European mobile phone manufacturers, an endangered species?

In this post, I speculate about possible futures for French mobile phone manufacturer Alcatel, and some European manufacturers in general.

We've just learned that French vendor Alcatel confirmed plans to exit its handset joint venture formed with Chinese manufacturer TCL in August last year. Under the agreement, Alcatel will swap its 45% stake in TCL and Alcatel Mobile Phones for 5% of parent company TCL Communications, following which the handset unit will become a wholly owned subsidiary of TCL.
Alcatel said TCL would continue to develop handsets in China only, while the European site, based in France, would refocus on sales, marketing and support.

I should indeed have quoted the above text, because that's the official story. Now, what's behind this? We know that Siemens is in trouble and tries to exit the business. We also know that Mitsubishi announced the closure of a design center in France a few weeks ago.

Let's look at the Alcatel case, which is the most clear-cut. From now on, I'm in full speculation mode, so be warned.

From the news release, it seems that there are two options for Alcatel.
- Option 1, Alcatel can hand over to TCL, cut its losses, and disappear as a brand. Alcatel is a big telecom equipment company, so they will refocus on that and forget about mobile phones altogether. They will promote the TCL brand, or at best sell standard TCL phones under the Alcatel brand.
- Option 2, The Alcatel brand is maintained, the design is transferred to China, but Alcatel keeps a strong marketing unit in charge of specifying phones for the European market: operators, countries, etc. In this option, Alcatel becomes a virtual vendor in a way.

Let me explain why I think they should go for option 2.

They won't save money with option 1 - I don't know what they will do, but to me Option 1 doesn't make any sense, even if I take an accountant's hat, Option 1 won't save them much money.

Second, chinese manufacturers are not strong in Europe (that is an understatement) under their own brand. Alcatel is not a tier-1 player, it has a small market share, but can we imagine TCL jettisoning Alcatel's market presence, relationships and networks to save a few pennies to start all over again? Penetrating the European market requires excellent relationhips with operators, which need to be built over time. Why would operators want to start working with a new brand? For cost only? I don't think so. Operators are looking for flexibility, not so much pure cost.

Is there a market outside the operators' realm? TCL would probably not go for the retail market. They could look at the MVNO market in general (such as Virgin Mobile for instance). But there the average run will be much lower; how many devices would a typical MVNO order: 50,000 units? 100,000 units? You don't go for niches unless you're specifically organized for that, which I think TCL is not. TCL's value proposition lies in its ability to mass produce standard phones. Niche markets require customization, which in turn requires intimacy between the manufacturer and the client. The physical distance precludes that, not to mention the fact that few chinese manufacturers' executives correctly speak English.

So to finish this speculative post, to me the logic would be to transform Alcatel into a virtual vendor to produce highly customized mobile phones for the European market.