re: Latin America: GSM v. CDMA for 40 Carriers with migrtion choices
>> Viva GSM
Francis MacDermot
Mobile Communications International
Issue 85, 01 October 2001
Equipment vendors in the Americas are cheering over the news that many Latin American TDMA operators are to switch to GSM. But as the vendors scramble for a piece of the profit, the question is who will be the real winners?
The decision of many US and Latin American TDMA operators to switch to GSM was, claims Ericsson's last annual report to the US Securities Exchange Commission, "a favourable development." In Latin America, at least, one can almost hear all Ericsson's fellow equipment vendors bellowing, "Hear! Hear!" For 'favourable' is something of an understatement: if it were not for the demise of TDMA, many mainstream equipment vendors might now be facing an alarmingly deep trough in sales until 3G starts to happen in 2005 - 2010.
Were TDMA's migration path assured, operators' capital expenditure would almost certainly slump. All the main cellular and PCS networks in the region have been built or are under construction. Only Honduras and Nicaragua have still to award second cellular licences. Of the major economies, only Colombia still has plans to award new PCS licences. Vendors are therefore running out of turnkey contracts to chase.
Expanding coverage does, of course, keep some revenues flowing. PCS network operators in Mexico are still ticking off coverage of fairly major cities. Down in Argentina, coverage has become enough of a competitive issue for one operator to install a cell at an Argentine base in Antarctica (for the sake of publicity and to catch some revenues from the 7,000 or so cruise ship tourists who visit each year) .
Capacity demand will also drive some orders. Mexico's Telcel, the region's biggest single operator, saw subscriber numbers rise by nearly 73 per cent to 13.2 million in the year to June. BellSouth's BCP and Portugal Telecom's Telesp Celular each saw increases of about 42 per cent in the confines of metropolitan Sao Paulo. However, since most new users are frugal prepay customers, demand for capacity will evidently not track sales of lines. For example, TeleCentroOeste Celular (TCO), a fairly mature operator in Brazil, reported a 69 per cent increase in subscriber numbers in the year to June, but only saw the need to add two switches to its base of 20. It is also evident to all that growth is slowing.
Extension of coverage and increases in capacity will therefore not be enough to sustain the $7 billion to $10 billion of annual spending on mobile equipment and software that vendors have enjoyed in 1999 and 2000. TDMA migration, however, gives the major infrastructure vendors a new market to aim at.
Now that it is accepted that TDMA will not have its own evolution to 3G, over 40 Latin American operators, supporting more than 40 million AMPS and TDMA subscribers, are faced with the prospect of having to overlay their networks with either GSM/GPRS or CDMA. Evidently these upgrades will increase capacity and add more sophisticated services, but there is little doubt that they will also unleash a large and timely wave of spending on hardware and software.
How much will it cost? No-one is expecting to see operators migrate whole customer bases but they will need to build out big enough overlays to interest their high-end customers - the potential data users. Both overlays can allow the re-use of cell sites, antennas, backhaul and (some) billing systems but, says Carlos Rivera of Lucent Technologies' Wireless Network Group, "no matter which technology you choose, you're going to have to put in new base station controllers." It is also probable that most mobile switching centres will have to be replaced, even if some can be reconfigured and redeployed later.
Operators, therefore, are in for some major expenditure. An analysis by Merrill Lynch suggests that the cost over three years at Telcel in Mexico will be about $2 billion, equating to $140 per current subscriber. In other markets it estimates that the cost will be nearer $100 per subscriber.
If these numbers are correct, the total cost to Latin American TDMA operators, probably spread over three years, will be between $4 billion and $5.6 billion, although some of this is expenditure that would otherwise have been allocated to TDMA upgrades.
The extra spending will help buoy equipment sales. Pyramid Research, which analyses the market using a 'bottom-up' network planning approach, estimates that spending on hardware will remain flat at about $6.4 billion in 2001-2002 and then drop off by about 15 per cent in 2003. The Yankee Group believes there might be a two-year plateau. "Spending will peak in 2002 and 2003 but decrease in 2004," says Luis Minoru, director for the Yankee Group Latin America. Vendors are ostensibly more bullish but less specific. "We don't see the market shrinking by any means, but perhaps it won't grown as rapidly as it has," says Carlos Rivera of Lucent, adding that a capacity backlog will combine with the introduction of 2.5G to drive the market along.
For vendors, then, there are high stakes at play in Latin America's technological shake-up. Pyramid Research's analysis shows that for every $15 spent on TDMA in Latin America last year, one was spent on GSM and five were spent on CDMA. In 2003, just when the infrastructure market starts to shrink, it predicts that combined GSM/GPRS spending will exceed spending on TDMA equipment. CDMA in its various guises will also begin to weigh more heavily than TDMA.
Infrastructure vendors are positioning themselves enthusiastically. Ericsson, Lucent Technologies, Nortel Networks and Motorola have all decided to support both migration paths. However, their real allegiances are thinly veiled. Ericsson - as its annual report suggests - appears to be firmly allied to GSM and has picked up all the major contracts for GSM/TDMA overlays so far (including one with Telcel which may be worth $1 billion over three years.) It is unlikely to have much success selling the cdma2000 option: the CDMA infrastructure business bought from Qualcomm has been a poor performer in Latin America.
Lucent and Motorola see the great migration as a big opportunity to widen their markets. Lucent has never enjoyed large sales of TDMA equipment and Motorola has never offered it at all. "This evolution is very exciting for us. It has opened up the whole market," says Jose Figueroa, a vice president at Motorola. Lucent, although offering a GSM/GPRS solution, will push cdma2000. "We see it as the best option and it is what we're pushing for," says Carlos Rivera. Motorola will offer both paths but will have to work hard to sell GSM/GPRS; whatever its form in Europe, it is associated with CDMA in Latin America.
Nortel Networks is more likely to keep a foot in both camps; it was strong in TDMA and has supplied both GSM and CDMA networks in the region. Nortel's weakness is that the aggressive vendor-financing that helped it take a 20 per cent share of the market in 1999 and 2000 may not be available this time round.
No such complications afflict the European vendors - Nokia, Alcatel and Siemens. They cannot be reproached with the TDMA fracas nor be accused of divided loyalties, and they can lend their way into the market. "We are hearing that there is 125 per cent finance available in Brazil," says Luis Minoru of the Yankee Group.
Of course, operators will ultimately pay those who can save them money while leading them confidently through the tricky technological issues of migration, particularly in the 850MHz band where spectrum is crowded.
Vendors are setting out their stalls. Nortel, for example, is "working with customers for migration solutions, particularly using existing TDMA spectrum," says Michel Biurrun, director of GSM BSS and Systems. Since most of Nortel's key customers do not yet have PCS spectrum, this mission to "minimise spectral requirement" in TDMA-GSM migrations is crucial.
Carlos Rivera at Lucent, on the other hand, argues that CDMA offers greater spectral efficiency, faster data speeds and, initially, cheaper handsets, while enthusing about kit such as Lucent's one-carrier, micro mini-cell, "specifically meant to be friendly for co-location."
While the giants slog it out, sure-fire winners would appear to be companies such as Logica, Gemplus and Schlumberger Sema. They can use experience from Europe to steer operators through the software transition to GSM/GPRS and introduce all the tasty little value-added services that subscribers enjoy. Schlumberger in particular should prosper after its opportune merger with Sema. "We're moving TDMA customers to newer versions of our billing systems which are GSM-capable," says Benito Giovo, Sema's sales director for Latin America. These will form the basis of integrated packages. "Service providers are looking for partners who can provide total solutions," he says. <<
- Eric - |
