Interesting article on Nortel's push into the 3G wireless market.
STXN should participate by selling Altium, Millenium, and
other products for fixed wireless backhaul.
Rob
Friday December 15, 1:43 pm Eastern Time
FEATURE-Nortel readies to wage wireless battle
(UPDATE: All figures in U.S. dollars unless noted)
By Susan Taylor
OTTAWA, Dec 15 (Reuters) - Nortel Networks Corp. (NYSE:NT -
news) (Toronto:NT.TO - news) is going all-out in the race to
build a new generation of high-speed wireless networks, but
analysts suggest its quest for second spot behind Ericsson in
a cut-throat market won't come easy.
Europe will be a critical battleground for Nortel's campaign
to boost its sales of third-generation (3G) network
equipment, which connects mobile phones to the Internet, now
that operators have obtained licenses in many major markets.
Nortel would have to take on such entrenched suppliers as
Ericsson , the world's No. 1 vendor of wireless equipment.
Ericsson recently said it would do whatever's needed to win
the largest piece of the 3G market and tackle cost reductions
later.
``Oh, it's competitive,'' said Jane Zweig, vice-president at
wireless consulting group Herschel Shosteck Associates.
``2001 will be a big year for awarding contracts.''
Nortel and its competitors want to cash in on a spending
spree that kicks off in 2001 when mobile phone operators are
expected to spend billions on new wireless networks.
Nortel will now push sales in countries such as Britain and
Germany that were home to billion-dollar bidding wars for 3G
licences.
To date, 23 licenses for 3G spectrum have been granted in
Europe. But that's expected to boom in the coming year,
reaching between 70 and 80 licenses by the end of 2001.
Nortel has struck a three-year $780 million deal with
Britain's BT CellNet. In Spain, it won a three-year $935
million deal with Xfera and a one-year $100 million deal
with Airtel.
RICH REWARDS
``I think it's safe to say that over the next five-plus years
you'll see over $100 billion spent on third-generation global
system solutions,'' said Scott Searle, a wireless research
director at SG Cowen.
``This is a market that's growing and I think that the big
winners in the space are actually going to be able to expand
market share,'' he said.
Nortel estimates the 3G network equipment market will be
worth $11.3 billion in 2001, with about $5 billion from
Europe and the remainder in Japan and Asia.
By 2003, it forecasts a total market value of $37.3 billion,
with Western Europe representing $15.7 billion in sales,
Japan $5.7 billion and North America $5.9 billion.
Those rewards are sufficiently rich that suppliers such as
Nortel are offering to finance part or all of the equipment
purchase and even network construction to win contracts.
By the end of 2000, Nortel said its vendor financing will
reach $2.1 billion and that will swell to about $3.5 billion
by the end of 2001.
Nortel has been conservative in extending financing only to
large companies, but in some cases it has financed both
equipment and capital used to build the networks, said
Christin Armacost, an SG Cowen analyst who follows Nortel.
``In my mind that gets a little bit excessive,'' she said.
``It's obviously necessary to win some of these deals, but
when you are vendor financing 150 percent of the contract,
the value of the equipment that you're selling becomes less
attractive.''
HARD-FOUGHT BATTLE
``Nortel plays to win,'' said Anil Khatod, Nortel's president
of Internet business. ``Ultimately, Nortel would like to be
in the No. 1 position in all the markets we serve. But first,
I think we have a step to take.''
That step is grabbing ``substantial'' 3G market share in the
next 24 months to take the No. 2 sales spot, he said.
The question is how?
``There's a big bet that we see going on between Nortel,
Lucent Technologies Inc. (NYSE:LU - news), Alcatel and Cisco
Systems Inc. (NasdaqNM:CSCO - news) who are betting on the
optical side of things,'' said Zweig. ``And Ericcson and
Nokia are betting on the RF (radio frequency) side of things.
And this is going to be a major issue in the long-term.''
Part of Nortel's sales pitch centers on the connection of
wireless networks and base stations to its market-dominating
high-capacity fiber-optic networks.
``What we have been able to consistently prove is when you
build a wireless network in conjunction with Nortel's
optically-optimized core network, you substantially reduce
the cost,'' said Khatod. Carriers pay 20-40 percent less for
construction and operating expenses, he said.
Nortel is also focusing its efforts on the biggest deals.
``Clearly, Nortel's strategy is slightly different from
Ericsson,'' said Armacost. ``It's not to pursue every single
service provider who's out there bidding for a license (but)
really only focus on some of the top in each of their
respective segments.''
But the fight for market share won't come easily in a highly
competitive market.
Recent Merrill Lynch research shows Ericsson with 20 percent
of the 3G contracts awarded over the last 18 months, Nokia
with 19 percent and Nortel 17 percent. A rank of the contract
values puts Ericsson at No. 1 with 29 percent, followed by
Nortel at 20 percent and Nokia at 15 percent. ``Nortel gained
the most market share in the last 12 months,'' the report said.
``Next year there's going to be a lot of positioning -- it's
going to be getting infrastructure up into place, trialing
it, (and) making sure that it works'' said Searle.
``The networks really won't start to be deployed until early
next year and given the acceptance milestones that are likely
to be attached to those contracts, you probably don't see
revenue recognition really starting to materialize until 2002.''
In 1999, Nortel recorded about $5 billion in wireless
revenues, Armacost estimates. She expects that will grow to
$6.3 billion in 2000, $7.3 billion in 2001, and she has a
``conservative'' estimate of $8.8 billion for 2002.
($1 equals $1.52 Canadian)
Source:
biz.yahoo.com |
