Ericsson Leads Wireless Race
But Nokia, Nortel Step on Gas
By DAVID PRINGLE
WSJ.COM
In the race to build the wireless Internet, Telefon AB L.M. Ericsson has set
the pace. But the next 12 months in Europe is a decisive lap that could
propel Nokia Corp. and Nortel Networks Corp. into pole positions.
Nokia and Nortel both have scored important contracts recently, boosting
their credibility in this lucrative segment of the mobile-communications
industry. More importantly, the two companies appear to be gaining a
better-than-expected share in the fast-growing wireless market, giving them
a solid platform from which to win potentially huge third-generation
contracts.
Mobile operators around the world are
scurrying to purchase general packet radio
services (GPRS) systems to upgrade their
second-generation GSM (global system for mobile communications)
networks. The purchases, while unglamorous, will allow their customers the
ability to maintain a crucial "always on" wireless connection to the Internet.
Vendors won't reveal the size of the contracts they have won, so it is
impossible to tell who is ahead in revenue terms. But by using the numbers
of contracts won as a crude barometer, Finland's Nokia is close behind
Sweden's Ericsson, the world's leading wireless-network vendor. Nokia
claims to have won 40 GPRS contracts world-wide, compared with 44 for
Ericsson. Also, Nokia has signed on some of Europe's heavyweight mobile
operators, including Telefonica Moviles of Spain, Viag Interkom of
Germany, and Cegetel of France.
Meanwhile, Canada's Nortel, which largely missed out on the GSM
market, claims to have won 20 contracts to supply GPRS systems. Nortel
holds a decent-sized lead among the smaller players; seven operators have
chosen Motorola Inc. to supply their GPRS systems, while another 16
operators are testing its system. Lucent Technologies Inc., Alcatel SA and
Siemens AG also are players in the GPRS market, but each has only a
handful of contracts.
In Europe, Nokia has stolen the top spot from Ericsson, according to the
research firm Yankee Group. The research firm estimates that Nokia has
won 36% of the GPRS contracts awarded so far in Europe, while Ericsson
has 24%. Simone Lewis, a London-based analyst with Yankee, says that
Ericsson supplied about 40% of the Continent's GSM networks.
To be sure, these figures don't necessarily correspond to market share in
revenue terms. The actual value of a GPRS contract will depend greatly on
the size of the operator's network and whether the vendor is the principal
or peripheral supplier -- and there is still plenty to play for. Ericsson
estimates that two-thirds of the 373 GSM operators in the world today will
launch GPRS services this year. Only two GPRS networks currently are in
operation, and one of them is a pilot program.
But the battle in the GPRS market really is just a sparring match before the
real contest -- the fight to win contracts for third-generation systems.
"GPRS [systems] allow vendors to show off their expertise and try to
convince operators to go with their third-generation solution," Ms. Lewis
says. "There isn't a lot of money in the GPRS market; vendors are in it
purely for strategic reasons."
Deutsche Telekom AG's T-Mobil unit, which began a pilot of its GPRS
service last week, says it spent 153 million euros ($145.7 million)
upgrading its network. But analysts say that many European operators will
spend less than half of that amount on upgrades.
By contrast, contracts to install third-generation systems could be worth
more than a billion euros each, providing a very healthy boost to the
vendors' revenues. T-Mobil expects to spend 7.5 billion marks (3.83
billion euros) to build its universal mobile telecommunications systems
network -- work that is expected to be spread among several suppliers.
It's not surprising that telecom firms are racing each other to win contracts.
Nokia's networks division, which supplies both fixed and wireless
networks, recorded sales of 1.5 billion euros in the first quarter, while
Ericsson's network division posted sales of 2.5 billion euros in the mobile
market.
But the market for third-generation systems still is very much in its infancy.
Regardless, Ms. Lewis regards Ericsson as the clear early leader. Nokia
has picked up four third-generation contracts so far, compared with six for
Ericsson, which has contracts to supply third-generation systems to the
world's two largest mobile-phone operators.
Vodafone AirTouch PLC in May said that Ericsson will be its main
supplier in the United Kingdom, while NTT DoCoMo Inc. in Japan also
has chosen the Swedish company. However, the sheer size of the UMTS
contracts means that operators are likely to use more than one
infrastructure supplier. Nokia and Ericsson both claim Japan Telecom Co.
as a customer, for example.
Although Ms. Lewis says Nortel is currently No. 4 in the
wireless-infrastructure market, she expects the company to win more
third-generation contracts than Motorola. Nortel recently won a hefty
third-generation contract from BT Cellnet, the mobile-phone unit of British
Telecommunications PLC, which has used Motorola's systems in the past.
Nortel also claims to have memoranda of understanding with three French
operators.
U.S. research firm Herschel Shosteck Associates believes Nortel is the
best-placed of all the infrastructure suppliers in the fledgling market for
third-generation systems. Herschel Shosteck says Nortel's expertise in the
fixed-Internet market and its focus on keeping costs down should give it an
advantage over its rivals. Nortel "is transmitting a message of cost-saving
and efficiencies for network operators, which will be a critical differentiator
for them," Jane Zweig, executive vice president at Herschel Shosteck,
says.
Lucent, which is running trials with several U.S. mobile-phone operators,
also is expected to be a key player in the third-generation market outside
of Europe.
But in the European market, the next year will be a telling period. Licenses
for third-generation networks based on UMTS technology already have
been awarded in the U.K., Spain and Switzerland, while governments
across the rest of western Europe are expected to follow suit before the
end of this year.
Todd Etchieson, senior manager of UMTS marketing at Nortel, says that
most operators will award UMTS contracts within a few months of winning
a license. "We are talking about 60 contracts and sometime in the second
quarter of next year, it will be over," he says.
Write to David Pringle at david.pringle@wsj.com |
