WIRELESS
Next Big Thing
Fri, Dec. 15, 2000 11:21
By Tracy Johnson, Canada-iNvest.com
No matter how rough the markets, technology investors are
always keeping watch for the next big thing. 3G, the next
generation of wireless, has been generating some buzz lately
as the market speculates just how much money needs to be
spent to upgrade wireless networks. And how much money will
be made as consumers start to surf the net on their cell
phones
In layman’s terms 3G, or third generation, wireless will give
consumers high-speed access to the Internet through
handheld devices such as palm pilots, laptops, and cell phones.
The first generation of wireless was analog. The second was
digital. 2.5G, where we are now, allows plodding Internet
access. By the end of 2001, 2.5G will improve to offer
always-on text data services such as email and news at speeds
around128 kilobytes per second.
3G will theoretically offer full data services, such as web surfing
and music downloading, at up to 2 megabytes per second.
That’s comparable to ADSL or cable connections available
through a wired line.
It means a few things for those in the wireless arena. Network
builders like Nortel Networks (NT) get big fat contracts to
upgrade existing digital wireless networks and make them IP
compliant. This is already happening as Nortel recently got a
contract from AT&T Wireless (AWE) to do exactly that.
The device makers such as Research in Motion (RIM)and
Motorola (MOT)get to sell whizzy new handhelds with all
sorts of currently unimagined functions.
And the wireless networks, such as Microcell (MTI.B) get to
pay through the nose for new networks, while praying that
people will actually use them in the end. It’s a risky proposition,
but as one analyst points out, so were PCs in the early
eighties.
“The key thing as far as the whole market is concerned is that
it’s going to be something really opens up wireless data and
technology to the masses, says Glen Tracey, a technology
analyst with Pacific International Securities.
“It’s what I call the wireless data paradigm shift. Traditionally
wireless data has been characterized by low data rate, typically
slower than what people are used to at their homes. Now
you’re getting wireless modems that are able to exceed typical
wire-line modem speeds and are starting to approach the
speeds of ADSL or cable modems, or the speed you get from
the network LAN in your business. So, it’s going to become a
transparent thing where you no longer see the performance hit
when you go from your wired LAN to your wireless
connectivity.”
Since there are no 3G networks up and running yet, no one is
sure how it’s all going to work. That’s something we should
see in the first quarter of next year as Japan brings a 3G
network online. Parts of Europe are also in the midst of a
build-up, while North America is still trying to upgrade to 2.5G
and some say it may be the end of the decade before North
America has a fully functioning 3G network.
That’s problematic, according to Nick Strube, a
telecommunications analyst with Canaccord Capital. Stube
says that while the 3G network is being built and tested, wired
Internet access will probably speed up. “You might still have
the disparity in the end.”
Although that’s likely the case, wireless operators can’t stand
still. The networks will be upgraded. Microcell recently
announced a huge network upgrade/expansion. Telus (T) is
apparently considering a similar plan.
“The manufacturers are going to be the initial beneficiaries,”
says Strube. They’re developing and manufacturing all this
equipment and they’re going sell it at a nice margin to make up
for their R&D expenses. Ericsson (ERICY) is the biggest in
3G infrastructure equipment. Then you’ve got a second tier
with Motorola (MOT), Nortel, Nokia (NKA), Lucent (LU),
Siemens, Alcatel (AT) in no particular order. They’re all
fighting for 3G contracts right now.”
Glen Tracey says Sierra Wireless (SW) is bound to be a
winner as well.
“Sierra Wireless does cellular data modems. Traditionally their
products have been for the current technology, 19.2 kb per
seconds, 14.4 kb per second. They are steadily going toward
products that have higher data rates. These new products are
considered 2.5G, or the intermediate step between second and
third generation.
The first one that Sierra is going to put out is a product for the
Ricochet network in the US. That will work at 128 kb per
second. They’re also working on products for technology called
GPRS and Edge, GPRS (general packet radio service) is again
another 2.5G technology that’s targeting at 115 kb per
second, then the Edge is due out the third quarter of next
year, that’s 384 kb per second. These are all products that are
oriented toward the migration to 3G. They are making products
for the technology as the networks become available. When
(AT&T’s) Edge technology comes next year, the Sierra product
will be there to leverage off of that.”
Other obvious beneficiaries are the device makers, although
that may not come for some time. “Companies like Palm and
RIM could benefit,” says Strube. That might be a second stage,
going from developing a network to support the devices to the
actual manufacturers of the devices themselves. But,
traditionally the devices lag the infrastructure builds.”
Strube says it’s important to point out there are many risks
associated with the 3G build-up.
This is all predicated on their actually being a demand. The
guys caught in the middle are the operators, they’ve got to
buy all this stuff, they know their costs, but they can’t be
guaranteed that consumers are going to actually want all this.”
“Let’s say you have high speed access on your laptop if you
plug in at the airport, that’s great, but are you going to pay for
it if its 50 cents a minute? Look at it this way, its 10 cents a
minute on Microcell for voice. If you’ve got to use GPRS that
stacks eight slots on top of each other, meaning eight voice
channels, and on top of that, those voice channels aren’t used
for voice. How is the operator going to recovers its costs?
