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Finland is now Nokialand
No company has ever meant so much to a country. Nokia's impact extends from GDP to lifestyle to national pride. It's been great while it's lasted.
No company has ever meant so much to a country. Nokia's impact extends from GDP to lifestyle to national pride. It's been great while it's lasted.
By Jonathan Kandell
June 2001
Institutional Investor Magazine
No company has ever meant so much to a country. Nokia's impact extends from GDP to lifestyle to national pride. It's been great while it's lasted.
In the old factory neighborhood of Helsinki where Finland's industrial revolution began in the 1800s, a much higher-tech transformation is under way. Here on the windswept shores of the Baltic Sea, a new community, dubbed Helsinki Virtual Village, or HVV, will be home and workplace for 25,000 people living a mobile-Internet-based existence years ahead of the rest of the world. Big information technology investors from Europe and the U.S. have a stake in the project. But pride of place belongs to Nokia Corp., the globe's leading mobile phone maker and the company that has turned Finland from something of a Nordic backwater into a cutting-edge New Economy nation in less than a decade. In fact, the relationship between the giant corporation and its homeland is unique. As HVV demonstrates, Finland has become a wireless age laboratory for Nokia, just as Nokia has become a source of national pride and even identity for the Finns. No single company has ever meant so much to a country.
Already home to a motley assortment of several thousand blue-collar workers, bohemians and small IT businesses, the virtual village will have 12,000 employees and inhabitants within four years and will be completed by 2010. "Just think: All those live test animals, and we get to supply the dog food," exults Pekka Sivonen, the brash, 39-year-old former journalist who is chairman of Digia, the company that will provide much of the software to run HVV.
This is how Sivonen envisions the average day of an HVV resident: In the morning his mobile smart phone (most likely a Nokia) wakes him with its alarm-clock function. While he showers, the phone will read out the day's agenda and summarize those parts of the news that are of personal or professional interest. The phone, which connects automatically to the local school, will provide lunch menus, so that parents don't serve the same food for dinner. Then the smart phone will let the digital television know which programs to record in the owner's absence. As he drives to the office, the smart phone will issue traffic alerts and suggest alternative routes. During the course of the day, it can be used for teleconferencing. Naturally, the smart phone can handle all bills, be used as a credit card, and make last-minute seating arrangements at a movie theater or concert hall.
For some people this might sound like an exhausting, dehumanizing, just-in-time-production lifestyle. But Sivonen insists that HVV is a harbinger of human progress. "The wireless revolution enables us to take decisions as late as possible - and change our minds up to the last possible moment," he says. "Think of it as life with a shorter throughput time."
This type of ebullient optimism seems almost aberrant in a year that has seen the collapse of both high-tech portfolios and Internet euphoria. On the road to the brave new world of HVV, there could be severe bumps for Nokia, for its partners like Digia, and for Finland. It's questionable whether Nokia can continue to prosper and push through its innovations if the economic slowdown in the rest of the world turns into a full-blown global recession. After all, 97.5 percent of the company's market is abroad. Its chief rivals already have initiated layoffs, and its own share price has tumbled 50 percent since its high a year ago. And if Nokia - which accounts for almost one quarter of Finnish exports and about 3.5 percent of GDP - falters, Finland will surely skid into a severe downturn.
But with Nokia's revenues still growing robustly, company executives have been able to persuade Finns that they live in a Nokia cocoon, protected from the world's economic turbulence while they morph into the privileged butterflies of a wireless future. "Economic cycles come and go, but the tremendous paradigm shift to mobile communications will continue with enormous benefits to businesses and consumers," says Olli-Pekka Kallasvuo, Nokia's chief financial officer.
This soothing message plays extremely well in Finland, where Nokia enjoys a near-cult status that outsiders find hard to fathom. According to opinion surveys, the company tops the list of things Finns hold most dear, ranking above national independence, Santa Claus, the country's splendid forests and lakes and even that most revered institution - the sauna. It's enough to make Bill Gates ruminate about the profound unfairness of life. Microsoft Corp. gets dubbed the Evil Empire and dragged through the courts because it's accused of using its monopoly on computer operating systems to stifle competition in the U.S. Meanwhile, Nokia is showered with admiration, even though it virtually holds the economic fate of a whole country in its hands.
This is no idle metaphor. Last year Nokia accounted for close to one third of Finland's 5.7 percent economic growth, about 20 percent of all R&D spending in the country (including the public sector's) and 70 percent of the Helsinki bourse's total market capitalization. About 40 percent of Nokia's 60,000 employees are Finns, and the company has deliberately put a local hiring freeze on new technicians because, says Lauri Kivinen, Nokia's head of corporate communications, "there is already a shortage of engineers in this country, and we would be hurting other Finnish companies."
Any assessment of Nokia's true impact on the Finnish economy must also consider what local economists call the "Nokia cluster" - the more than 400 small and midsize companies that are Nokia subcontractors and partners or that began their existence outsourcing tasks for the giant firm. Nokia cluster firms employ some 50,000 Finns and account for a further 1 percentage point of GDP growth, according to Etla, the leading nongovernment economic research institute. What emerges from these statistics is a corporate behemoth out of proportion to the country where it is headquartered. "It's hard to think of another economy with such a single dominating company," concedes Martti HetemÜki, who heads the economics department of the Finance Ministry.
In putting together forecasts Finnish economists still follow traditional indicators, such as energy prices and money supply. But now, they have to give as much weight to sales predictions for new Nokia products and systems with exotic names like 9210 Communicator, a device that combines the functions of a personal digital assistant and a mobile phone, and Bluetooth, a wireless networking system that connects any communications device within a 50-foot radius. "We spend a lot of time with engineers and scientific researchers just trying to understand the technology," says Pekka Yl,-Anttila, an economist at Etla. "We're all still hoping we won't be touched by recession. But it will depend on how Nokia products do."
Thus far Nokia has dodged the severe downturn that has walloped the rest of the telecommunications industry. True, its market capitalization has dropped from last year's all-time peak of $295 billion to $148 billion as of May. But that still leaves the company's stock trading at about $31 a share, with a lofty price-earnings ratio of 53. Nokia's sales during the first quarter of 2001 showed "only" 20 percent growth. Still, this is far behind last year's 54 percent growth for the same quarter. Recently, Nokia announced 400 layoffs - its first in almost a decade.
But competitors are faring far, far worse. Sweden's L.M. Ericsson Telefonaktiebolaget, the world's third-largest handset maker, is reeling. It is eliminating 22,000 jobs and has signed up with Sony Corp. to produce mobile phones jointly after running up a $1.7 billion loss in its own phone-manufacturing division last year. Second-ranked Motorola has announced more than 20,000 job cutbacks since December and posted a $205 million first-quarter loss - its first in 15 years. "As far as we are concerned, we're in a recession right now," said Motorola president and chief operating officer Robert Growney at the annual mobile phone conference in Cannes, France, in February.
The biggest raps against Nokia are that it cannot remain impervious if the industrywide recession persists for long and that it is far too dependent on handsets, which account for more than 80 percent of net profits. Despite Nokia's stout earnings during the first quarter of this year, some of the largest mutual funds unloaded its stock between January and April as part of a continuing strategy to cut back on all high-tech investments. Janus Capital Corp. sold at least 10 percent of its position in Nokia. Fidelity Investments was even tougher on the Finnish giant, reducing its 98 million shares in Nokia to less than 20 million.
