A Week In Wireless No. 86
31-JAN-2003
Telecoms.com
Quote of the week: "I had a bad dream that one day I woke up and was chairman of AT&T," David Dorman, chairman and CEO of AT&T, having what alcoholics refer to as 'a moment of clarity'.
As observers of the British government well know, sneaking bad news out under cover of even worse news is one way to cover your tracks. A ploy the wireless industry might have hoped to use last year ('Never mind us, check out WorldCom!') had its news not been as jaw-droppingly bad as it was. This week found some cellcos in a different predicament. The diversionary headlines were there all right: "Iraq Guilty!" , or "Guilty of What?", depending on the editor's thirst for war. But distracted markets were the last thing the sector wanted when it was, for a change, delivering some good tidings.
On Monday, Vodafone reported on the final quarter of 2002: subscriber growth of four million exceeded expectations; ARPU rose in the UK, Germany and Italy in the year to December, although it fell in Japan and Portugal; data revenue share rose fractionally to 13.9% in 2002, and it jumped in December after the launch of Vodafone Live! services. Considering they were mostly free this could be read as either a pointer to greater revenues to come, or simply a promotional blip yet to be tested by commercial realities.
Orange followed its rival's lead on Wednesday, announcing 1.1 million new users, a 14% rise in revenues to December and another encouraging rise in ARPU, up 5.7% in the UK in 2002. In France, however, ARPU fell by 3.8% suggesting that low-end growth in Europe's least penetrated major market was still proving a drag. Data revenues now account for just over 10% of network revenues, 14.3% in the UK.
Also celebrating healthy numbers were T-Mobile USA, which added over a million new customers last quarter and 41% growth over the year, and Verizon Wireless, whose revenues jumped 16.3% to $5.2 billion in the quarter as the company added 964,000 new subscribers and increased ARPU by 6% to $49. AT&T Wireless' ARPU stagnated and growth was way down on the previous year, but it narrowed its quarterly losses. America Movil in Mexico and Globe Telecom in the Philippines also pleased the bean-counters.
Pleasing to everyone in the industry are further signs that operators are finally wising up to the idea, radical as it may sound, that perhaps their customers might like to send messages to their pals on other networks. Sonera and Telia completed the web of MMS interconnectivity in Finland, while mmO2, T-Mobile and Orange in the UK signed their own interconnect agreement. Vodafone is expected to join up soon.
However, MMS will be no panacea warns Datamonitor. The research firm believes SMS revenues will peak in Europe this year and forecasts that MMS will not be able to pick up the slack as it is a far lower-margin business. The solution? Don't rely too heavily on MMS and promote wireless email and instant messaging as alternative revenue generators. Witness the imminent arrival of Hotmail on Vodafone Live!, a smart move as long as those annoying Hotmail glitches we have all come to expect aren't multiplied over a wireless interface.
There were even some positive noises on 3G this week, Deutsche Telekom circling Q3 as launch time for UMTS in 200 German cities (for more on T-Mobile's plans see Spotlight). Rival Vodafone says it will roll out in Germany around the same time. Meanwhile research firm In-Stat/MDR went way out on a limb by claiming in a report that handset availability was no longer a major drag on UMTS deployment as several vendors have or will have models ready to ship this year.
Nevertheless, testing, handover and software glitches remain issues, as NTT DoCoMo and NEC would no doubt testify. Yes, you've guessed it, DoCoMo is having to do another handset recall, its biggest yet. 840,000 units of the NEC N504iS need to have their battery packs replaced due to a hardware incompatibility that caused some handsets (8 reported so far) to overheat. A blow for DoCoMo and NEC, but you've got to admire their diligence. One in every 100,000 faulty and they recall the lot. Only in Japan, the Informer suspects.
Meanwhile rival KDDI was pressing on with the launch of BREW-enabled applications and services over its CDMA1x network and celebrating its five millionth 1x customer a mere ten months after launching. Some industry watchers are suggesting that given this success, and the relative failure of Foma, DoCoMo would be well advised to consider upgrading its PDC network to 1x and leave Foma as a niche service.
