Kate Bulkley, Media Analyst.

Tailoring the mobiles that push all the right buttons

By Kate Bulkley

The Independent

10 January 2001

Sendo means 'what the future holds' in Japanese. But can Hugh Brogan's mobile minnow really compete against the giants of the industry?

The world of mobile phones has just uncovered a new and compelling industrial riddle: what have you been able to do with cars, kitchens and golf clubs for years that you should be able to do with a mobile phone? A new Birmingham-based company called Sendo thinks it has the answer: customisation.

The idea was the brainstorm of Hugh Brogan, a self-effacing 36-year-old who realised the big mobile-phone makers were overlooking what a smaller, nimbler company might be able to make into a very profitable business.

Mr Brogan is in a good position to know: he's been at the sharp end of cellular-phone manufacturing for 15 years, first at Motorola and more recently at Philips, where in 1995 he set up and ran the mobile-phone division. What he kept hearing from mobile-phone operators was how tough it was to make their product distinct.

"As penetration rates have gone up, the operators like Vodafone have had to fight much harder for the customer," says Mr Brogan. First they fought on who offered the best coverage area, then it was about the lowest calling tariffs, and now they give away the phones and several 100 minutes a month of free calls, which in Mr Brogan's words is "no way to end up making money".

Sendo's solution is to offer operators customised phones that can be ready for retail shelves months ahead of their bigger rivals. Because of a unique manufacturing process that starts in China and is completed in Holland, Sendo phones can be made in different colours and in different shapes, with the operator's brand and special buttons, as well as embedded software for graphics, games and ringing tones, all bespoke for each operator.

"If an operator sees that his red phones are out-selling the rest, he can call us and we can deliver a new casing within 48 hours anywhere in Europe," says Thomas Leliveld, director of commercial operations for Sendo.

Mobile operators are at the centre of Sendo's business plan, for a very simple reason: last year they purchased more than 70 per cent of the 420 million mobile phones manufactured. The mobile operators buy from manufacturers and then subsidise the retail cost of the handset to attract customers to subscribe to their airtime services. "I don't think that there is any other industry that has such a concentrated force of buying power," says Mr Brogan.

As the cost of buying licences and building the next generation of mobile networks adds up, mobile operators are looking for anything that will give them an edge. And since Sendo unveiled its first prototype phones late last year, many of the leading names among the world's 400 or so mobile operators have been seen beating a path to Sendo's cramped offices in Birmingham's Small Heath business park to find out more.

The company's first order is for "several 100,000 phones" for Virgin Mobile. As the youngest and smallest mobile company in the UK, Virgin needs to stand out from the crowd, but it found that the traditional handset-makers' attitude was, here's our range, take it or leave it. "Sendo's pitch to us was more from a sense of mutual cooperation," says Steven Day, corporate affairs director at Virgin Mobile. "They said, 'We want to work with you', rather than, 'Here's our range, which do you want to take?'"

Virgin and Sendo have co-developed the phones that will be on the market in the UK in the next three months. The phones will have a distinct shape and special buttons, as well as a prominent Virgin Mobile brand. "These are small, cosmetic things but they are increasingly important," says Mr Day.

Sendo is about cosmetics but the company has also designed and manufactured a phone that is small and light but efficient enough to stand up against the Big Boys of Nokia, Motorola and Philips. The chips that run the phones have been co-designed with manufacturers including Texas Instruments, and the number of parts in the Sendo phone has been cut from an industry average of 550 to 400 parts. All this helps cut the cost of making each Sendo phone by - for some models - nearly half the industry average. Mr Brogan says Sendo should break even when it sells its 500,000th phone.

This will please Sendo's biggest investor, with a 35 per cent stake, and strategic partner, CCT, a traded Hong Kong-based company that is the world's largest manufacturer of cordless phones. Sendo is using part of a CCT manufacturing plant in China to make the technical "guts" of its phones. It ships these to Holland where it adds the software and the customised exteriors. Sendo is capitalised at about $60m (40m): CCT has put in approximately $35m (23.3m), including capital equipment in the factory in Guangdong, China. Other, unnamed investors have put up another $25m (16.6m), says Mr Brogan.

All this sounds good, but can a 140-person Birmingham company really face up to Nokia's might? Mr Brogan knows that getting the product right and keeping costs down are key, but Sendo's edge will be in "better fufilment and quicker customisation". He's also betting that the Nokias of the world have bigger battles to fight than worrying about a start-up company that is targeting a proportionately tiny share of the global mobile-handset market.

"Our competition is 10 times our size, so for every dollar they take out of my price, they take $10 out of their price. In a market growing to one billion phones by 2004, we aren't even on the radar," says Mr Brogan.

The big mobile-phone manufacturers are continuing to innovate, making smaller, lighter phones with more capabilities for delivering WAP services and media-rich content from music clips to directions to restaurants. Sendo has several models of its own in development, including its first WAP phone, which will be ready in the second quarter.

"Could the Nokias do what we are doing? Sure, they could, but they don't," says Mr Brogan. "A 100,000-unit deal for a Motorola is not significant. When the market is 420 million mobiles and these guys have 20 per cent of it - so they are making 80 million phones - when someone says, 'Can you divert 10 software engineers on this (customisation) project?' it just doesn't represent a significant enough opportunity. But for a company like Sendo, 100,000 phones is, well, we get four of those and that's great."

Only 18 months ago Sendo's first recruits were camping in Mr Brogan's lounge in Birmingham, drawing up a business model and looking for a name for their bold venture.

The three co-founders have considerable experience to draw on: as well as Mr Brogan's 15 years', Howard Lewis, Sendo's COO, is a 16-year veteran of the mobile-phone business, having worked at both Motorola and Philips as well as at Uniden, a Japanese cordless phone company; and Kevin Walsh, director of industrial operations for Sendo, has a 10-year track record at Philips and Motorola.

"We were sitting together in Hugh's lounge and he said, 'So we have the company, we better get some sales'," recalls commercial director Thomas Leliveld, who welcomes the down-to-earth attitude of his boss. Mr Brogan knew the current chief buyer at Vodafone from his days at Motorola and set up an appointment for Mr Leliveld. "All I had was a wooden model of the phone and Hugh's contact," says Mr Leliveld. The deal is not yet signed, but Mr Brogan's personal contact has gone a long way towards it.

The uncomplicated Mr Brogan is highly motivated, but not so driven that he can't guide his team. For example, he coached a very nervous Mr Leliveld before his first sales pitch over a couple of beers. "Hugh is very good at motivating you even if you don't know how to do something. He will always take a few minutes, and help you see how to do it," says Mr Leliveld.

Sendo phones are being tested in 30 networks around the world. The first retail sales began in Holland just after Christmas. "Before the end of January we should have distribution deals for the phones in Italy, Germany, the UK and maybe Spain as well," predicts Mr Lewis.

It was Mr Brogan who, after trawling through an on-line dictionary found the word "sendo", which in Japanese means "what the future holds". Sendo seemed to have the right ring, so to speak.

But only time will tell if the Sendo way of designing and delivering mobile handsets works well enough for Mr Brogan and his team to be glad they gave up secure jobs at big, established companies. "The risk is that I could potentially be in the same place I was two years ago," says Mr Brogan. "And the upside is the chance to do something really quite exciting and to make something happen."

Mr Brogan and his team put together their first LCD screen display deal over a good claret in his dining room. There have been plenty more "claret moments" since then as the company continues to map out and understand the meaning of its own name.

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