But Nokia insists that it is taking advantage of the economic slowdown to increase its share of the mobile phone market while diversifying away from handsets. Nokia maintained operating margins above 20 percent in its mobile phone division during this year's first quarter - even as the handset divisions of its major competitors were showing losses. Besides predicting that it will emerge this year with 40 percent or more of global handset sales, Nokia is taking direct aim at network infrastructure - until now dominated by Ericsson, whose systems draw about 40 percent of the world's wireless traffic. "Our ambition is to also become No. 1 in the world in mobile network infrastructure," says Kallasvuo, the CFO of Nokia, which now has less than 15 percent of that market. "It goes hand-in-hand with our growth in handset sales."
But even bleaker times may be ahead for the telecom industry, and this could mean more challenges than opportunities for Nokia. In Europe alone, telecoms have invested more than $125 billion in so-called 3G (for third generation) technology, with its still unproven promise of a seamless convergence of mobile phones and the Internet aimed at providing high-speed wireless voice and data transmission, anyplace, anytime. "We are facing a situation where an industry is heading for bankruptcy before a 3G call is even made," said Hans Geyer, an Intel Corp. vice president and general manager, at the Cannes conference. Qualcomm has expressed doubts that 3G phones can be mass-marketed in less than three or four years.
Only Nokia among the leading telecom equipment makers and operators in Europe and the U.S. remains relentlessly optimistic about the new technology - and about getting it to consumers on schedule in the second half of next year. (In Japan, NTT DoCoMo is aiming to get 3G out even sooner, possibly before the end of this year - though it was forced to postpone a scheduled May launch because of technical problems.) Nokia has led efforts by mobile phone manufacturers to help wireless carriers finance 3G networks. In early April Nokia, Japan's NEC Corp. and Germany's Siemens put up $1.1 billion in financing to back Hutchison 3G, a British wireless carrier subsidiary of Hutchison Whampoa, the Hong Kong conglomerate. A few days later, Nokia, Ericsson and France's Alcatel agreed to $2 billion in financing for Orange, the wireless carrier subsidiary of France Täläcom. In effect, Nokia and the other mobile manufacturers are acting as bankers, picking up the slack from reluctant financial markets that consider such loans too risky. "We will continue to extend loans to certain wireless carriers if we believe in their 3G plans and consider these companies of strategic importance in making the overall changeover to the new technology," says Kallasvuo. "These are bridge loans, intended to help the carriers over the initial phase of construction. Once their networks are up and running for everyone to see, we expect to get repaid or sell our plans on the financial markets."
Nokia is gambling that its loans can "bridge" the economic slowdown and ensure that 3G phones and infrastructure networks will be in place by the time growth resumes. To some analysts, this sounds suspiciously like a build-it-and-they-will-come market strategy. "In a sense, Nokia is trying to create a market before it exists," says Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein in London. "With these loans, they are exposing their balance sheet to risks and have depleted most of their free cash reserves. This is not something that Nokia can continue doing for much longer."
Yet even if 3G lags, Nokia is also betting heavily on general packet radio service, the so-called 2.5G transitional technology. A cheaper system that can be installed on existing wireless networks, GPRS continually connects a mobile phone to the Internet - though it does not have as large a capacity to transmit data as 3G. The 9210 Communicator is probably the bestknown of Nokia's 2.5G devices.
Another source of concern among industry executives and analysts is that mobile telephones are becoming commodities, as happened with computers, digital watches and portable radios after many companies saturated the market with ever-cheaper models. But a few analysts, impressed by Nokia's agility and performance in an otherwise depressed sector, believe the company can maintain high enough profit margins. "Nokia is clearly out to produce a whole range of phones with different functions and styles that will differentiate themselves from competitors and not become mere commodities," says Susan Anthony, a London-based analyst with Crédit Lyonnais Securities. Nokia offers everything from high-fashion phones in opal blue to extra-durable rubberized versions for outdoor use.
Nokia executives say they are willing to accept smaller profit margins because of softer sales and widespread discounting by competitors. Indeed, they see this as an opportunity to build market share. And they believe the company can prosper even with an expected slowdown in the growth of worldwide mobile phone sales to 450 million to 500 million units this year - 10 to 20 percent less than initial estimates made at the end of 2000, when annual sales reached 405 million units. "That's still a very big market - and we're going to get a larger share of it," says Nokia spokesman Kivinen. This sort of bravado irks a few longtime Nokia watchers who are troubled that the company is rolling the dice for both itself and Finland. "We just have to hope that Nokia makes the right decisions," says Dan Steinbock, a Finnish business professor and the author of a forthcoming book, The Nokia Revolution (Amacom Books).
Nokia has made plenty of good - and its share of bad - decisions in its long, checkered past. The company began in 1865 as a forestry enterprise, spread into rubber products before the century ended and then into electric cables in the early 1900s. As profits from these uncomplicated ventures waned, Nokia diversified into plastics, chemicals and, by the 1970s, consumer electronics. But its reputation - like that of most Finnish manufacturers at the time - was second-rate compared with competitors in other Nordic nations such as Sweden and Denmark. For decades there wasn't much of an incentive for Finnish companies to excel, since they could sell virtually anything they produced to the Soviet Union, which treated then-neutral Finland as its favorite non-Communist trading partner. But following the Soviet collapse in 1991, Finland fell into deep recession, with its economy contracting by 3.3 percent in 1992 and by a further 1.1 percent in 1993.
The late 1980s and early 1990s were dark years for Nokia. Its CEO, Kari Kairamo, who had led the company into consumer electronics, committed suicide in 1988 after suffering repeated bouts of depression. Nokia television sets, video recorders and computers racked up disappointing sales figures. Only the mobile phone division, under Jorma Ollila, a London School of Economics graduate and former Kairamo protégé, was doing well by 1990 after several money-losing years. Ollila had been lured in 1985 from Citibank because of his expertise in international financial markets; he became Nokia's CFO a year later. As a reward for turning around the mobile phone division, he was promoted to CEO in 1992.
Ollila immediately embarked on a radical strategy to rid Nokia of all its businesses except mobile phones and their infrastructure systems. Today mobile phones account for 70 percent of revenues and more than 80 percent of net profits at the company. Infrastructure networks - the base stations and software that Nokia sells to telecom operators to create their own mobile networks - bring in the remaining profits.
The focus on mobile phones turned out to be the best decision Nokia ever made. From a company worth less than $600 million in 1992, Nokia multiplied its market cap an astonishing 500 times over the next eight years - a growth rate even faster than Microsoft's. At its peak in June 2000, Nokia was Europe's most highly valued company. It now ranks third, behind BP and Vodafone Group.
To some extent, Nokia benefited from Finland's long historical involvement in telephony. While Russia, which ruled the country from 1809 to 1920, insisted on a telegraph monopoly, it considered the newly invented telephone more of a novelty than a communications breakthrough. So dozens of private telephone companies sprouted throughout Finland. By the 1890s visitors from other European nations and the U.S. wrote with amazement that the country had many more phones than their own native lands. In the early 1920s Helsinki became the first European city with an automated phone service. Using what was then advanced two-way radio telephony, the Finnish army was able to use rapidly shifting tactics to hold the much larger invading Soviet forces to a virtual stalemate during the 100-day Winter War of 1939-'40.
