Lehman analysis of the wireless data market....I think some of the old-timers will appreciate the last paragraph <g>.
lehman.com
Headline: Wireless Communications: The State of Wireless Data - Cajun Style
Author: John M. Bensche, CFA (212)526-1869, Jennifer A. Cooke, CFA (212)526-4782
Company: PTEL AERL OMPT VSTR NXTL WWCA RCN SBC PCS TWRS AMT SBAC T PHCM WCOM MOT QCO
M ERICY NOK
Country: IND CUS
Industry: TELECM
Today's Date : 09/27/99
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* Last week's PCS'99 trade show in New Orleans made it abundantly clear that
data is becoming a reality as evidenced by actual demos of wireless data
products and an abundance of software and internet speakers.
* The industry has made progress in the two areas we see as bottlenecks to
broad wireless data adoption, namely relevant applications and data speeds.
Organizations such as the WAP (Wireless Applications Protocol) Forum were
widely featured at the show. WAP is an open standard data protocol which
applications designers (ie: programmers) can use to ensure broad
compatibility of their software across air interfaces (GSM, CDMA, TDMA).
* Helping to enable the broader applications are new phones equipped with web
browsers, and some with keyboards or mouse. These are currently being sold
and lend further credence to our belief that data really is coming. The
limited input/output (I/O) tool called a cell phone is becoming more robust.
* We reiterate our 1-buy ratings on VoiceStream (66 7/16), Omnipoint (60),
Powertel (52 1/4), and Rogers Cantel (24 1/16)and our 2-outperform ratings on
Sprint PCS (73 1/2), Nextel (64 15/16), Aerial (28 5/16), and Western
Wireless (45 1/2). We also believe that tower operators stand to benefit
from heightened demand for wireless capacity.
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DATA: THIS YEAR IT'S DIFFERENT
We attended the Personal Communications Showcase last week in New Orleans.
Like a gourmand whose palate has been dulled by the same old "voice" recipes
for years, we came in search of something spicy and new. We were not
disappointed. PCS'99 was an Epicurean delight of new "data" dishes, served
up by some fresh chefs, like Phone.com and NeoPoint.
Many of the usual suspects were present, including FCC Commissioners
Furchtgott-Roth, Ness and Powell. Additionally, Dan Hesse (President and CEO
of AT&T Wireless), Lawrence Babbio, Jr. (President & COO of Bell Atlantic),
Bo Dimert (President and CEO of Ericsson), Irwin Jacobs (Chairman and CEO of
Qualcomm), Jerry Vento (President and CEO of Telecorp) and Kari Pekka Wilska
(President of Nokia Mobile) talked about their views for the future of
wireless and the prospects for convergence. Friday's keynote speaker was MCI
Worldcom's Chairman and CEO Bernie Ebbers, who made a very interesting
observation. Research shows that knowledge workers were away from their
desks about half the time. Assuming the people they are attempting to
contact follow the same pattern, then only 25% of the attempted connections
actually are successful. This point argues strongly for the development of
wireless data applications to improve productivity.
Perhaps more interesting, however, were speakers such as Ted Leonsis,
President of AOL Interactive Properties Group, Mohan Vishwanath, Vice
President of Yahoo!Everywhere, and Harel Kodesh, Vice President of the
Productivity Appliance Division of Microsoft. Their presence alone on the
big stage at the morning SuperSessions speaks volumes about the rise in
importance of the computing world within the wireless world. While the
wireless industry has been talking about "data coming in the next 2 years"
for the last 5 years, we truly believe that this year it's different.
WE'VE SEEN, WE'VE TOUCHED, WE BELIEVE
A key theme of the conference was the convergence of wireless and internet,
as evidenced by more than half of the panels being about data. Numerous
presenters were not from wireless companies at all, but rather from software
and internet companies. The new phones that we demo-ed all had a
microbrowsers and larger screens than the older phones sold. We believe that
the carriers are committed to deploying 2.5G, which will enable data to be
sent at speeds of 144 kbps, vastly faster than today's current wireless data
applications, which send data at speeds of 9.6-14.4 kbps. We are less
certain around the commitment to full-blown 3G by the carriers, but we think
they will inevitably roll that out too. To date, the actual number of orders
for 3G infrastructure from the vendors is tiny, but the 2.5G orders are
picking up.
