Sagem hit by Wap delay
Telecoms equipment maker has 'committed too much, too soon', write David Owen and
Andrew Ward
Published: November 26 2000 19:11GMT | Last Updated: November 27 2000 02:59GMT
www.ft.com
Investors in Sagem sent the French telecommunications equipment maker's shares plunging
on Friday as they rushed for the exit following a profit warning.
But louder than the thunder of this stampede was the sound of Wap chickens coming home
to roost.
Sagem's statement that the last quarter had confirmed a slowdown in the mobile phone
market "due essentially to a certain delay in the start-up of Wap [wireless application protocol]
and GPRS [general packet radio service] in Europe" amounts to one of the clearest corporate
admissions to date that demand for internet-accessible mobile phones in Europe has been
bitterly disappointing.
Connecting mobiles to the internet was supposed to allow users to access news headlines,
stock prices, sports results and entertainment while on the move. But the product has been
beset by problems.
First there was a shortage in supplies of the phones. Then, when they arrived, consumers
complained of a lack of applications, unreliability and the slow speed of downloading content.
Referring to comments by one large handset manufacturer that it expected there to be 26m
Wap users by the end of this year, Per Lindberg, telecoms equipment analyst with Dresdner
Kleinwort Benson said: "That means 10 per cent of all GSM [global system for mobile]
phones sold this year are Wap-enabled. This compares with initial expectations of about 50
per cent."
Alec Shutze, at Merrill Lynch, said Sagem had committed too much to Wap, too soon. "They
were relying on it too early. There is not enough infrastructure yet to support the devices.
There won't be demand until the operators stage a proper roll-out of applications and services
next year."
Sagem is the latest in a succession of telecoms equipment manufacturers to issue a
downbeat trading update, hit by the twin effects of poor Wap sales and a fast maturing world
market for mobile phones. But some analysts said blaming Wap was an easy way to deflect
attention from other ailing parts of the business.
"There is no doubt that Wap has been disappointing. But quite how big anyone seriously
expected the market to be, I'm not sure," said Angela Dean, at Morgan Stanley Dean Witter.
"Suppliers such as Sagem could have forewarned as early as March or April that Wap was
failing to meet expectations and deliver user-friendliness," said Mr Lindberg. "What is new is
that manufacturers such as Sagem are starting to feel the pain from operators' more
cautious stance on handset subsidies, especially in markets where mobile penetration is
high."
Attention is now switching to GPRS technology, which will improve Wap services. Jean-Marie
Messier, chairman of Vivendi, the French communications and environmental services group,
said in a recent Financial Times interview that for him, 2001 was the year when mobile
internet would finally take off thanks to GPRS.
With a Wap phone, Mr Messier said, access time to the Vizzavi portal - Vivendi's joint-venture
with Vodafone - was between 20-25 seconds, an interval he described as "prohibitive" to
"mass market usage". With GPRS, the interval would be 3-4 seconds.
And with third-generation phones, it would come down to just one second. Sagem's
premature investment in Wap and, in particular, GPRS, has proved costly in the short-term.
But it could give the company a valuable lead over its competitors when the market is
established.
Peter Richardson, principal analyst at Gartner, an IT and telecoms research organisation,
said: "Sagem has done good work on technical issues related to GPRS, so they are ahead of
the curve."
However, Sagem will not reap the benefits until GPRS reaches the mass market, and
analysts say that could take longer than had been hoped.
Mr Shutze expects GPRS phones to account for no more than 7 per cent of sales next year.
"In the immediate future, GPRS will only be a limited market catering for corporate users.
GPRS is much more complicated than Wap in terms of deployment and it is a more
advanced technology," said Mr Lindberg.
"GPRS is not the knight in shining armour that is going to make everyone rush out and buy a
new phone. It is not really going to be a factor until the middle of next year," said Mr
Richardson.
That means, pointed out Ms Dean, that "people are still going to be sat there worrying about
Wap for the first half of next year".
None more so than Sagem's beleaguered shareholders.
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