Re: 3G Equipment Contracts
>> Ericsson Shines The Way To 3G
By Margo McCall
Monday, January 8, 2001
Wireless Week
Ericsson began exploring third-generation technology nearly two decades ago. Now, as the technology matures, companies are lining up for the Swedish handset and equipment maker to light a path out of the dark forest of 3G.
Just as Ericsson got a head start in 3G technology, so it is emerging as a leader in 3G infrastructure contracts today. As operators in Asia and Europe ponder what to do with the 3G licenses they paid so dearly for, they are increasingly turning to Ericsson for help.
The company has secured 21 contracts from 30 companies needing 3G network equipment or terminals. That compares with 13 for Nokia, five for Motorola, five for the NEC-Siemens partnership, four for Nortel and one for Lucent. Although the contracts will comprise only a small portion of this year's revenue, 3G's revenue share is expected to rapidly increase as next-generation technology takes hold.
About 80 3G licenses have been awarded in Europe alone, yet only one-third of the contracts have been dished out so far. So it remains a sure bet that 2001 will see a continued burst of 3G business for vendors. "Most likely you will see more contracts awarded," says Lars Nilsson, Ericsson's manager of strategic marketing.
Ericsson's first customers were NTT DoCoMo, which plans to launch 3G service in May, and J-Phone, which will follow suit by the end of next year. Other customers range from big players such as the U.K.'s Vodafone and Orange plc to emerging companies such as Mobiltel of Slovenia and Spain's Xfera, which came to life with the award of a 3G license.
Most of the demand is for installation of entire networks, although some carriers, such as AT&T Wireless, are taking a multi-vendor approach to granting contracts for 3G Internet protocol cores, base stations, switches and terminals.
Virtually all of Ericsson's contracts are for wideband-CDMA, which makes sense since the company operates 17 W-CDMA test stations around the world and has been studying the technology since the 1980s.
By contrast, three of Motorola's five 3G contracts are for cdma2000 1x equipment for Sprint PCS, Alltel and Telefonica Moviles. Nilsson says demand for cdma2000 should take off as more carriers pick standards.
Vendors, for the most part, decline to disclose dollar amounts for 3G contracts, citing customers' confidentiality requirements. But the size of some contracts shows that 3G infrastructure revenue eventually may pack quite a punch. For instance, Motorola placed a more than $2 billion value on its contract to supply 3G equipment to Telsim, the first Turkish carrier to implement general packet radio services. Ericsson's contract to supply Leap Wireless with 3G base stations and switches, as well as help design and deploy the network, is worth $330 million; its agreement with Mobilkom is worth $1.4 billion. And Nokia's award of AT&T Wireless' IP core business is estimated above $1 billion. Nortel estimates that its four contracts so far are worth $2.1 billion.
Some 60,000 3G base stations are expected to be rolled out next year, and more than twice that in 2002, according to analysts at Lehman Brothers. Coming up with efficient manufacturing and component supply processes is expected to be a major challenge, as is assuring the availability of handsets.
But those aren't the only problems. Few have considered how 3G will generate revenue, says industry analyst Herschel Shosteck. Coupled with the number of base stations required to build out such networks and the rising unwillingness of financial institutions to fund telecom endeavors, 3G becomes "an economic absurdity," Shosteck says.
Still, in preparing to meet 3G demand, Ericsson is converting two former handset plants to 3G base station production. It plans to roll out its first 3G handset in 2002.
Although the world's largest infrastructure supplier, Ericsson of late has been bogged down by its money-losing handset division. So the 3G equipment contracts are providing a needed boost to Ericsson's bottom line.
In the meantime, the company already is looking ahead to 4G. That should help keep its flashlight batteries glowing bright well into the next decade. <<
- Eric - |
