had just over 5 million prepaid, in the second quarter, according to Bernstein's Moffett.

"The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," Sprint CEO Dan Hesse said in a statement. "Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand."

But focusing so much attention on the prepaid market has its risks. While the prepaid market may be growing faster than the postpaid market, these customers typically spend far less than customers who have monthly contracts.

For example, AT&T reported last week that the average revenue each of its postpaid subscribers generated during the second quarter was $59.21. This was the fifth consecutive quarter that AT&T managed to increase the average amount its users spend each month on its service. The increase in spending, even with an ailing U.S. economy, is largely attributed to more customers buying smartphones, such as the Apple iPhone, which require a $30 a month data plan.

Meanwhile, Virgin Mobile USA reported in May that the average revenue per user for the first quarter of 2009 was $20.08, slightly lower than the $20.14 the operator recorded in the first quarter of 2008. Virgin Mobile's management team said at the time that the company expected to increase the average revenue spend as its new $50 a month unlimited plan attracted more customers.

Customer-base of bargain shoppers
The problem for prepaid providers is that most consumers looking for this kind of plan are looking for a low-cost deal. And most are not yet using phones that require hefty data plans. For example, Virgin Mobile's data ARPU for the first quarter was $4.42 per month, up 33 percent year over year. But the bulk of this was in messaging services and not Web surfing or application downloads.

Virgin Mobile CEO Dan Schulman acknowledged how difficult it is to make money from selling low-cost prepaid services when the company last year bought another MVNO called Helio, which offered a high-end postpaid service. He told the Dow Jones News Service when the acquisition was announced that it would take 700,000 typical Virgin Mobile customers to equal the 170,000 Helio subscribers the company got through its acquisition, because Helio customers spend more per month.

Other executives from prepaid wireless operators have also said that it's difficult to make money in this market. In a recent interview with CNET News Leap Wireless CEO Doug Hutcheson said that generating profits in prepaid is all about servicing high-volumes of customers while keeping costs as low as possible.

"We sell twice the number of voice minutes and two to three times the number of text messages as the large national carriers, which have ARPUs that are $10 to $15 higher than ours," he said during the interview. "And our profit margins fall in the high 30 percent range. In some older markets we are closer to 40 percent...So this means that these providers can't expect to drop prices and lower ARPU and expect to make these same margins. You have to seriously increase volume and control costs."

In the postpaid market, the key to revenue growth and profitability is getting consumers to upgrade to smartphones, which are essentially mini-computers that provide a much richer Internet experience than traditional cell phones. The smartphone market is the fastest growing segment within the mobile handset market. Verizon Wireless said more than 40 percent of the devices it sells today are smartphones. Just a few years ago, smartphones and PDAs only made up about 15 percent of the total number of devices Verizon Wireless sold.

Sprint, which has a high performing 3G wireless network, has been trying to compete in the smartphone postpaid market, as well. The company spent a great deal of money and marketing power on the June launch of the Palm Pre, which is currently offered only on Sprint's network. And it has also been pushing the new BlackBerry Tour, Research in Motion's latest BlackBerry.

It's not known yet what kind of effect the Pre has had on Sprint's sales so far. But when the device launched, analysts estimated the company only sold somewhere between 50,000 and 200,000 devices the first weekend it was available. More accurate sales figures should emerge Wednesday when Sprint reports second quarter earnings.

But it's unlikely that the Palm Pre or the BlackBerry Tour will provide the kind of boost to Sprint that the Apple iPhone has given to AT&T. For one, neither of these phones are considered as "hot" as the iPhone. Apple's CEO said that the company sold over a million iPhone 3GS's around the world the first weekend it was available. Secondly, it looks like Sprint's exclusive on the Palm Pre will end in January 2010 when Verizon Wireless says it will begin offering the device on its network. Meanwhile, the BlackBerry Tour is already available on both Verizon's and Sprint's networks.

