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Wireless Communications Called 'Exciting Growth Market'
Dow Jones Online News, Wednesday, November 19, 1997 at 14:41
By Daisy Maxey
Staff Reporter
SAN FRANCISCO -(Dow Jones)- Companies that provide the hardware for
wireless communications systems are likely to be solid investments in
the next few years, a leading communications analyst told investment
managers at Charles Schwab Corp.'s annual conference Wednesday.
Wireless communications systems are going to play a key role in both
fixed- and mobile-access systems going forward, George V. Robertson, a
communications analyst at San Francisco-based Robertson Stephens & Co.,
told a standing-room-only crowd.
"Spending for wireless equipment is likely to exceed expectations,"
he said. Robertson's buy list of large-capitalization companies in the
industry includes Lucent Technologies Inc. (LU), Sweden's Telefon AB
L.M. Ericsson (ERICY) and Motorola Inc. (MOT). New technology has
created an opportunity for smaller companies to break into a very large
business dominated by companies such as Lucent, he said.
Most of the "really profound change" taking place in communications
today is in the access path - the way telephones, computers or faxes are
connected to a network, according to Robertson. While long-distance has
been deregulated in the U.S. and increasingly deregulated around the
world for many years, making it highly competitive and highly efficient,
the access path is "far behind in the adoption of new technology,"
because of costs and regulatory baggage, he said. "We think wireless is
going to be one of the factors that breaks that logjam."
Wireless technologies will compliment and assume a greater role next
to wired technologies, Robertson said. "I don't believe you can have
competing local phone service of any kind - data or voice - for
residential, small- or medium-sized business without wireless access
because the economics just don't work for the operators unless you have
wireless."
The economies of wireless are "very compelling" for small- and
medium-sized users, according to Robertson. "If you are a new network
operator, wireless is almost certainly the low-dollar cost of entry. On
day one, to build a network with wires to have comprehensive service is
incredibly expensive. With wireless, it's as simple as putting up a
single base station and then adding capacity as your network scales up."
Robertson divides the wireless market into two sectors: radio systems
operating at frequencies under two billion cycles a second, or 2GHz, and
frequencies above that.
Fixed and mobile traditional telephone services operate in networks
in the first category. This is a huge market, he said, with spending
world-wide for foundation hardware estimated to be about $29 billion in
1997. This area of the business is expected to grow about 20% a year for
the next five to 10 years, he said.
The mobile - or handset - portion of this business will probably do
about $28 billion to $30 billion in business a year and grow about 20% a
year going forward, he said. Though companies like Motorola - which
takes in about $5 billion a year of core hardware revenue and more than
$8 billion a year in handset revenue - and Lucent, Finland's Oy Nokia
(NOKA) and Ericsson dominate both areas, there is room for $7 billion to
$10 billion a year for other companies, Robertson said.
The emerging market for frequencies above two GHz presents great
opportunity, Robertson said. Services in this area will principally be
short-range - from one to five miles - whereas in a cellular system,
signals can travel up to 25 miles. These frequencies will primarily be
limited to fixed applications for terrestrial service, he said.
This market will be driven mostly by new entrants, both on the
service-provider side and on the supplier side, though a small number of
suppliers - such as P-Com Inc. (PCMS), Digital Microwave Corp. (DMIC),
California Microwave Inc. (CMIC) and Innova Corp. (INVA) - have already
emerged, Robertson said.
He estimates there will be about $50 billion to $75 billion in
wireline spending worldwide annually for the kinds of things these
networks can do.
"This is a pretty exciting growth market," he said, "and one where we
think people can make a lot of money going forward."
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