They’ll charge you 80 cents a minute are you going to pay 80
cents a minute for 150k per second. It’s a risk.”
However, as Strube points out, the technology sector is risky
by nature. “You’ve got to be a believer because there are so
many examples of how disbelievers are disproved, from the
belief that a 386 would be too fast, to IBM saying desktops will
never be more than a toy. These things were said within the
frame of the time.”
TELECOMMUNICATIONS
How much for 3G?
Mon, Dec. 18, 2000 17:33
By Maria Babbage, Canada-iNvest.com
In every battle, it's important to choose allies carefully. Now
that Nortel Networks (NT) plans to take on wireless giant
Ericsson (ERICY) as the top supplier of equipment for the next
generation of wireless networks, the telecom giant is wasting
no time trying to get an edge on the competition.
Nortel announced today it would provide "marketing and
financial support" to British Columbia-based Sierra Wireless
(SW) and California firm Xircom (XIRC) to develop the
industry's first third-generation (3G) wireless modems that will
enable high-speed Internet access on the new generation of
mobile networks being built in Europe.
The modems, to be used on the Universal Mobile
Telecommunications System (UMTS) networks and based on
UMTS and General Packet Radio Service (GPRS) standards, are
expected to hit the market in early 2002. None of the
companies have revealed how much money Nortel is expected
to shell out.
Sierra and Xircom, both wireless data communications
hardware providers, plan to develop their own multi-mode
wireless modems in a variety of physical dimensions, including
PC cards, Compact Flash cards and embedded modules.
Third-generation networks promise consumers high-speed
Internet access through handheld devices like cell phones, Palm
Pilots and laptops, increasing the current speed to about 200
times its present rate. UTMS is a 3G broadband transmission
of both data and multimedia at high data rates to wireless
devices. Once the system is up, mobile users can be constantly
attached to the Internet at high speed as they travel.
But the financial impact of the deal won't be felt for some time,
say analysts. Although having 3G products ready-made for
Nortel equipment will give Nortel an edge in attracting big
contracts to build high-speed wireless networks, Sierra
executives have already said their revenues won't be affected
until the second quarter of fiscal 2002.
"From a short-term perspective, it doesn't change our revenue
or earnings estimates for fourth quarter of this year, it doesn't
change anything for next year. The device won't be ready until
probably Q2 of 2002," says Barry Richards, a wireless analyst
for CIBC World Markets. "The deal doesn't have any specific
revenue elements to it. It won't be Nortel buying product
directly from Sierra, it'll be Nortel putting up some money to
help development and to put up some resources to help
market these products once they're developed. But really, it's
about Nortel."
The Canadian giant seems poised to fire the first shot in the
war to win the 3G market. While Ericsson is the undisputed
leader in wireless equipment, it's clear Nortel wants to edge its
way up, beating out competitors like Lucent (LU), Alcatel
(AT) and Cisco Systems (CSCO).
"Nortel has not really been in the business of providing these
consumer-style electronics that would be sold either through a
retail channel, whereas Sierra and Xircom have been providing
both branded and third-party product into the consumer
electronic market," says Terry O'Brien, a Nortel analyst with
Branch Cabell in Richmond, Virginia.
"So I think this is going to give Nortel an opportunity to have
the expertise of those companies combined with their expertise
in the infrastructure products together to provide the total
solutions or portions of a solution for the wireless
infrastructure."
By working closely with these two companies, he says Nortel
can ensure the modems will fit hand-in-glove with its UTMS
equipment.
"It's really good when you have companies that are going to be
working in close concert with each other, then you're certain
that, even though they've follow the standard, they've got the
maximum compatibility with the product. That's why it's
important to have these alliances."
Richards guesses Nortel could be sinking about $1-5 million
into the deal. "Not too, too much, but enough to make it
worthwhile." But that won't be the biggest impact of the deal
for Sierra.
"From a general perspective, this is just another validation of
where Sierra Wireless fits in the broader scheme of things,
which is a great place," he says.
"Second, it proved their ability to leverage themselves, and
that's most of what this deal is about. It's about Nortel putting
up a little bit of money for Sierra to accelerate development of
these products. Thirdly, it shows how desperate the OEMs
are-the original equipment manufacturers on the infrastructure
side-how desperate they are to have devices that work on
these new networks, because without devices, it's hard to
convince the carriers spend billions of dollars to buy new
infrastructure. So, they're helping to accelerate that process to
help themselves sell more infrastructure."
With a strong buy recommendation and a CDN$142.50 target
on Sierra stock, Richards says he expects to see some revenue
results in the second or third quarter of 2001 when Sierra
announce some revenue-generating contract with Asian or
European carriers.
"They've pretty much got it figured out now and they're
hammering away at putting these products on the market," he
says. "They signed up some huge partners so, it doesn't get
any better in Canada in the wireless space."
(Voluntary Disclosure: Position- Long) |