Speed-dialing ahead to 1981, Finland joined other Nordic countries to launch one of the earliest cellular phone systems, and Nokia got its start in the business, competing mainly against Ericsson for the regional market. As Yrjö Neuvo, Nokia's chief technology officer says, "We have been in a competitive telecom environment for many decades."
But there was also a strong element of luck, at least initially, in Nokia's emergence as a world-class contender. In the early 1990s the company bet its future on the global system for mobile communications, or GSM, which became the digital telecom standard that unified the European market for mobile phones - after national telecoms in France, Germany, the U.K. and the other large European countries opposed the emergence of each other's digital telecom standards. Then, to its credit, by concentrating so single-mindedly on mobile phones, Nokia was able to outperform bigger conglomerates in terms of the sheer variety and attractive designs of its phone models - and in its eye-catching profit margins. According to a survey published by Etla, the economic institute, Nokia's return on investment in 1999 was 55.4 percent - compared with Ericsson's 19 percent and Motorola's 5.5 percent. By 2000 Nokia had revenues of $26.73 billion and net profits of $3.46 billion, compared with $17.4 billion in sales and $2.27 billion in net profits the year before.
Besides raising national self-esteem, Nokia's success has helped push up income levels, spread technological know-how, and change social mores. To put it bluntly, before the Nokia boom Finns were often dismissed by their supposedly more sophisticated Swedish and Danish neighbors as lazy, backward, alcohol-prone dullards. Today Helsinki is acclaimed as one of the hippest, most fashionable cities in Europe, with lively nightclubs and delectable restaurants. Finnish design is enjoying its greatest comeback since the heyday of modernist architect Alvar Aalto and fabric maker Marimekko a half century ago. A country reared on militant egalitarianism now places new stock option millionaires - many of them Nokia employees - on a pedestal. And thanks to Nokia mobile phones, a nation of laconic introverts has turned into a wireless northland of incessant chatterers: 70 percent of the 5 million Finns own cell phones, compared with 65 percent of Western Europeans and about 40 percent of Americans.
But for an outsider the reverence that Finns display toward Nokia can be discomfiting. There are no jokes to be heard about chairman Ollila or Nokian corporate culture. (In Finland the company's employees are endearingly called "Nokians.") Instead, one is treated to descriptions of the "democratic" structure of this corporate giant and its emphasis on nöyryys (unpronounceable to the rest of the world), which means a willingness by the bosses to acknowledge they don't know everything and thus allow underlings to freely express their views. "Ollila has created a sort of team spirit at Nokia by encouraging nöyryys," says the Finance Ministry's Hetemäki. This isn't the sort of comment that would have been imaginable from a senior government official about a private company a decade ago, when Finland still had a state-dominated economy and a socialist philosophy.
Nokia also gets high praise for its commitment to open standards that encourage interoperability in wireless communications among competitors. A good example is the Symbian alliance, a private consortium to develop 3G wireless systems, whose members include rivals Nokia, Ericsson, Motorola and Psion (a British producer of handsets). "Nokia is the opposite of Microsoft," says Sivonen, the Digia chairman, who like many Finns considers Microsoft, with its zealousness for proprietary standards, a near-satanic force.
But while it's tempting to believe that Nokia is on the side of the angels, money has a great deal to do with the warmth the company engenders in both the public and private sectors. Nokia is by far the largest contributor to the state treasury, forking over more than $1 billion in taxes last year - about 4 percent of the central government's total tax revenues. "That's a pretty good deal from the government's point of view," says Hetem,ki. Nokia - along with other businesses - provides sizable subsidies to Etla and other research groups, and often buys and distributes their published results as part of information packages on the company for journalists and financial analysts.
Nokia is sensitive to charges that sheer size makes it a counterweight to government. "We do not try to help manage Finland," says Nokia CFO Kallasvuo in a sharp response to a question about the company's influence in its home country. "In no way do we tell the government what to do." Government and Nokia officials deny there are any regular meetings between both sides. "But it's not surprising that the government or Finnish people want to know what Nokia thinks about the big social and economic issues facing the country," says Ylä-Anttila, the Etla economist.
Thus, new government policies may well reflect chairman Ollila's public suggestions that tax rates be lowered in order to keep Finnish companies globally competitive, that more money be invested in high-tech education and that Nokia be permitted to shift jobs overseas, particularly to the growing U.S. market, where 2.5 million Americans own 60 percent of Nokia's shares.
Nokia's impact on the private sector is huge, particularly among local, high-tech businesses. Besides the company's numerous subcontractors and partners, many "Nokia cluster" firms were started by ex-Nokians who continue to maintain personal contacts with their former employer. "It helps that we know key people, because a company as big as Nokia isn't so eager to deal with a small, new firm," says Timo Laaksonen, managing director of software maker Teamware Group, who previously worked at Nokia.
But there are also plenty of examples of Finnish information technology start-ups with no previous connections to Nokia. Typical of this sort of Nokia beneficiary is Wapit, founded by Mato Valtonen, ex-lead vocalist of Finnish rock band Leningrad Cowboys. "I just couldn't see myself as an aging rock star," says the 47-year-old Valtonen. So he veered into a new career in 1998 when he met a Nokian who showed him how she could send a short-text message to a colleague and get back an instant reply through the Internet. "I said, 'Wow, like Internet plus mobile!'" recalls Valtonen. He then started Wapit, a small company offering 162 different kinds of short message services via mobile phone, ranging from jokes and horoscopes to weather reports, news and stock quotes - even schedules for the feeding of baboons at the Helsinki zoo. Each time a client uses these services, the phone company gets paid and gives Wapit a small commission.
But to make the short message system work, Wapit had to create a browser that allowed users to look up all the services. "We got development help from Nokia," says Valtonen. Now Wapit - which has 110 employees but doesn't disclose financial information except to say that it hopes to be profitable by the end of this year - is transforming itself from a content company into a producer of business-to-business software for billing systems, management tools and Web sites that can be automatically updated and accessed by mobile phones. Nokia is again offering development assistance to Wapit and is even introducing Valtonen to its many clients abroad. Nokia figures that the more uses to which its phones can be put, the more units it will sell.
Although Valtonen still looks like a rebel - he drives a Harley and wears wraparound glasses and canvas sneakers - he understandably sounds very buttoned-down on the subject of Nokia: "The company's image is very good. Most of their people seem to like working there. And then you have to remember that they are responsible for a good part of our economic boom. If Finland is somewhat known in the world, it's thanks to Nokia."
And Nokia is trying to ensure that the company and its home country will remain in the global limelight. At Nokia headquarters, a sunlit glass palace in Espoo, a suburb west of Helsinki, chief technology officer Neuvo eagerly displays new products. Nicknamed "the professor" for his long university career teaching electrical engineering in Finland and the U.S., he dips into a satchel that looks like a wizard's bag of tricks from a Harry Potter novel and takes out a few high-tech devices that will soon go on sale.
First, there is a Bluetooth phone - still a prototype - that enables its owner to download e-mail wirelessly and then transfer it, again wirelessly, to a laptop or to a car's computerized dashboard. Then there is a James Bond-type minicamera, the size of a shirt button, that fits on a one-inch-long electronic wafer that can be inserted into a mobile phone to beam live photos and videos. But Professor Neuvo's prize device is the 9210 Communicator, a so-called personal digital assistant that looks like a mobile phone but opens to reveal a six-inch-long screen. A kind of Swiss Army knife among handsets, it offers personal scheduling, text messages in e-mail or fax form, instant Internet access, spreadsheet functions and a speaker-phone capability for conference calling. Finns can already buy it; Americans will have to wait until next year. "It's addictive," asserts the slightly absent-minded Neuvo, who then struggles to activate it. "It has everything you need to communicate all the time. Now, what is my password?"