Bernstein Research analyst Moffett said in a note to investors that he believes the Virgin Mobile acquisition is a slight positive for Sprint. The acquisition won't necessarily increase Sprint's aggregate customer base, but it will shift Virgin Mobile's 5.2 million subscribers that were counted as wholesale customers as prepaid customers. There won't likely be big operational savings, since Virgin Mobile already uses Sprint's network. But Sprint notes there could be synergies in consolidating corporate functions and management. Still, Moffett warns that Sprint should not take its eye off the postpaid market entirely.

"The acquisition nudges Sprint further along in its metamorphosis into a prepaid and wholesale operator," he said in a research note. "However, this deal and the strategy shift in general does nothing to address the key issue that Sprint faces, namely the continuing meltdown of its much higher value postpaid business. Closing the deal and integrating Virgin may consume management's time and distract them from what should be their primary focus."

Corrected at 4:18 p.m.: The figure for Sprint and Virgin Mobile's combined subscriber base was initially incorrect. It's 9.5 million subscribers.

Sprint Nextel said Tuesday that it will buy Virgin Mobile USA for $5.50 per share in a stock deal valued at $483 million.

Sprint already owns 13.1 percent of the prepaid mobile operator. Virgin Mobile is a mobile virtual network operator, or MVNO, which means it uses another carrier's network to offer its service. The company uses Sprint's CDMA network.

The transaction, which is expected to be finalized in the fourth quarter of 2009 or in early 2010, represents a 31 percent premium over Virgin Mobile's Monday closing share price of $4.21.

Sprint also agreed to retire Virgin's outstanding debt when the deal closes. It doesn't expect Virgin Mobile USA's debt to be more than $205 million net of cash and cash equivalents by September 30.

The third largest nationwide wireless carrier in the U.S behind Verizon Wireless and AT&T, Sprint has struggled the past few years since its acquisition of Nextel. It has been plagued by a poor service reputation, and many customers have left the service. The company's new management team, headed by CEO Dan Hesse, has been trying to turn the company around and rebuild its public image. Earlier this summer, the company launched the highly anticipated Palm Pre smartphone on its network.

Sprint reports second-quarter earnings on Wednesday morning.

The acquisition of Virgin Mobile will help Sprint bulk up its prepaid business. Sprint already owns the nationwide prepaid brand Boost Mobile.

Boost Mobile made waves earlier this year when it introduced a $50 unlimited voice and data plan. Virgin Mobile, which is seen as one of Boost's main competitors in the prepaid market, soon followed suit with an unlimited offering of its own.

Verizon Wireless said Friday that it will modify its cell phone exclusivity deals to ensure that smaller carriers get access to hot new phones more quickly.

In a letter dated July 17, Verizon Wireless CEO Lowell McAdam told key members of Congress that Verizon Wireless, which is the largest wireless service provider in the country, would allow smaller wireless operators with fewer than 500,000 customers to offer phones it was offering exclusively to Verizon customers after six months. Some exclusivity deals that Verizon has had with handset makers have lasted years.

McAdam sent the letter after lawmakers on Capitol Hill have questioned the practice of large cell phone companies striking long exclusive deals with certain handset makers, essentially ensuring that smaller operators that often serve rural areas do not get access to the hottest phones. The Federal Communications Commission and the Justice Department have also been looking into the practice.

The most publicized exclusive cell phone deal is AT&T's multiyear contract with Apple to be the exclusive carrier of the popular iPhone. Consumer groups have long complained that consumers living in areas not served by AT&T have been completely shut off from getting the latest and greatest cell phone technology in the iPhone.

In what looks like an effort to head off any legislation from Congress or further action by the FCC and Justice Department, Verizon said it would amend its policy to ensure that smaller carriers get access to new phones as well.

"Any new exclusivity arrangement we enter with handset makers will last no longer than six months - for all manufacturers and all devices," McAdam wrote in the letter.

But McAdam also defended the practice of exclusivity deals and said that the company still plans to strike such deals with handset manufacturers.

