Nokia Sets Sights On Dominating US Networks
Market
By BUSTER KANTROW
of DOW JONES NEWSWIRES
STOCKHOLM -- Nokia Corp. (NOK), the world's largest maker of mobile
phones, wants to be king of the hill in 3G mobile networks, too. But to get
there, Nokia is going to have to step up in a key market: the United States.
The U.S. is already Nokia's largest market by sales, accounting for 17% of
revenue last year. But that's primarily due to sales of its popular handsets.
Nokia has largely been a bit player in the U.S. networks business because of
its decision to focus on supplying Global System for Mobile Communications
(GSM) networks.
"On the infrastructure side, Nokia hasn't had much to say," said Johan
Brostroem of brokerage Hagstroemer & Qviberg in Stockholm. "There's
potential for Nokia in the U.S...but it's going to be a challenge, to say the
least."
GSM became the wireless standard in Europe and in much of Asia. But U.S.
carriers embraced two other technologies, known as TDMA and CDMA, and
North American equipment vendors such as Lucent Technologies Inc. (LU)
and Nortel Networks (NT), as well as Swedish giant Telefon AB LM
Ericsson (ERICY), collected most of the contracts.
Among major U.S. carriers, networks, only VoiceStream Wireless Corp.
(VSTR), due to be acquired later this year by Deutsche Telekom AG (DT),
has a significant share of equipment from Nokia.
Now, though, Nokia could have a fresh opportunity. Some U.S. carriers,
including AT&T Wireless (AWE), are adding GSM capability, and others,
including giant Cingular Wireless, are said to be mulling such a move.
More importantly, carriers are preparing to upgrade their networks for 3G
services. The EDGE and Wideband-CDMA technologies that Nokia (and
others) supply is expected to be a leading standard, although it's still unclear
how many of the major carriers in the U.S. will deploy it.
Financial Strength Could Lead To More Deals
So far, Nokia seems to be weathering the global economic slowdown better
than its rivals, which could give it an advantage in striking deals with operators
seeking favorable credit terms, and position Nokia to step in if other equipment
vendors falter on delivery commitments.
"To be honest, the opportunities for Nokia Networks have never been bigger
than they are right now," said Tim Eckersley, a Nokia Networks vice
president for North America.
It's a good thing. Nokia says it wants to win 35% of the worldwide market
share for W-CDMA systems, but it faces stiff 3G competition from its
traditional European and North American rivals, plus strong challenges from
Asian suppliers such as NEC Corp. (NIPNY) and Fujitsu Ltd (J.FUT).
Some believe Nokia's target is unreasonable. "That's an aspiration, and they're
probably not going to get anything close to that," says Per Lindberg, a
London-based telecommunications analyst for Dresdner Kleinwort
Wasserstein.
Nokia cautions that conclusions about how much market share each supplier
will grab should not be made just yet, likening the 3G battle to the Indy 500
auto race. "We've made the first 10 or 12 laps in 3G," said spokeswoman
Cherie Gary. "There are definitely some companies in the lead, but you can't
call the race. It's too soon."
But if Nokia is to make headway, analysts say, boosting its standing in the
U.S. market is critical. "It will be very difficult to reach that kind of worldwide
market share if they aren't present in the U.S.," says Hagstroemer &
Qviberg's Brostroem.
To be sure, the U.S. isn't the only market that counts. Asia will be important,
and so will Europe, where Nokia has been gaining ground, announcing supply
deals worth EUR2 billion last week with Orange SA (F.ORA) and Hutchison
3G UK Ltd., which is majority-owned by Hong Kong's Hutchison Whampoa
Ltd. (HUW).
Nokia's latest deal came Tuesday, when it said it would be sole supplier of a
3G network to Orange's Swiss unit in a deal worth EUR160 million.
3G buildouts in the U.S. are likely to lag behind both Europe and Asia, with
substantial spending not materializing until perhaps 2004 and 2005, as
operators wait on new spectrum and watch to see how 3G services are
received abroad.
And the GSM contest isn't over. A battle is being waged now over new GSM
contracts in Latin America, where Nokia has managed to woo traditional
customers from Nordic rival Ericsson.
Nokia has already scored a major victory in the U.S. In December, AT&T
Wireless tapped Nokia to help it build out a GSM network alongside its
TDMA system and to outfit the entire network for W-CDMA services.
Nokia's share of the contract, which also includes Lucent, Nortel and
Ericsson, is believed to be worth more than $1 billion. It's the largest single
networks contract ever for Nokia, and its first-ever infrastructure deal with
AT&T, whose traditional equipment vendors have been Lucent and Ericsson.
Eckersley said AT&T's move to add GSM has had a knock-on effect, as
smaller American wireless operators, who depend heavily on roaming
revenues from AT&T customers, sign on for their own GSM systems.
Analysts said the AT&T deal is encouraging for another reason, because
Nokia's biggest obstacle to widespread success in the U.S. market may be its
lack of existing network-supply ties with operators.
"Success in this industry, like most industries, is based on relationships,"
Eckersley concedes. "But I see our relationship issues, particularly for the
carriers who are going to be driving the industry, to be not that great an issue.
That doesn't mean there isn't a lot of work to be done."
Analysts say Nokia's leading position in the handset market could also help it
lock up network deals, as operators seek to gain preferential access to new
phone models. "One successful part of the business allows you to make other
parts of the business more competitive," said Gartner Dataquest analyst Bryan
Prohm.
As for Nokia, it won't divulge a U.S. market share target, except to say that it
wants to be the top 3G provider.
"The goal will be that when we step back in two to three years, people who
look at the infrastructure spending in the U.S will see that Nokia is the one
sitting at the top," Eckersley said.
Company website: nokia.com
-By Buster Kantrow, Dow Jones Newswires; 46 8 5451 3090;
buster.kantrow@dowjones.com
Briefing Book for: AWE | BCE | BLS | DT | ERICY | F.ORA | G.DTL | J.FUT |
J.NEC | LU | MOT | NIPNY | NOK | NT | S.ERC | SBC | T.BCE | T.NT | VSTR |