Sometimes, the professor admits, even he gets the urge to disconnect. He has been known to switch off his mobile devices for a couple of hours, which can send Nokia personnel at headquarters into a temporary panic. But company executives are betting that growing hordes of people and corporations will want to be constantly online, and that the market for advanced devices and systems will be insatiable.
As the long Finnish winter softens into spring, some 2,000 shareholders stream into a nearby indoor sports arena in Espoo for Nokia's annual general meeting. Rumors of global recession are rampant. The news from other telecoms is even more depressing: plummeting market valuations, crushing debts, sharply reduced revenue projections, profit squeezes or outright losses and massive layoffs. Yet this is a festive crowd that has come to hear chairman Ollila give it reason to ignore the bad tidings from abroad. And he doesn't disappoint.
Competitors' troubles amount to an unparalleled opportunity for Nokia, he tells them. This year the company, which already sells one third of all handsets, is targeting a 40 percent market share - about three times that of its closest rival, U.S.-based Motorola. Despite deep skepticism voiced by other telecoms about short-term prospects for 3G phones, the 50-year-old Nokia boss evinces unwavering confidence. "Mobile communications is on its way to becoming one of the largest industries in the world," he says, jaw jutting out and blue eyes unblinking on the arena's giant multiple screens usually reserved for Finnish hockey stars. "We continue to see enormous opportunities for Nokia, especially as the industry moves towards third-generation networks and mobile Internet services."
The applause is prolonged. The shareholders have gotten the word from on high: Their future is still golden. A quick, near-unanimous electronic vote follows on stock options for Nokia execs, dividend payments, the election of new board members and other recommendations from the chairman. Then the crowd heads home, some in Mercedes and Volvos, most by commuter train, a few even on cross-country skis, taking advantage of what might be the season's last good snowfall.
Among those listening in on the annual general meeting is a leading local telecom analyst, Lauri Rosendahl, of Deutsche Bank, who spends much of his time covering Nokia and discussing its shares with clients abroad. Foreign investors, he thinks, are focusing too much on the 50 percent drop in Nokia's stock price over the past year. This is the moment to buy Nokia shares, he says, because he has seen the future - a mobile Internet world - taking shape in Finland, and it's only a matter of time before the rest of the globe catches up. "In Finland, just a dozen years ago, only 1.5 percent of income went to telecommunications services," says Rosendahl. "Today we're above 4 percent. Department stores here complain they can't grow because people are spending their money on mobile phones instead of clothes and home appliances. In Japan teenagers are cutting back on their food expenses to buy mobile phones. It's only a question of priorities."
And a lot of Finns find it hard to believe that the rest of the world's consumers have a higher priority than owning a Nokia. An exception is Steinbock, the business professor and Nokia critic, who isn't surprised by his compatriots' embrace of Nokia's rosy projections. "Groupthink has always been the Finnish way," he notes.
Nokia's youth brigade
Nokia Corp.'s marketing instincts seem to benefit from extrasensory perception at times. That is nowhere more evident than with Finnish teenagers. Virtually all have mobile phones, and three quarters of those are Nokia's. The primary reason is that the company offers such a wide assortment of shapes, colors and customized features aimed at the youth market - and is quick to put new models on sale. But Nokia also understands the teen market as its rivals do not.
Take Tony Leskinen, 16, and his buddy and fellow band musician, Tom Norrgrann, 13. At a cafeteria atop a shopping mall in Tapiola, a western Helsinki suburb, the pair are explaining the finer quality-of-life issues of their Nokia mobile phones. "Now this ring tells me if it's my parents who are trying to reach me," says Tony, pressing a button on his Nokia 3210 that emits a customized high-pitched tune. If he's not ready to talk with them, he immediately turns off the phone: Maybe they'll think he's in a movie theater or someplace else where it's uncool to use a cell phone. "And this ring tells me my girlfriend is calling," says Tony, playing a more melodious refrain - which he never fails to answer.
Tom doesn't have a girlfriend yet to ring his chimes. But when he does meet a girl who captures his fancy, you can be sure that his Nokia will be the essential go-between. He says he'll ask her out on a first date by Short Message System, or SMS, a form of e-mail deftly tapped out by thumb on his phone buttons. He would be too embarrassed to make a voice call or speak to her face-to-face. "It's pretty scary if she says no," says Tom, grinning under a sport cap worn backward. "Better to use SMS."
The explosive growth of Nokia phones and the wireless Internet in Finland has been fueled by youngsters like Tony and Tom. According to Sonera, the leading Finnish telecommunications operator, two thirds of the nation's mobile phone traffic is data rather than voice, and the vast majority of that data consists of teenage SMS messages rather than day trades, spreadsheets and other adult financial concerns. Why do kids prefer SMS to voice (that is, besides first-date jitters)? "It's cheaper to send a short message than to carry on a phone conversation," explains Tony. Like all his friends, he has a 150 mark (about $23) monthly limit on his phone bill by parental fiat; as soon as he maxes out, the phone company suspends service. Bummer: With ten days left in the month, Tony has reached his 150 mark limit and can only receive incoming voice calls and SMS messages.
Typical messages among Finnish teenagers involve the latest gossip, arrangements to meet, exchanges about hot CDs or just simple questions - "What's new?" "What are you doing right now?" - repeated several times a day and often sent out as round-robin e-mails to a dozen or more friends.
Whatever the telecom trend, it's likely that Finnish teenagers will be in the vanguard of users. Right now, the next "in" thing is a new generation of Nokia mobile phones with ultrafast Internet services.
Tony and Tom keep up with magazine reports on 3G (an experimental system that allows instant wireless mobile phone connections to the Internet), Bluetooth (a wireless networking system that connects any communications device - from computers to mobile phones to music and video downloading equipment - within a radius of about 50 feet) and all the new killer apps. Within the next few years, they expect to own new handsets that can download films and complicated games and transmit live video, besides voice and SMS messages.
They say it's difficult to imagine what life would be like without a wireless handset. But they will soon find out. This afternoon, they're driving 200 miles northwest to N,rpi,, on the Gulf of Bothnia, to spend the weekend with Tom's grandfather - the only person over 13 years old they know who doesn't have a mobile phone.
Timo Kopomaa, a sociologist at Helsinki University of Technology who has researched the impact of wireless handsets on urban living, concludes that mobile phones have created the equivalent of new nomadic tribes of teenagers who have vastly extended the geographical radius of their daily lives. Kids like Tom and Tony have no fear of boarding a bus to Helsinki, a dozen miles from Tapiola, and getting back home in time for dinner. "To the new nomads, no place is entirely foreign because they can always contact their friends and acquaintances wherever they are," wrote Kopomaa in a study subsidized by Nokia, which is always eager to know why people buy its phones.
Kopomaa sees a good deal of socially redeeming value to mobile phone use by youngsters. "It gives them a feeling that they are not alone, that their lives aren't empty, that there are always people out there with whom they can share feelings and other things," he says. Curiously, though, he wants to wait as long as possible before buying mobiles for his own two kids, who are 7 and 10. "I don't like the idea that they'll spend all day on those phones," says the professor.