"Exclusivity arrangements promote competition and innovation in device development and design," he said in the letter. "This new approach is fair to all sides."

It will be interesting to see if any of the other major cell phone operators follow Verizon's lead on shortening the time it has exclusive deals. If not, it seems unlikely that such a move by a single operator would be enough to appease law makers and government regulators.

Parents have yet another reason for a long, hard talk with their kids. More than half of teens admit to using the Internet to cheat, a new poll shows, while 35 percent say they've used their cell phones.

The results were released Thursday by Common Sense Media, which commissioned research firm Benenson Strategy Group to conduct the poll.

The report (PDF) uncovered several alarming trends. More than 38 percent of teens say they've copied content from the Internet and presented it as their own work, while 21 percent have downloaded an actual paper to turn in as their own. Around 65 percent say they've seen other students cheat on tests using their cell phones.

Many teens don't even see this behavior as wrong, according to the poll. Among those asked, 36 percent say that downloading a paper from the Internet was not a serious offense; 42 percent believe that copying text from Web sites was either a minor offense or not cheating at all. And 22 percent of those asked didn't feel that reading from notes on a cell phone during a test is cheating.

"Cell phones and the Internet have been a real game-changer for education and have opened up many avenues for collaboration, creation, and communication," said James Steyer, CEO and founder of Common Sense Media. "But as this poll shows, the unintended consequence of these versatile technologies is that they've made cheating easier."

Parents may also be naive in thinking that while other kids cheat, their own don't. The poll found that 92 percent of parents believe cell phone cheating happens at their kids' schools, but only 3 percent believe their own teen has ever used a cell phone to cheat. And 79 percent of parents say that kids download papers from the Internet as their own work, but only 7 percent believe their own teen has ever done this.

Common Sense Media offers the following tips for parents:

• Do your homework. Be aware of the technology that kids use every day.

• Don't assume that kids automatically know what's right or wrong. They need you to set the rules.

• Review school policies with them.

• Address the issue with your kids so the consequences of cheating are fully understood.

Common Sense Media's site offers additional advice to help parents deal with this issue.

To conduct the poll, Benenson interviewed 2,015 students and parents across the U.S. in May and early June. The margin of error is about 3 percent.

More than 20 million households in America have cut the cord and are going wireless for their home phone service, according to a Nielsen Mobile report released Wednesday.

Roughly 17 percent of households in the U.S. are getting rid of their old wireline phones and using their cell phones instead. That's a huge leap from just a few years ago when, in 2004, only 4.2 percent of households in the U.S. were wireless. The trend will likely continue as one in five U.S. households is expected to be wireless-only by the end of 2008, according to Nielsen.

What's driving the trend? Nielsen says its economics. As more Americans feel the squeeze from the weakening economy, consumers are looking for ways to cut costs. Many see traditional phone service, which averages about $40 a month, as a household expense that can be cut, especially since more than 85 percent of the U.S. population also own a cell phone.

So who are these cord cutters? Nielsen says that many of them are likely to be on budgets, with about 59 percent of them earning incomes less than $40,000 a year. They also tend to live in smaller households with only one or two residents at home. And many of these cord cutters get rid of their traditional phone lines after changing jobs or moving. In fact, 31 percent of those who canceled their home service did so after moving.

Based on the numbers, it looks like cord cutters are saving money, too. According to Nielsen, people who have cut the cord use their cell phones 45 percent more than those who have a regular phone at home. But on average they save about $33 per month in a household of one subscriber. That figure is reduced by $6.69 for each additional wireless resident.

Wireless operators have also been offering unlimited calling plans, which they hope will meet the needs of wireless-only users.

"As wireless network quality improves and unlimited calling becomes increasingly pervasive, we expect the trend toward wireless substitution to continue," Alison LeBreton, vice president of client services for Nielsen Mobile, said in a statement. "In a tightening economy every dollar counts, and consumers are more and more comfortable with the idea of ditching their landline connection."

