40% of people buying Nokia's phones are upgraders - I seriously doubt that the figure is that high with other manufacturers. They aren't releasing their numbers as far as I know. This is one development that I haven't seen many people pay much attention to. I think the overall GSM phone sales were around 80 million units last year, I'm not sure.
The capacity concerns are being addressed by GSM-1800 networks that supplement the existing GSM-900 networks. I think all of Nokia's and Motorola's new models are dual-band. The GSM-1800 network sales are the hot trend of 1999 and 2000 - they may be just "expansion deals" in the sense that they new gear is ordered by the existing GSM-900 operators, but they really represent an entirely new network market. This is why Lucent and Nortel have been unable to take global market share from Nokia and Ericsson on the infra side - CDMA network sales growth is largely being matched by new 1800 deals in the GSM sector. Nortel, Lucent and Motorola mostly missed this bus.
Mini base stations in hot spots like stadiums, malls, etc are now being introduced as a new solution for anticipating subscriber growth. There hasn't so far been any congestion problems even in Helsinki where the world's highest market penetration of mobile phones (topping 100% by some new estimates) is concentrated in the city of 500 000 people. The break-through of text messaging is decreasing congestation by channeling some phone use into data instead of voice - 7% of Sonera's mobile revenues already come from data traffic.
The replacement craze is only starting - Europe and some Asian markets seem now ready for dataphones. It takes a market penetration above 30% and real commitment from operators to make this happen, but the signs are good. I think the killer app is the new trend introduced by Alcatel and Nokia - the smartphones aren't bigger than ordinary phones, they just have huge displays and are sold at a moderate 20-40% premium over regular phones. Most operators seem committed to pushing WAP as the common platform for these internet models. GSM operators have largely already recouped their initial investments and are making some serious money - they can now afford to splurge on boosting their networks for data. The CNN and Yahoo agreements are important in lending some legitimacy and big brands to the WAP phenomenon.
I don't see Finland as a unique case - just 2-3 years ahead of most markets. Norway and Denmark are very close to Finland and Sweden in subscriber numbers, even without domestic manufacturing. Markets like Italy and Spain are actually seeing faster growth than Germany, England or USA, so it's not a Northern phenomenon, either. Singapore and Hong Kong are at the cutting edge in Asia, apparently willing to push GPRS. I think that this 30% threshold is the real steppingstone to the period of most rapid growth. USA will see a big boost in the phone sales now that the country is moving towards this sweet spot. But the fragmented nature of the market has prevented text messaging from making it big. It's much easier to move into data when everyone you know has phones able to access same data services and exchange messages between themselves.
If the high data rate services really takes off in GSM, it will touch off another round of replacement sales - none of the current phone models are ready to take advantage of GPRS. I think that familiarity with text messaging is a prerequisite for wide consumer acceptance of dataphones - herding consumers into mobile internet is a gradual process. Europe and some Asian countries have a 2-3 year lead here over USA. It will be interesting to see how Sprint's summer campaign for CDMA smartphones will succeed. They are trying to leapfrog from no data at all into full internet phone phase. That's a big challenge, but not impossible, of course.
Not to pick nits, but I'm talking about Qualcomm's 24% sales growth - not volume growth. A company I want to invest in should be able to keep the sales growth and volume growth at least within a shouting distance of each other. But that's just my view. There are investors who are content with Ericsson's volume growth in handsets, even as the sales figures plunge. I guess it all depends on how much you believe in company's ability to stop the price erosion in the future.
Tero
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