By Jonathan Kandell
June 2001
Institutional Investor Magazine
No company has ever meant so much to a country. Nokia's impact extends from GDP to lifestyle to national pride. It's been great while it's lasted.
In the old factory neighborhood of Helsinki where Finland's industrial revolution began in the 1800s, a much higher-tech transformation is under way. Here on the windswept shores of the Baltic Sea, a new community, dubbed Helsinki Virtual Village, or HVV, will be home and workplace for 25,000 people living a mobile-Internet-based existence years ahead of the rest of the world. Big information technology investors from Europe and the U.S. have a stake in the project. But pride of place belongs to Nokia Corp., the globe's leading mobile phone maker and the company that has turned Finland from something of a Nordic backwater into a cutting-edge New Economy nation in less than a decade. In fact, the relationship between the giant corporation and its homeland is unique. As HVV demonstrates, Finland has become a wireless age laboratory for Nokia, just as Nokia has become a source of national pride and even identity for the Finns. No single company has ever meant so much to a country.
Already home to a motley assortment of several thousand blue-collar workers, bohemians and small IT businesses, the virtual village will have 12,000 employees and inhabitants within four years and will be completed by 2010. "Just think: All those live test animals, and we get to supply the dog food," exults Pekka Sivonen, the brash, 39-year-old former journalist who is chairman of Digia, the company that will provide much of the software to run HVV.
This is how Sivonen envisions the average day of an HVV resident: In the morning his mobile smart phone (most likely a Nokia) wakes him with its alarm-clock function. While he showers, the phone will read out the day's agenda and summarize those parts of the news that are of personal or professional interest. The phone, which connects automatically to the local school, will provide lunch menus, so that parents don't serve the same food for dinner. Then the smart phone will let the digital television know which programs to record in the owner's absence. As he drives to the office, the smart phone will issue traffic alerts and suggest alternative routes. During the course of the day, it can be used for teleconferencing. Naturally, the smart phone can handle all bills, be used as a credit card, and make last-minute seating arrangements at a movie theater or concert hall.
For some people this might sound like an exhausting, dehumanizing, just-in-time-production lifestyle. But Sivonen insists that HVV is a harbinger of human progress. "The wireless revolution enables us to take decisions as late as possible - and change our minds up to the last possible moment," he says. "Think of it as life with a shorter throughput time."
This type of ebullient optimism seems almost aberrant in a year that has seen the collapse of both high-tech portfolios and Internet euphoria. On the road to the brave new world of HVV, there could be severe bumps for Nokia, for its partners like Digia, and for Finland. It's questionable whether Nokia can continue to prosper and push through its innovations if the economic slowdown in the rest of the world turns into a full-blown global recession. After all, 97.5 percent of the company's market is abroad. Its chief rivals already have initiated layoffs, and its own share price has tumbled 50 percent since its high a year ago. And if Nokia - which accounts for almost one quarter of Finnish exports and about 3.5 percent of GDP - falters, Finland will surely skid into a severe downturn.
But with Nokia's revenues still growing robustly, company executives have been able to persuade Finns that they live in a Nokia cocoon, protected from the world's economic turbulence while they morph into the privileged butterflies of a wireless future. "Economic cycles come and go, but the tremendous paradigm shift to mobile communications will continue with enormous benefits to businesses and consumers," says Olli-Pekka Kallasvuo, Nokia's chief financial officer.
This soothing message plays extremely well in Finland, where Nokia enjoys a near-cult status that outsiders find hard to fathom. According to opinion surveys, the company tops the list of things Finns hold most dear, ranking above national independence, Santa Claus, the country's splendid forests and lakes and even that most revered institution - the sauna. It's enough to make Bill Gates ruminate about the profound unfairness of life. Microsoft Corp. gets dubbed the Evil Empire and dragged through the courts because it's accused of using its monopoly on computer operating systems to stifle competition in the U.S. Meanwhile, Nokia is showered with admiration, even though it virtually holds the economic fate of a whole country in its hands.
This is no idle metaphor. Last year Nokia accounted for close to one third of Finland's 5.7 percent economic growth, about 20 percent of all R&D spending in the country (including the public sector's) and 70 percent of the Helsinki bourse's total market capitalization. About 40 percent of Nokia's 60,000 employees are Finns, and the company has deliberately put a local hiring freeze on new technicians because, says Lauri Kivinen, Nokia's head of corporate communications, "there is already a shortage of engineers in this country, and we would be hurting other Finnish companies."
Any assessment of Nokia's true impact on the Finnish economy must also consider what local economists call the "Nokia cluster" - the more than 400 small and midsize companies that are Nokia subcontractors and partners or that began their existence outsourcing tasks for the giant firm. Nokia cluster firms employ some 50,000 Finns and account for a further 1 percentage point of GDP growth, according to Etla, the leading nongovernment economic research institute. What emerges from these statistics is a corporate behemoth out of proportion to the country where it is headquartered. "It's hard to think of another economy with such a single dominating company," concedes Martti HetemÜki, who heads the economics department of the Finance Ministry.
In putting together forecasts Finnish economists still follow traditional indicators, such as energy prices and money supply. But now, they have to give as much weight to sales predictions for new Nokia products and systems with exotic names like 9210 Communicator, a device that combines the functions of a personal digital assistant and a mobile phone, and Bluetooth, a wireless networking system that connects any communications device within a 50-foot radius. "We spend a lot of time with engineers and scientific researchers just trying to understand the technology," says Pekka Yl,-Anttila, an economist at Etla. "We're all still hoping we won't be touched by recession. But it will depend on how Nokia products do."
Thus far Nokia has dodged the severe downturn that has walloped the rest of the telecommunications industry. True, its market capitalization has dropped from last year's all-time peak of $295 billion to $148 billion as of May. But that still leaves the company's stock trading at about $31 a share, with a lofty price-earnings ratio of 53. Nokia's sales during the first quarter of 2001 showed "only" 20 percent growth. Still, this is far behind last year's 54 percent growth for the same quarter. Recently, Nokia announced 400 layoffs - its first in almost a decade.
But competitors are faring far, far worse. Sweden's L.M. Ericsson Telefonaktiebolaget, the world's third-largest handset maker, is reeling. It is eliminating 22,000 jobs and has signed up with Sony Corp. to produce mobile phones jointly after running up a $1.7 billion loss in its own phone-manufacturing division last year. Second-ranked Motorola has announced more than 20,000 job cutbacks since December and posted a $205 million first-quarter loss - its first in 15 years. "As far as we are concerned, we're in a recession right now," said Motorola president and chief operating officer Robert Growney at the annual mobile phone conference in Cannes, France, in February.
The biggest raps against Nokia are that it cannot remain impervious if the industrywide recession persists for long and that it is far too dependent on handsets, which account for more than 80 percent of net profits. Despite Nokia's stout earnings during the first quarter of this year, some of the largest mutual funds unloaded its stock between January and April as part of a continuing strategy to cut back on all high-tech investments. Janus Capital Corp. sold at least 10 percent of its position in Nokia. Fidelity Investments was even tougher on the Finnish giant, reducing its 98 million shares in Nokia to less than 20 million.
