Issue #2003 - 11
INFRASTRUCTURE, PRODUCTS & SERVICES
Source: Excerpts of Yankee Report by Keith Mallinson
- Sent to MobileInfo.Com
Yankee Group Sees Difficult Times
for Wireless Carriers and Equipment Vendors: The Coming
Rationalization Among Mobile Infrastructure Vendors
The Yankee Group is still bullish about the long-term prospects for mobile carrier services growth worldwide, with double-digit growth in
developed markets and penetration rates still short of market saturation in developing nations-and even in North America. In the short term, however, a series of
shocks have rattled the marketplace:
- Reckless bidding behavior and licensing for 3G, particularly in Europe, where more than $100 billion has been committed and many new companies have entered the market.
- Disappointing levels of demand for data services, except for wireless Web in Japan and Korea and SMS outside of North America.
- Under-performing technology. (Who realized three years ago that GPRS networks would struggle to deliver more than 30 Kbps?).
- Delayed and abandoned next-generation service launches.
- Rationalization to two 3G evolutionary tracks-cdmaOne/cdma2000 and GSM/GPRS/EDGE/W-CDMA-with the demise of TDMA, PDC, and other technologies.
- Macroeconomic slowdown and capital market shortages.
- Telecom's fall from favor and Wall Street's demands for better bottom-line performance.
Because of difficulties, major corrections are occurring in the mobile carrier services market and the impact is magnified at the equipment supply level. Although their revenues are still growing, carriers are slashing capex budgets to eke out cash reserves and bolster financial performance to meet Wall Street's demands. Like their carrier customers, equipment vendors are pressured, but their problem is far worse because their fate is tied to the carriers' fortunes. Networks can continue to run at flat levels with little or no incremental capex, but equipment vendors need carrier growth or replacements to generate revenue. Vendors further exposed themselves in many instances by financing at figures far above the price of the equipment shipped.
Motorola and Nokia, for example, are making write-downs against their exposure with Turkish operator Telsim, and are claiming $2 billion and $700 million, respectively, in compensatory damages for non-payment of debts. Motorola now vows no more vendor financing. Consequently, the $53 billion mobile infrastructure equipment market is in a short-term decline of 13% this year with no recovery expected until 2004.
All vendors have downsized, and Lucent, Nortel, and Nokia are continuing a series of job cuts to bring cost in line with diminished revenues. But this spiral of incremental decline will only provide temporary relief. There must be radical change with elimination and restructuring on the equipment supply side.
Consolidation is likely, but what types of mergers make the most sense: synergistic combinations or rationalization with the elimination of suppliers and capacity?
There are opportunities to merge operations and grow by spanning the divide between the two major next-generation technology evolution tracks. A few years ago, an important commercial battle ensued to win carriers to cdma2000 versus GPRS/W-CDMA, and vice versa. Leading vendors rallied for their respective technologies-for example, QUALCOMM for cdma2000 and Nokia for GPRS/EDGE/W-CDMA. Most carriers (except for some of the smaller ones) have already made their next-generation technology selection. Vendors will no longer compromise their positions by also being suppliers of the rival technology. Exhibit 1 shows the respective positions and strengths of the major vendors.
OEM Report Card
Source: the Yankee Group, 2002
|| Radio Access Network (RAN)
|| Core Network
|| B+Multiple 2G standards, limited cdmaOne/cdma2000
|| A- MAP and ANSI
|| B-No cdmaOne/cdma2000
|| B No ANSI
|| A- Multiple 2G standards
|| AMAP and ANSI
|| A- Multiple 2G standards
|| COnly with partners
|| BAbandoning GSM B
More radically, rationalization through mergers with elimination of duplication at various levels in the supply chain-R&D, manufacture, sales and marketing, and professional services-will reduce costs and buoy market prices by reducing competition.
- Stick with the strongest product portfolios and balance sheets. For example, Nokia's distribution in North America may be thin, but it has a lot behind it. However, its level of commitment to 1,900 MHz is uncertain. Lucent is a good choice for cdma2000 product, but keep a careful watch on the company's weak and deteriorating financial position.
- Single-technology track players (Nokia, Alcatel, and Siemens in GSM/GPRS/W-CDMA and Lucent in cdmaOne/cdma20000) should seek to combine with those on the other track. Synergistic mergers provide opportunities to increase total market share and reduce development costs:
- Up to 50% of the hardware software in a W-CDMA base station could be shared with its cdma2000 counterpart.
- Buying a TDMA or PDC vendor provides the distribution and installation talent for growth technologies like GSM or W-CDMA.
- Market conditions also demand full-blown supplier elimination. Vendors should barter distribution strength to merge with those that have the strongest product portfolios. Nortel and Motorola are spread too thinly; they can share costs across the two technology tracks, but are too weak in either camp.
- The need for focus-particularly in the case of smaller and weaker players-may require abandoning something. Lucent was right to get out of GSM.
- With no core network product of its own, Motorola realizes it must vertically integrate to secure a strong market position. However, to achieve this, it must find a strong and committed partner .
- Ericsson must either build a much stronger position in cdma2000 or get out of that technology altogether. Ideally, it should merge and rationalize its operations with those of a stronger cdma2000 player such as Lucent. This is the surest way to maintain overall market leadership, but the poor financial shape of these two companies will make such a deal difficult to complete.
Source: By Keith Mallinson
For more information: http://www.yankee.com
MobileInfo Comments and Advisory: Yankee
group is pretty accurate in its assessment of what is going on. The
carriers and network equipment vendors may not listen directly to
Yankee but they will be forced to listen to the market pressures. It
is these pressures that Keith has highlighted. In the best of times,
it was a tough call but now it is much worse. To enterprise
wireless service planners (our primary targets), please hedge your
bets. Do not cave into one vendor or technology - keep your options
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