In thinking about wireless data, we have always been concerned about 2 issues
- the pipeline and the applications. While the industry still needs to go
through evolutionary stages to ensure seamless wireless data transfer, we
have seen improvements on both fronts. New technology (such as GPRS for GSM
players, 1X for CDMA players and a re-launched CDPD for TDMA players) will
move data at speeds of 19.2 kbps to 144 kbps. Ultimately, however, these
technologies will give way to EDGE (for TDMA and GSM) and 3X (for CDMA) which
will move data at speeds of 384 kbps for a mobile users and perhaps up to 2
Mbps for a fixed device. Interestingly, AT&T Wireless is sticking with 19.2
kbps CDPD until its move to EDGE in 2002. Nextel is also planning to offer a
19.2 Kbps packet data service for the foreseeable future. Other carriers
like Bell Atlantic and Sprint PCS will move to 144 kbps in 2001. For a short
window, it appears AT&T Wireless will be at a speed disadvantage. Nextel's
migration path to higher speeds is not clear, and may well hinge on its
ability to successfully reel in the NextWave spectrum. Perhaps trumping all
of these carriers is Metricom (MCOM, $23) which plans to launch its
Richochet2 data-only service with 128 kbps speeds up to a year ahead of the
closest rival. After discussions with wireless carriers and manufacturers,
and demos of some of the technology, our concerns about the pipeline issues
have eased considerably. At least for the first steps to 2.5G, the costs
will not be too bad (more of a software upgrade). This will enable some
comfort to be garnered from actual customer usage of data services before the
much larger capital commitment to roll out 3G is required.
On the applications front, we are excited about the possibilities. To date,
there have been few written applications for the cellular phone, mostly
restricted to manipulation of short text messages. However, the WAP Forum
promises to set standards for the industry and already has many members
developing browsers, gateways and applications in conformance with WAP. We
believe that the network and software may be built simultaneously, ensuring
compatibility between the two. WAP takes the same approach that the Internet
community has taken, namely, set an open standard and turn loose the
creativity of the software programming culture to run wild with their
imaginations. Additionally, by creating liaisons with the Internet
programming groups, WAP is working to marry wireless data apps with the very
same web sites that Internet users find most useful. By piggybacking on the
vast amount of development work that has already been done for the World Wide
Web, WAP does not try to reinvent the wheel. We view this as an extremely
effective strategy for accelerating the convergence of wireless and internet.
GIZMOS AND GADGETS
During the conference, we viewed the new products expected to hit the market
within the next 6 months. The NeoPoint 1000 uses the Phone.com microbrowser
software, which enables the user to access scheduling and contact information
including synchronization to their desktop or laptop computer. At only 6.4
ounces, the phone has a large screen and built in fax capability. We liked
the physical style of the phone, including a mouse-like joystick which fits
ergonomically under the thumb. Sprint PCS has begun selling this phone under
the Wireless Web brand.
The Nokia 9100 solves the I/O problem by installing a keyboard on the phone.
The phone opens sideways to reveal a screen and keyboard, kind of like a
palm-PC from HP. However, this virtual wireless computer is bigger than the
other wireless phones due to this attribute. (It is a big improvement in
size from the first Nokia 9000 Communicator, the first of this breed.) The
9100 phone includes a browser for wireless data, as do the other phones
discussed in this piece.
For the second straight show, Qualcomm demo'd the pdQ phone, which is a cross
between a wireless phone and a Palm Pilot. In fact, it uses the Palmoperating system, including use of a stylus and the Graffiti handwriting
recognition software. We actually can surf the Web by inputing URLs, but the
gateway strips out all of the color and graphics, delivering just the text
portion to the screen. While the device excels at retrieving text based
information (eg: news headlines, sports scores, flight times), it does not
perform well as a general web browser, and gags pretty bad with frames, such
as when we retrieved the www.lehman.com web site whose home page has five
frames. Of course, surfing un-Palmed sites is asking a lot. The phone
includes email and internet applications, but weighs 10 oz. As a stand alone
cell phone or organizer, it is too big, but in replacing both devices, it
could be a winner. We would expect, as is the case with the Nokia 9000
series, that this device will evolve ever smaller as time goes on. The fate
of the pdQ may get cloudier with Qualcomm's decision to sell its handset
manufacturing business.
Motorola had lots of multi-band products on display, and seems to have caught
up with some of the other vendors in breadth of voice products. All new
phones have microbrowsers embedded. However, MOT still does not have a large
screen format phone in the line. Its two-way pagers seem more I/O friendly
than the cell phones.
Lastly, we found it slightly ironic as we passed the Ericsson booth to see a
kiosk devoted to CDMA. The Qualcomm infrastructure group is now under the
ERICY banner, and the staffers at the booth seemed a little out of sync with
the new name embroidered on their shirts. Alas, the CDMA voodoo has won over
even the most stubborn of converts. |