Also pondering future expansion scenarios is the US wireless industry, now digesting the ramifications of the Supreme Court's decision in favour of NextWave. Bankruptcy law prevailed over the law that suggests you have to pay what you bid for your spectrum, and so the FCC's revoking and reselling of NextWave's licences was ruled unsound. While NextWave insists it has met FCC build-out requirements in 60 of 95 markets and is making noises about operating networks, speculation is rife about how, when and to whom NextWave will eventually flog its capacity. Some suggest partnership with other cellcos is likely, others a complete selloff, but few believe the market can support another major carrier. Now that this big chunk of capacity is out of limbo it may stall consolidation of the operators and put off 3G auctions further.
One interesting proposal from analyst Andrew Seybold is for NextWave to build a CDMA1x EV-DO data-only network that could be reused by carriers, ISPs and anyone with an interest in delivering high-speed IP-based services. "Almost all wireless operators are holding their unused spectrum in reserve for projected growth in voice services...Almost all are capital constrained with limited ability to commit to major capital expenditures or spectrum purchases. These operators can tap into a broadband wireless data network built out by NextWave at wholesale prices," he suggested.
Meanwhile, in a sign of the cost constraints US operators are under, AT&T Wireless and Sprint PCS are partnering to build and share cell towers and will even share future construction plans. "We will not be victims of the cost animal," AT&T Wireless Executive VP Greg Slemons said. (Incidentally, if anyone can furnish the Informer with an accurate physical description of the "cost animal" it would be most appreciated).
Struggling handset venture Sony-Ericsson will receive a E300m cash infusion from its indulgent parents who are still awaiting a return on their initial investment. Sony itself is in rude health after doing brisk Christmas business and doubling its profit for the quarter. But what about Ericsson? Its infrastructure business is suffering and Ericsson's management has hinted that it is losing patience. Some suspect that it has been hoping to offload the handset unit onto Sony all along. An awful lot is riding on the success of the P800.
Speaking of handsets. Dubious proposition number one: People want to wear their handsets. Dubious proposition number two: People will buy said handsets especially to wear. Dubious proposition number three: People will change said handsets according to 'the season'. Voila! The business case for Siemens 'fashion phone' venture, Xelibri. Which means what exactly? Behind the fashion times the Informer may be, but surely this is segmentation theory gone loopy.
So, ARPUs up, growth up, revenues up, interoperability up; shares up? Not a bit of it. The steady rumble rhetoric and munitions directed at the Gulf drowned out everything. The FTSE set a record for consecutive days of losses, the Nikkei approached a 20 year low and the Dow Jones slumped below 8000. Misery pervaded the World Forum at Davos (where David Dorman saw the light) as the great and the good compared their shrinking assets, sorry, discussed the world economy.
And despite the promising signs from Vodafone, CEO Chris Gent took a doom-laden message to the European Parliament, promising "further job losses, deep indebtedness, reduced investment (and) further bankruptcies," in 2003. European regulators "have blood on their hands," he thundered, as startled MEPs quickly checked whether the topic was EU Regulations or UN Resolutions. It behoved Gent to paint a dismal picture because he was lobbying against the kind of price regulation mooted by the UK last week. A spot of hyperbole from the North Korean handbook of rhetoric was to be expected.
France Telecom and the French government no doubt wish that Gent would pipe down about his precious 'market forces'. Having bailed out FT to the tune of E9bn, ministers are having to justify the credit line to European Commissioners concerned that the loan could have served as an illegal state guarantee that allowed FT to go on and raise E14bn in bond and debt markets. If the formal probe goes against them, FT may have to hand the money back. Those pesky Eurocrats might even end up doing Gent and Vodafone a favour by knobbling the competition. Gent couldn't resist: "For the European telecommunications industry to survive, it does not need state aid," he said. "This would be wrong in principle and practice."
Even Gent was not as intemperate as Nasdaq vice-chairman Alfred Berkeley who accused Europeans of trying to, "lower America to their own pitiful level," by having the temerity to pushing for stricter accounting treatment of stock options. He attacked the, "stultifying lack of opportunity that characterises Europe and much of the world." So reassuring to see such equanimity, understanding and tolerance in high places. Meanwhile, up for sale this week: Bernie Ebbers' 500,000 acre ranch bought with loans taken out against the value of his WorldCom shares.