But Nokia insists that it is taking advantage of the economic slowdown to increase its share of the mobile phone market while diversifying away from handsets. Nokia maintained operating margins above 20 percent in its mobile phone division during this year's first quarter - even as the handset divisions of its major competitors were showing losses. Besides predicting that it will emerge this year with 40 percent or more of global handset sales, Nokia is taking direct aim at network infrastructure - until now dominated by Ericsson, whose systems draw about 40 percent of the world's wireless traffic. "Our ambition is to also become No. 1 in the world in mobile network infrastructure," says Kallasvuo, the CFO of Nokia, which now has less than 15 percent of that market. "It goes hand-in-hand with our growth in handset sales."
But even bleaker times may be ahead for the telecom industry, and this could mean more challenges than opportunities for Nokia. In Europe alone, telecoms have invested more than $125 billion in so-called 3G (for third generation) technology, with its still unproven promise of a seamless convergence of mobile phones and the Internet aimed at providing high-speed wireless voice and data transmission, anyplace, anytime. "We are facing a situation where an industry is heading for bankruptcy before a 3G call is even made," said Hans Geyer, an Intel Corp. vice president and general manager, at the Cannes conference. Qualcomm has expressed doubts that 3G phones can be mass-marketed in less than three or four years.
Only Nokia among the leading telecom equipment makers and operators in Europe and the U.S. remains relentlessly optimistic about the new technology - and about getting it to consumers on schedule in the second half of next year. (In Japan, NTT DoCoMo is aiming to get 3G out even sooner, possibly before the end of this year - though it was forced to postpone a scheduled May launch because of technical problems.) Nokia has led efforts by mobile phone manufacturers to help wireless carriers finance 3G networks. In early April Nokia, Japan's NEC Corp. and Germany's Siemens put up $1.1 billion in financing to back Hutchison 3G, a British wireless carrier subsidiary of Hutchison Whampoa, the Hong Kong conglomerate. A few days later, Nokia, Ericsson and France's Alcatel agreed to $2 billion in financing for Orange, the wireless carrier subsidiary of France Täläcom. In effect, Nokia and the other mobile manufacturers are acting as bankers, picking up the slack from reluctant financial markets that consider such loans too risky. "We will continue to extend loans to certain wireless carriers if we believe in their 3G plans and consider these companies of strategic importance in making the overall changeover to the new technology," says Kallasvuo. "These are bridge loans, intended to help the carriers over the initial phase of construction. Once their networks are up and running for everyone to see, we expect to get repaid or sell our plans on the financial markets."
Nokia is gambling that its loans can "bridge" the economic slowdown and ensure that 3G phones and infrastructure networks will be in place by the time growth resumes. To some analysts, this sounds suspiciously like a build-it-and-they-will-come market strategy. "In a sense, Nokia is trying to create a market before it exists," says Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein in London. "With these loans, they are exposing their balance sheet to risks and have depleted most of their free cash reserves. This is not something that Nokia can continue doing for much longer."
Yet even if 3G lags, Nokia is also betting heavily on general packet radio service, the so-called 2.5G transitional technology. A cheaper system that can be installed on existing wireless networks, GPRS continually connects a mobile phone to the Internet - though it does not have as large a capacity to transmit data as 3G. The 9210 Communicator is probably the bestknown of Nokia's 2.5G devices.
Another source of concern among industry executives and analysts is that mobile telephones are becoming commodities, as happened with computers, digital watches and portable radios after many companies saturated the market with ever-cheaper models. But a few analysts, impressed by Nokia's agility and performance in an otherwise depressed sector, believe the company can maintain high enough profit margins. "Nokia is clearly out to produce a whole range of phones with different functions and styles that will differentiate themselves from competitors and not become mere commodities," says Susan Anthony, a London-based analyst with Crédit Lyonnais Securities. Nokia offers everything from high-fashion phones in opal blue to extra-durable rubberized versions for outdoor use.
Nokia executives say they are willing to accept smaller profit margins because of softer sales and widespread discounting by competitors. Indeed, they see this as an opportunity to build market share. And they believe the company can prosper even with an expected slowdown in the growth of worldwide mobile phone sales to 450 million to 500 million units this year - 10 to 20 percent less than initial estimates made at the end of 2000, when annual sales reached 405 million units. "That's still a very big market - and we're going to get a larger share of it," says Nokia spokesman Kivinen. This sort of bravado irks a few longtime Nokia watchers who are troubled that the company is rolling the dice for both itself and Finland. "We just have to hope that Nokia makes the right decisions," says Dan Steinbock, a Finnish business professor and the author of a forthcoming book, The Nokia Revolution (Amacom Books).
Nokia has made plenty of good - and its share of bad - decisions in its long, checkered past. The company began in 1865 as a forestry enterprise, spread into rubber products before the century ended and then into electric cables in the early 1900s. As profits from these uncomplicated ventures waned, Nokia diversified into plastics, chemicals and, by the 1970s, consumer electronics. But its reputation - like that of most Finnish manufacturers at the time - was second-rate compared with competitors in other Nordic nations such as Sweden and Denmark. For decades there wasn't much of an incentive for Finnish companies to excel, since they could sell virtually anything they produced to the Soviet Union, which treated then-neutral Finland as its favorite non-Communist trading partner. But following the Soviet collapse in 1991, Finland fell into deep recession, with its economy contracting by 3.3 percent in 1992 and by a further 1.1 percent in 1993.
The late 1980s and early 1990s were dark years for Nokia. Its CEO, Kari Kairamo, who had led the company into consumer electronics, committed suicide in 1988 after suffering repeated bouts of depression. Nokia television sets, video recorders and computers racked up disappointing sales figures. Only the mobile phone division, under Jorma Ollila, a London School of Economics graduate and former Kairamo protégé, was doing well by 1990 after several money-losing years. Ollila had been lured in 1985 from Citibank because of his expertise in international financial markets; he became Nokia's CFO a year later. As a reward for turning around the mobile phone division, he was promoted to CEO in 1992.
Ollila immediately embarked on a radical strategy to rid Nokia of all its businesses except mobile phones and their infrastructure systems. Today mobile phones account for 70 percent of revenues and more than 80 percent of net profits at the company. Infrastructure networks - the base stations and software that Nokia sells to telecom operators to create their own mobile networks - bring in the remaining profits.
The focus on mobile phones turned out to be the best decision Nokia ever made. From a company worth less than $600 million in 1992, Nokia multiplied its market cap an astonishing 500 times over the next eight years - a growth rate even faster than Microsoft's. At its peak in June 2000, Nokia was Europe's most highly valued company. It now ranks third, behind BP and Vodafone Group.
To some extent, Nokia benefited from Finland's long historical involvement in telephony. While Russia, which ruled the country from 1809 to 1920, insisted on a telegraph monopoly, it considered the newly invented telephone more of a novelty than a communications breakthrough. So dozens of private telephone companies sprouted throughout Finland. By the 1890s visitors from other European nations and the U.S. wrote with amazement that the country had many more phones than their own native lands. In the early 1920s Helsinki became the first European city with an automated phone service. Using what was then advanced two-way radio telephony, the Finnish army was able to use rapidly shifting tactics to hold the much larger invading Soviet forces to a virtual stalemate during the 100-day Winter War of 1939-'40.
Speed-dialing ahead to 1981, Finland joined other Nordic countries to launch one of the earliest cellular phone systems, and Nokia got its start in the business, competing mainly against Ericsson for the regional market. As Yrjö Neuvo, Nokia's chief technology officer says, "We have been in a competitive telecom environment for many decades."
