COMING OF AGE
Wireless industry stands to make big gains in 2003
By George Chamberlin , Daily Transcript Financial Correspondent
Friday, December 6, 2002
sddt.com
Will 2003 be the year that the wireless industry finally gets connected? If the answer to that question turns out to be yes, then San Diego is poised to reap the benefits of the coming-of-age for mobile communications.
Wireless Future Magazine last week designated San Diego as the "Capital of the Wireless Future," noting that more than 500 local companies are involved in "designing, developing and implementing innovations that will drive the future of technology." From Qualcomm (Nasdaq: QCOM) to Kyocera (NYSE: KYO), many of these companies are global leaders in the telecommunications sector.
"Companies based in this city are engineering the wireless technology agenda for the next generation and beyond," said Rikki Lee, editorial director for the magazine. "And they participate in an immense synergy that multiplies with each new business relocating here."
Of course, being considered the center of the wireless universe doesn't carry the cachet that it once did and probably will again in the future. Where wireless goes from here is the subject of much debate. Positive about the growth of the business is equipment maker Nokia (NYSE: NOK).
"As industry growth dynamics change, Nokia is the company best positioned to capitalize on the opportunities ahead," said CEO Jorma Ollila. "We believe we have gained global handset market share in 2002, bringing us even closer to our target of 40 percent."
Owning more than one-third of the handset business is an impressive accomplishment. Nokia said it expects the total market volume for wireless devices to reach 400 million units in 2002 and grow at an annual rate of 10 percent. It also anticipates that the mobile subscriber market will grow to more than 1.1 billion this year and reach 1.5 billion users by 2005.
Where will the growth come from? The often-repeated theme for the industry is the shift from "wireline to wireless." A study by IDG, a technology consulting firm, says that an estimated 10 million hard-wired access lines have been displaced by wireless as consumers opt to use a mobile service over installing an additional access line in their homes.
"The primary reason for this dramatic growth is that wireless service pricing is rapidly approaching wireline service pricing," said Scott Ellison, program director at IDG. "A secondary reason is cultural. Wireless use is now so pervasive that it is seen as a standard and acceptable way to communicate in most environments."
However, before going out and mortgaging the house to invest in the wireless sector, it might be wise to consider the caution issued last week by Sandy Liang, a respected analyst at Bear, Stearns & Co.
"The wireless industry is highly competitive and its growth has slowed significantly," said Liang at a conference in New York. "In the short-term we believe industry risk has increased, because of more intense pricing competition brought on by the slowdown in customer growth. However, in the long-term we believe major opportunities will improve the sectors' outlook."
For some companies in San Diego 2003 could be a critical year. Investors are keeping a cautious eye on Leap Wireless International (Nasdaq: LWIN), a wireless service provider that is in the midst of a major restructuring. Despite a rising customer base -- 45,000 new subscribers to its Cricket service in the third quarter -- and an increase in revenues, Leap reported a loss of more than $155 million in the quarter. The news prompted Moody's Investor Services to downgrade the rating on Leap debt.
"During this challenging period in the industry and for our company, our Cricket service remains a high quality, affordable, wireless offering and we continue to lead the industry in landline replacement," said Harvey White, Leap's chairman and CEO. "We remain confident that we can, through our restructuring effort, create a stronger company better positioned for the future that will continue to offer quality service to our customers and provide good opportunities for our employees."
Investors are not quite as enthused. The shares of Leap Wireless, which traded as high as $100 a share at the peak of the tech boom, are now going for less than $1 after beginning 2002 at $23 a share.
What must surely be encouraging news for companies like Leap Wireless is the still large segment of the population that has yet to make the move to wireless. For instance, though it seems like everybody in San Diego driving a car or sitting in a restaurant has a mobile phone attached to their ears, only about 47 percent of households have gone wireless. That is the lowest penetration rate for any of the top 20 cellular markets in the United States.
And, if that isn't enough to offer hope, consider the fact that Bill Gates is upping his ownership of Nextel Partners, a mobile phone network created by Craig McCaw. Through his private investment service, Cascade Investments, Gates now owns 5.2 percent of the company. It makes you wonder if the Microsoft wonderkid is trying to tell investors something.
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Chamberlin's financial analysis column appears weekly in the San Diego Daily Transcript. Chamberlin also reports daily on stocks and local business on NBC 7/39 and on "Money In The Morning" on KOGO 600 AM. |