The Informer
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SPOTLIGHT
31-JAN-2003
Telecoms.com
No gloom please, we're German.
The Informer was in Berlin this week to gauge the mood at Deutsche Telekom's 12th International Press Colloquium.
A year can be a long time in telecoms. Chancellor Gerhard Schroeder was the star turn at last year's Colloquium and it looked at the time as though he, and not his host Ron Sommer, was the one who would presently find himself short of a job. Ultimately, of course, it ended up being the other way round.
The strange thing, though, was that after a year of changes at the top the issues for Deutsche Telekom had not moved on that much, if at all. How would they wipe off some of that enormous debt? When might the flotation of T-Mobile become feasible? Where does T-Mobile USA fit into the grand plan? Nor were there really any new answers, largely because Sommer's own protégés had stepped up to replace him. Kai-Uwe Ricke had supplanted Sommer as head of DT; Rene Obermann had moved into Ricke's old job at the head of T-Mobile.
But rather than dwelling on these perennial problems, the theme of the event (from a wireless point of view) was that we should all try and drum up some enthusiasm about UMTS again. The big announcement was that T-Mobile Deutschland will launch 3G services in Q3 in 200 cities, which should satisfy the regulator's 25% coverage requirement. And they were at pains to show us that this stuff really does work. The visiting media were invited to take a 'mobility tour' to witness that hand-over between UMTS cells works smoothly-which, yes, it does-while indoors the revamped t-zones portal could be seen running at impressive speed over the 3G network. However, the phones were only test models being used to provide connectivity for PDAs. The outlook for T-Mobile customers in the UK sounded rather less thrilling, though, with Obermann explaining that roll-out efforts were concentrating on the London area; nor was a switch-on date mentioned.
In keeping with this theme, the most entertaining panel session addressed 3G's commercial prospects. DT had invited a number of senior industry figures along this year to add their weight to the discussion: namely Jorma Ollila, CEO of Nokia; Frank Dunn, CEO of Nortel Networks; and Heinrich von Pierer, chairman of Siemens. Also on the panel was Lars Godell, senior analyst with Forrester Research. This was a brave move on DT's part and a laudable one that gave the debate a certain edge that you don't often experience on these occasions.
"They call me 'Gloomy' Godell," the Forrester analyst began before doing his utmost to live up to his reputation. UMTS break-even won't be achieved until 2014, he predicted; only 10% of subscribers will have a 3G phone by 2007, not the 50% that most operators expect; and "UMTS won't be a major innovation driver".
For a while the Godell Gloom seemed palpable and infectious; his fellow panellists sat stony-faced and shuffled awkwardly through their notes. However, the suspicion grew that it was really Godell himself who was the brave one, as the other six speakers took turns to tell him what a load of rubbish he'd been talking. Rene Oberman observed that it's meaningless to ask people if they're interested in using 3G services before they actually exist, and Heinrich von Pierer took up the theme: "Asking people about SMS back in '92 would have been pointless". "I wish every panel had a Mr. Godell," said Jorma Ollila. "I think most of his questions were correct; but the answers less so." Kai-Uwe Ricke challenged Godell's methodology: "What is an average operator anyway?" It was essentially a unified front to demonstrate how optimistic both vendors and operators remain about the 3G business case-publicly anyway.
Separately, Jorma Ollila provided another highlight in the form of a scathing diatribe about the way European governments had handled the 3G licensing process. It might seem like old news by now, but it evidently continues to rankle quite painfully with the Nokia chief. "I can tell you that Nokia visited every one of those governments," he explained, seeming to suggest that not one of them had paid even the slightest attention. The Informer might humbly venture, on the contrary, that governments paid too much attention to Ollila's UMTS pitch. On the whole, Ollila sounded upbeat, pointing to the billion people who now use a mobile phone worldwide. "Doubling that number by the end of the decade is a real possibility," he reckoned.
And there was a heart-warming sight as the assembled media left the conference centre. Not only had Lars Godell made it out in one piece, he was smiling-beaming even. Had some of the optimism of his fellow panelists rubbed off? Whatever the case, the power of positive thinking will be tested to the limit when it comes to 3G. |