But there was also a strong element of luck, at least initially, in Nokia's emergence as a world-class contender. In the early 1990s the company bet its future on the global system for mobile communications, or GSM, which became the digital telecom standard that unified the European market for mobile phones - after national telecoms in France, Germany, the U.K. and the other large European countries opposed the emergence of each other's digital telecom standards. Then, to its credit, by concentrating so single-mindedly on mobile phones, Nokia was able to outperform bigger conglomerates in terms of the sheer variety and attractive designs of its phone models - and in its eye-catching profit margins. According to a survey published by Etla, the economic institute, Nokia's return on investment in 1999 was 55.4 percent - compared with Ericsson's 19 percent and Motorola's 5.5 percent. By 2000 Nokia had revenues of $26.73 billion and net profits of $3.46 billion, compared with $17.4 billion in sales and $2.27 billion in net profits the year before.
Besides raising national self-esteem, Nokia's success has helped push up income levels, spread technological know-how, and change social mores. To put it bluntly, before the Nokia boom Finns were often dismissed by their supposedly more sophisticated Swedish and Danish neighbors as lazy, backward, alcohol-prone dullards. Today Helsinki is acclaimed as one of the hippest, most fashionable cities in Europe, with lively nightclubs and delectable restaurants. Finnish design is enjoying its greatest comeback since the heyday of modernist architect Alvar Aalto and fabric maker Marimekko a half century ago. A country reared on militant egalitarianism now places new stock option millionaires - many of them Nokia employees - on a pedestal. And thanks to Nokia mobile phones, a nation of laconic introverts has turned into a wireless northland of incessant chatterers: 70 percent of the 5 million Finns own cell phones, compared with 65 percent of Western Europeans and about 40 percent of Americans.
But for an outsider the reverence that Finns display toward Nokia can be discomfiting. There are no jokes to be heard about chairman Ollila or Nokian corporate culture. (In Finland the company's employees are endearingly called "Nokians.") Instead, one is treated to descriptions of the "democratic" structure of this corporate giant and its emphasis on nöyryys (unpronounceable to the rest of the world), which means a willingness by the bosses to acknowledge they don't know everything and thus allow underlings to freely express their views. "Ollila has created a sort of team spirit at Nokia by encouraging nöyryys," says the Finance Ministry's Hetemäki. This isn't the sort of comment that would have been imaginable from a senior government official about a private company a decade ago, when Finland still had a state-dominated economy and a socialist philosophy.
Nokia also gets high praise for its commitment to open standards that encourage interoperability in wireless communications among competitors. A good example is the Symbian alliance, a private consortium to develop 3G wireless systems, whose members include rivals Nokia, Ericsson, Motorola and Psion (a British producer of handsets). "Nokia is the opposite of Microsoft," says Sivonen, the Digia chairman, who like many Finns considers Microsoft, with its zealousness for proprietary standards, a near-satanic force.
But while it's tempting to believe that Nokia is on the side of the angels, money has a great deal to do with the warmth the company engenders in both the public and private sectors. Nokia is by far the largest contributor to the state treasury, forking over more than $1 billion in taxes last year - about 4 percent of the central government's total tax revenues. "That's a pretty good deal from the government's point of view," says Hetem,ki. Nokia - along with other businesses - provides sizable subsidies to Etla and other research groups, and often buys and distributes their published results as part of information packages on the company for journalists and financial analysts.
Nokia is sensitive to charges that sheer size makes it a counterweight to government. "We do not try to help manage Finland," says Nokia CFO Kallasvuo in a sharp response to a question about the company's influence in its home country. "In no way do we tell the government what to do." Government and Nokia officials deny there are any regular meetings between both sides. "But it's not surprising that the government or Finnish people want to know what Nokia thinks about the big social and economic issues facing the country," says Ylä-Anttila, the Etla economist.
Thus, new government policies may well reflect chairman Ollila's public suggestions that tax rates be lowered in order to keep Finnish companies globally competitive, that more money be invested in high-tech education and that Nokia be permitted to shift jobs overseas, particularly to the growing U.S. market, where 2.5 million Americans own 60 percent of Nokia's shares.
Nokia's impact on the private sector is huge, particularly among local, high-tech businesses. Besides the company's numerous subcontractors and partners, many "Nokia cluster" firms were started by ex-Nokians who continue to maintain personal contacts with their former employer. "It helps that we know key people, because a company as big as Nokia isn't so eager to deal with a small, new firm," says Timo Laaksonen, managing director of software maker Teamware Group, who previously worked at Nokia.
But there are also plenty of examples of Finnish information technology start-ups with no previous connections to Nokia. Typical of this sort of Nokia beneficiary is Wapit, founded by Mato Valtonen, ex-lead vocalist of Finnish rock band Leningrad Cowboys. "I just couldn't see myself as an aging rock star," says the 47-year-old Valtonen. So he veered into a new career in 1998 when he met a Nokian who showed him how she could send a short-text message to a colleague and get back an instant reply through the Internet. "I said, 'Wow, like Internet plus mobile!'" recalls Valtonen. He then started Wapit, a small company offering 162 different kinds of short message services via mobile phone, ranging from jokes and horoscopes to weather reports, news and stock quotes - even schedules for the feeding of baboons at the Helsinki zoo. Each time a client uses these services, the phone company gets paid and gives Wapit a small commission.
But to make the short message system work, Wapit had to create a browser that allowed users to look up all the services. "We got development help from Nokia," says Valtonen. Now Wapit - which has 110 employees but doesn't disclose financial information except to say that it hopes to be profitable by the end of this year - is transforming itself from a content company into a producer of business-to-business software for billing systems, management tools and Web sites that can be automatically updated and accessed by mobile phones. Nokia is again offering development assistance to Wapit and is even introducing Valtonen to its many clients abroad. Nokia figures that the more uses to which its phones can be put, the more units it will sell.
Although Valtonen still looks like a rebel - he drives a Harley and wears wraparound glasses and canvas sneakers - he understandably sounds very buttoned-down on the subject of Nokia: "The company's image is very good. Most of their people seem to like working there. And then you have to remember that they are responsible for a good part of our economic boom. If Finland is somewhat known in the world, it's thanks to Nokia."
And Nokia is trying to ensure that the company and its home country will remain in the global limelight. At Nokia headquarters, a sunlit glass palace in Espoo, a suburb west of Helsinki, chief technology officer Neuvo eagerly displays new products. Nicknamed "the professor" for his long university career teaching electrical engineering in Finland and the U.S., he dips into a satchel that looks like a wizard's bag of tricks from a Harry Potter novel and takes out a few high-tech devices that will soon go on sale.
First, there is a Bluetooth phone - still a prototype - that enables its owner to download e-mail wirelessly and then transfer it, again wirelessly, to a laptop or to a car's computerized dashboard. Then there is a James Bond-type minicamera, the size of a shirt button, that fits on a one-inch-long electronic wafer that can be inserted into a mobile phone to beam live photos and videos. But Professor Neuvo's prize device is the 9210 Communicator, a so-called personal digital assistant that looks like a mobile phone but opens to reveal a six-inch-long screen. A kind of Swiss Army knife among handsets, it offers personal scheduling, text messages in e-mail or fax form, instant Internet access, spreadsheet functions and a speaker-phone capability for conference calling. Finns can already buy it; Americans will have to wait until next year. "It's addictive," asserts the slightly absent-minded Neuvo, who then struggles to activate it. "It has everything you need to communicate all the time. Now, what is my password?"
