Hubris followed by nemesis for the mobile men

Vodafone isolated; Griffiths returns

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Nokia warning sends shock wave through telecom sector

BT to share 3G roll-out costs with Deutsche Telecom

Nobody believed Nokia when it stood by ambitious growth forecasts earlier this year, but the scale of yesterday's profits and sales warning is nonetheless a shock. If even the mighty Nokia is struggling to maintain double-digit sales growth, then things must be bad. Second-quarter sales growth is trimmed to below 10 per cent from earlier expectations of double that, and earnings are going to be down a quarter on the company's own forecast.

The lesson seems to be that you should never put your faith in management predictions, much as you may wish to believe them. Jorma Ollila, the chairman, seems to have learnt it too. Finally conforming to the spirit of the times ­ caution, caution, caution ­ he is refusing to predict at this stage what is going to happen in the second half, beyond saying that the company expects its market share to rise.

He thinks that the market as a whole will show only "very modest" growth over last year. Compared with some previous expectations for handset sales, this is an extraordinarily gloomy prediction. Mobile handsets were meant to be one of the world's fastest-growing industries but "very modest" growth presumably means no more than the growth in GDP. A more dramatic comedown for this one-time boom sector is hard to imagine.

The reasons are so well chronicled that it is hard to see how Nokia could have deluded itself for as long as it did. Arrogance is a terrible failing in business. Somehow or other Nokia thought it would always be able to buck the trend, but Mr Ollila's been proved wrong. There was bound to be a reckoning after the over-expansion that took place in mobile telephony last year. Overpaying for 3G licences was just the half of it. There was also a massive land grab that involved a very considerable degree of uneconomic customer acquisition.

Many of the customers so acquired are unlikely to produce much of a return: the market became saturated, handset subsidies are being greatly reduced to compensate and, surprise, surprise, the market in handset sales has stopped growing. It's hard to know how long the overhang might take to work its way out of the system. The advent of GPRS, which offers always-on mobile internet access, has so far failed to revitalise demand, though it is still early days.

Amid all this gloom and doom it is easy to see why investors have so comprehensively lost faith in prospects for 3G. The technology is still two to three years out, there are growing doubts about how effectively it will work and customer appetite for its innovations and service enhancements are, for the time being, thought to be limited.

Only a mug would attempt to predict that far into the future, but it is worth remembering that previous generations of new mobile technology were greeted with similar scepticism. Mr Ollila will be hoping that the present hiatus in growth is just a bad case of the same thing. The market will likewise be hoping that Nokia's admission that it is not impregnable will help establish a new base from which sentiment can be rebuilt.

Vodafone isolated

As indeed will everyone else involved in the mobile phone industry, not least Vodafone, whose share price suffered a fresh pummelling yesterday, taking it to a level last seen two and a half years ago. As it happens, Nokia's news is not as negative for Vodafone and the other service providers as it seems. Nokia's growth forecasts relied heavily on customer willingness to upgrade to new models, which encouraged churn and heavy handset subsidy. That never really benefited the service providers.

Even so, most of the news is bad for Vodafone right now, and as if to rub salt into the wounds, two of its mobile phone rivals ­ BT and Deutsche Telekom ­ yesterday teamed up to share the costs of building 3G networks in Britain and Germany, a move that could save 2bn euros of investment expenditure alone.Vodafone has generally been against infrastructure sharing arrangements for the obvious reason that, as existing market leader, it will cost the company less than newcomers to construct its new networks. This would have given immediate competitive advantage.

By the same token, if others share costs while Vodafone is forced to go it alone, it will be disadvantaged. Vodafone has a valid complaint, because nearly all the original 3G auctions were conducted on the assumption that bidders would be required to build their own networks. Vodafone was entitled to rely on that assumption in its own financial modelling. For the rules to be changed later ­ both Britain and Germany have announced that cost sharing is acceptable ­ therefore looks a bit rich.

Vodafone is threatening legal action to any changes in licence terms in Germany, and it is only through gritted teeth that it was yesterday claiming not to oppose the principle of the BT/Deutsche link-up. It has already signed its own infrastructure sharing arrangement in Sweden, but there's no doubt that this latest development leaves it badly outmanoeuvred. Deutsche and BT are a surprisingly good and acceptable fit as number one and four service providers in Germany and visa versa in the British market. Vodafone is number one in both markets. For Vodafone to partner with anything other than the new entrant may be unacceptable to regulators. Orange may encounter the same difficulty in both the UK and French markets.

On the other hand, both are going to have to try to limit their 3G costs somehow. It will be interesting to see what they come up with.

Griffiths returns

Tony Blair's post-election reshuffle has allowed several former ministers to make their political comebacks. One of those climbing back up the greasy pole is Nigel Griffiths, who returns to the Department of Trade and Industry, although not in his old job as competition and consumer affairs minister but on the small business beat.

Mr Griffiths had an eventful time at 1 Victoria Street the first time around. He was hounded remorselessly by his Conservative shadow, John Redwood, who demanded to know why the minister had been forced to stand aside from three competition inquiries. In two of the cases, there was an innocent explanation ­ Mr Griffiths was the trustee of a trust, administered on behalf of his mentally handicapped sister, which had shares in the companies concerned. In the third case, an investigation into the tour operating industry, Mr Griffiths rendered himself offside after appearing to have prejudged the outcome.

But what eventually sealed Mr Griffiths' fate was his public criticism of the DTI's then-Permanent Secretary, Sir Michael Scholar. Mr Griffiths accused Sir Michael of "sabotaging" his work and resenting the fact that the minister started work at 7am while he did not arrive until 9am. There is a convention that ministers do not publicly criticise their civil servants and Mr Griffiths paid for his outspoken comments with his job.

Now that he is back, Mr Griffiths will be relieved to know that Sir Michael has left the DTI to become president of Sir John's College, Oxford. But Mr Redwood is still very much around. Watch this space.

j.warner@independent.co.uk