Motorola (MOT): Right Phone, Wrong Network

Motorola (MOT), one the world’s No.2 handset company and now nearly out of business, introduced its new flagship product called Cliq. The phone runs the new Google (GOOG) Android mobile operating system. It will launch on the T-Mobile network in the last quarter of the year.

The handset is unique, according to Motorola, because it has a feature called the Motoblur which puts social network tools into one interface for the user. Motorola’s co-CEO Sanjay Jha said that “This phone is not a make-or-break product for us. It is a first step.” The company is in such deep trouble that the statement is not entirely true, but it is understandable why Jha would say it. Motorola does not want to readily admit what everyone knows, which is that the company is on its last legs.

The idea of building the Cliq around social media interaction may work well. MySpace and Facebook each have more than 70 million unique users in the US. Twitter’s users are probably nearly half of that number. It is not at all certain that people will buy a handset because it offers them easy navigation to these sites, but it may be the only valuable card Motorola has to play. The parts of the smartphone market dominated by e-mail, web access, and large application stores are populated by Apple (AAPL) and RIM (RIM). Nokia (NOK) and Palm (PALM) are making their own assaults on the same part of the handset industry which is to say it is getting very crowded at the high-function, high-priced end of the business.

Motorola may have come upon a way to revive its fortunes, if it has chosen the right cellular provider as a partner. That is not the case.

T-Mobile’s subscriber base may not be too small to matter, but it is close. Verizon Wireless (VZ)(VOD) has the largest customer base in the US with close to 88 million people. AT&T (T) has nearly 80 million subscribers, and Sprint (S) 49 million. The carriers with the largest customer bases are highly prized partners for the handset companies. Some analysts believe that if the Palm Pre had been introduced on either the Verizon or AT&T networks it might have been a smashing success. Instead, its sales have been modest.

T-Mobile has only 33 million wireless subscribers in the US, which gives it a 12% of the market. The cellular carrier already has a fairly complete line-up of phones from Samsung and Nokia. It is hard to see how the Motorola Cliq will be able to get its share of sunlight and fresh air.

The Cliq is not only up against handset powerhouses led by Apple. It is also being launched on such a small network that it has very little chance to reach strong unit sales. The phone may be right, but the network is wrong.

Douglas A. McIntyre