Sometimes, the professor admits, even he gets the urge to disconnect. He has been known to switch off his mobile devices for a couple of hours, which can send Nokia personnel at headquarters into a temporary panic. But company executives are betting that growing hordes of people and corporations will want to be constantly online, and that the market for advanced devices and systems will be insatiable.
As the long Finnish winter softens into spring, some 2,000 shareholders stream into a nearby indoor sports arena in Espoo for Nokia's annual general meeting. Rumors of global recession are rampant. The news from other telecoms is even more depressing: plummeting market valuations, crushing debts, sharply reduced revenue projections, profit squeezes or outright losses and massive layoffs. Yet this is a festive crowd that has come to hear chairman Ollila give it reason to ignore the bad tidings from abroad. And he doesn't disappoint.
Competitors' troubles amount to an unparalleled opportunity for Nokia, he tells them. This year the company, which already sells one third of all handsets, is targeting a 40 percent market share - about three times that of its closest rival, U.S.-based Motorola. Despite deep skepticism voiced by other telecoms about short-term prospects for 3G phones, the 50-year-old Nokia boss evinces unwavering confidence. "Mobile communications is on its way to becoming one of the largest industries in the world," he says, jaw jutting out and blue eyes unblinking on the arena's giant multiple screens usually reserved for Finnish hockey stars. "We continue to see enormous opportunities for Nokia, especially as the industry moves towards third-generation networks and mobile Internet services."
The applause is prolonged. The shareholders have gotten the word from on high: Their future is still golden. A quick, near-unanimous electronic vote follows on stock options for Nokia execs, dividend payments, the election of new board members and other recommendations from the chairman. Then the crowd heads home, some in Mercedes and Volvos, most by commuter train, a few even on cross-country skis, taking advantage of what might be the season's last good snowfall.
Among those listening in on the annual general meeting is a leading local telecom analyst, Lauri Rosendahl, of Deutsche Bank, who spends much of his time covering Nokia and discussing its shares with clients abroad. Foreign investors, he thinks, are focusing too much on the 50 percent drop in Nokia's stock price over the past year. This is the moment to buy Nokia shares, he says, because he has seen the future - a mobile Internet world - taking shape in Finland, and it's only a matter of time before the rest of the globe catches up. "In Finland, just a dozen years ago, only 1.5 percent of income went to telecommunications services," says Rosendahl. "Today we're above 4 percent. Department stores here complain they can't grow because people are spending their money on mobile phones instead of clothes and home appliances. In Japan teenagers are cutting back on their food expenses to buy mobile phones. It's only a question of priorities."
And a lot of Finns find it hard to believe that the rest of the world's consumers have a higher priority than owning a Nokia. An exception is Steinbock, the business professor and Nokia critic, who isn't surprised by his compatriots' embrace of Nokia's rosy projections. "Groupthink has always been the Finnish way," he notes.
Nokia's youth brigade
Nokia Corp.'s marketing instincts seem to benefit from extrasensory perception at times. That is nowhere more evident than with Finnish teenagers. Virtually all have mobile phones, and three quarters of those are Nokia's. The primary reason is that the company offers such a wide assortment of shapes, colors and customized features aimed at the youth market - and is quick to put new models on sale. But Nokia also understands the teen market as its rivals do not.
Take Tony Leskinen, 16, and his buddy and fellow band musician, Tom Norrgrann, 13. At a cafeteria atop a shopping mall in Tapiola, a western Helsinki suburb, the pair are explaining the finer quality-of-life issues of their Nokia mobile phones. "Now this ring tells me if it's my parents who are trying to reach me," says Tony, pressing a button on his Nokia 3210 that emits a customized high-pitched tune. If he's not ready to talk with them, he immediately turns off the phone: Maybe they'll think he's in a movie theater or someplace else where it's uncool to use a cell phone. "And this ring tells me my girlfriend is calling," says Tony, playing a more melodious refrain - which he never fails to answer.
Tom doesn't have a girlfriend yet to ring his chimes. But when he does meet a girl who captures his fancy, you can be sure that his Nokia will be the essential go-between. He says he'll ask her out on a first date by Short Message System, or SMS, a form of e-mail deftly tapped out by thumb on his phone buttons. He would be too embarrassed to make a voice call or speak to her face-to-face. "It's pretty scary if she says no," says Tom, grinning under a sport cap worn backward. "Better to use SMS."
The explosive growth of Nokia phones and the wireless Internet in Finland has been fueled by youngsters like Tony and Tom. According to Sonera, the leading Finnish telecommunications operator, two thirds of the nation's mobile phone traffic is data rather than voice, and the vast majority of that data consists of teenage SMS messages rather than day trades, spreadsheets and other adult financial concerns. Why do kids prefer SMS to voice (that is, besides first-date jitters)? "It's cheaper to send a short message than to carry on a phone conversation," explains Tony. Like all his friends, he has a 150 mark (about $23) monthly limit on his phone bill by parental fiat; as soon as he maxes out, the phone company suspends service. Bummer: With ten days left in the month, Tony has reached his 150 mark limit and can only receive incoming voice calls and SMS messages.
Typical messages among Finnish teenagers involve the latest gossip, arrangements to meet, exchanges about hot CDs or just simple questions - "What's new?" "What are you doing right now?" - repeated several times a day and often sent out as round-robin e-mails to a dozen or more friends.
Whatever the telecom trend, it's likely that Finnish teenagers will be in the vanguard of users. Right now, the next "in" thing is a new generation of Nokia mobile phones with ultrafast Internet services.
Tony and Tom keep up with magazine reports on 3G (an experimental system that allows instant wireless mobile phone connections to the Internet), Bluetooth (a wireless networking system that connects any communications device - from computers to mobile phones to music and video downloading equipment - within a radius of about 50 feet) and all the new killer apps. Within the next few years, they expect to own new handsets that can download films and complicated games and transmit live video, besides voice and SMS messages.
They say it's difficult to imagine what life would be like without a wireless handset. But they will soon find out. This afternoon, they're driving 200 miles northwest to N,rpi,, on the Gulf of Bothnia, to spend the weekend with Tom's grandfather - the only person over 13 years old they know who doesn't have a mobile phone.
Timo Kopomaa, a sociologist at Helsinki University of Technology who has researched the impact of wireless handsets on urban living, concludes that mobile phones have created the equivalent of new nomadic tribes of teenagers who have vastly extended the geographical radius of their daily lives. Kids like Tom and Tony have no fear of boarding a bus to Helsinki, a dozen miles from Tapiola, and getting back home in time for dinner. "To the new nomads, no place is entirely foreign because they can always contact their friends and acquaintances wherever they are," wrote Kopomaa in a study subsidized by Nokia, which is always eager to know why people buy its phones.
Kopomaa sees a good deal of socially redeeming value to mobile phone use by youngsters. "It gives them a feeling that they are not alone, that their lives aren't empty, that there are always people out there with whom they can share feelings and other things," he says. Curiously, though, he wants to wait as long as possible before buying mobiles for his own two kids, who are 7 and 10. "I don't like the idea that they'll spend all day on those phones," says the professor.