Wireless substitution may only be the beginning for some folks, LeBreton said. Some users may even be tempted to cut the broadband cord, too. While this may be the case for some users, I doubt it will become a widespread phenomenon for a long time.

Right now 3G network speeds using wireless data cards from a carrier are only as fast as a slow DSL connection. And with carriers offering DSL at cheap prices, I'm not sure people will pay a premium for mobility. But as speeds improve and new 4G services like WiMax come on the scene, it might change the story.

Still, going totally wireless isn't for everyone. About 10 percent of customers who have cut the cord have come back to a landline service, according to Nielsen. The study also suggests that most people keep their landlines to get other services, such as satellite TV, DSL service, pay-per-view, or a security system. And about 11 percent of respondents said that they found it cheaper to buy a bundled package that included TV and Internet. While 10 percent said they wanted a landline for safety reasons.

The mobile handset market is going from bad to worse as Nokia, the world's largest maker of cell phones, said Friday that it's lowering its third-quarter market share outlook due to the weakening global economy.

The Finnish company has dominated the mobile handset market over the past few years. Last quarter, it reported it had grabbed 40 percent of the entire worldwide market. At the time, executives were confident that the company would maintain this level. But now, as the worldwide economy worsens, executives say they expect Nokia's market share to slip slightly in the third quarter. That said, the company still expects to increase its market share for the year.

Executives blame the shift in expectations on a weakening global economy and a reluctance to engage in a price war with certain competitors. Even though the company expects to increase device sales volume by 10 percent or more this year, Nokia executives say that consumer confidence has been shaken and prices are falling. The company didn't specifically point fingers at which competitor had cut prices.

Nokia has several new handsets in the pipeline to be launched during the quarter, but sales of some of its midrange products have been slower than expected, the company said. Again, the company hasn't specified which handsets have not been selling as well.

Nokia isn't the only handset maker to feel the pinch of a slowdown. Samsung Electronics said during its second-quarter earnings call that it also sees the weakening economy affecting its sales in the second half of the year.

The second quarter was already slow in the U.S. market where sales were down 13 percent, according to the NPD Group. Nokia has relatively little market share in the U.S., but slowing sales in other developed regions such as Europe, Japan, and Asia will have a great impact on the company. Still, Nokia sees developing markets as its source of growth in the near future.

Motorola has picked an industry veteran to take the helm of its troubled cell phone divison.

On Monday, the company announced that Sanjay Jha will be co-chief executive and head of the mobile-device business. Motorola said earlier this year that it will separate the mobile-device business from the rest of the company. And since the split was announced, it had been searching for someone to head up the division.

Greg Brown, who only came on board as Motorola's chief executive late last year, will act as co-CEO. Brown will head up the company's broadband network division.

Jha, 45, is a smart choice for Motorola, as it tries to turn around its cell phone business. For the past 14 years, Jha has been at cell phone chipmaker Qualcomm, where he most recently ran the company's CDMA division. Qualcomm's CEO, Paul Jacobs, wished him well in a press release, saying Jha had been instrumental in helping Qualcomm become "the No. 1 wireless semiconductor supplier."

Jha will certainly have his work cut out for him. Over the past year and a half, the company has lost market share and seen its stock price plummet amid heavy losses as it struggles to find a hit product to replace the Razr. Last year, it fell from the world's second-largest supplier of handsets to third.

Last week, Motorola surprised Wall Street with a small profit for the second quarter. But the company's handset division continued to drag on earnings. Most of the gains in the second quarter came from cost cutting and from its Internet and cable businesses. Still, the company managed to hang on to its market share position, a surprising result, as many analysts had expected No. 1 Nokia and No. 2 Samsung to pick up share.

Now Motorola is looking toward the future. The company is expected to release several new phones, including ones with touch screens, in time for this year's holiday season. The hope is that these new products can help put new life into the company's tired device lineup. And with Jha at the helm of the mobile-device unit, the company can move forward with the planned split, which is expected to be complete in the third quarter of 2009.