Subject: [NEXTEL-1] Wireless World- Nextel-1

From: Marcel <[email-masked]>
Date: Wed, 18 Dec 2002 21:05:35 -0500

Wireless World- Nextel-1

Data Services Radically Changing The Mobile Industry

The wireless market can be segmented into voice and data services, with voice revenues and
services
dwarfing that of data by orders of magnitude. There are more than a billion people on the
planet using
mobile communications. In the US alone, there are some 150 million Americans paying ~
$50/month for
service. This is a small miracle in itself. The mobile market has the most complex supply
chain of any
industry making purchase decisions difficult. Which phone can be used with which network?
Can I send a
message to a Sprint end point if I am using Verizon? What is the tariff this month on this
service? Not only
is the purchasing complex, but for some operators, there are hidden penalties for
canceling service. But
even with these hurdles, the average number of cell phone minutes used per month in the
U.S. jumped
74% to 422 (about seven hours) last year. This is up from 242 in 1999, according to J.D.
Power.

High Debt Withers 3G

But don’t be fooled by an increase in the number of minutes consumed, the traditional
voice based mobile
market is far from a high growth industry any more. Not only has growth in subscribers
slowed, but many
large European mobile operators are so heavily in debt, it seems like nothing short of a
government bail out
will save them. And the chances of that bail out are pretty high. European mobile
operators spent more
than $115 billion in 2000 on licenses for 3rd generation wireless networks which promise
high speed
wireless data services. Servicing that debt along with the gloom over the
telecommunications industry has
made tapping capital markets to build their 3rd generation or 3G W-CDMA based networks
nearly
impossible. The result, many European 3G deployments have been either delayed or shelved
for the time
being.

The debt issue is most acute in Germany. Germany has four major mobile operators, T-Mobile

www.tmobile.com (Deutsche Telekom), Vodafone www.vodafone.com , E-Plus www.eplus.com (NTT)
and
O2 www.o2.com . T-Mobile and Vodafone service approximately 80% of Germany’s 52 million
mobile
subscribers. Thanks to buying up spectrum to build out a 3G W-CDMA mobile network,
T-Mobile finds
itself with a EUR64.2 billion debt burden. T-Mobile is the largest telecom carrier in
Europe servicing some
73 million subscribers worldwide. It has put in place a program to cut its debt to EUR50B
by YE02 with
reduction in staff and other expense cuts. In short, T-Mobile will find it hard to build
out a 3G network any
time soon.

Large debt is not isolated to just T-Mobile, many others are burdened with this problem
too. But debt is
only half the problem, subscribers and thus revenues are not growing as anticipated and in
some cases
such as Sprint www.sprintpcs.com they are contracting due to subscriber churn. It’s these
arguments that
Kevin Kennedy COO of Openwave says” the mobile industry is so fragile neither the
operators or
equipment suppliers can implement 3G systems in the short term. The time to generate cash
from 3G
services is long, perhaps until the end of the decade. It’s not a question if 3G will
happen, but when. This
delay in 3G deployment opens a huge window of opportunity for mobile networks based upon
the US
CDMA 2000 and new 802.11 high speed wireless internet access standards”

Kevin goes further to say that before any major infrastructure spend occurs, the mobile
industry will
continue down the road of consolidation with equipment suppliers consolidating first,
followed by mobile
operators.

2003: A Year of Consolidation

The mobile industry structure is much like the airline industry today. There are a small
number of huge
airports and a small number of small airports, but there aren’t many medium sized airports
or mobile
operators. This tends to move an industry to a vertical structure. The mobile market is
dominated by
vertically oriented equipment suppliers and operators providing total solutions. This
means there are a few
large equipment suppliers such as Lucent www.lucent.com , Nortel www.nortel.com , Ericsson

www.ericsson.com , Nokia www.nokia.com , et al providing solutions to a small number of
huge mobile
operators. But here’s the twist, the operators will have to consolidate to gain efficiency
while the equipment
suppliers may bifurcate into a few large vendors selling primarily the old mobile
equipment and a host of
new entries selling primarily internet wireless infrastructure equipment.

As the mobile operators consolidate, those left standing will be better positioned to use
scarce spectrum,
service debt and offer new services, primarily data or internet based. There are some 30
mobile operators
servicing Europe, the US and Asia, with Asia being the only worldwide bright spot.
Considering slowing
growth in the US and Europe, the question is, does the world need 30 operators? Who will
make it? Your
guess is as good as mine.

Vodafone has the deepest reach in all the large markets including Germany, UK, Italy,
France, Japan,
China and US. T-Mobile, if it can restructure its debt, has significant share in Germany,
the UK and the
US. Orange www.orange.com dominates in France and has 27% of the UK market. NTT
www.ntt.com and
China Mobile www.chinamobile.com have 60% and 64% of the Japanese and Chinese markets,
respectively. In the US, Vodafone owns 45% of Verizon www.verizon.com , making Verizon a
winner. And
you can’t count Cingular www.cingular.com and AT&T www.attwireless.com out either.
We’ll know that the operator consolidation phase is over when the industry reaches an
inflection point
marked by stable pricing of voice and data services that are easy to purchase i.e., a
simplification of the
supply and value chain. The mobile operators will be slow to consolidate due to the need
for regulatory
approval which will leave the equipment suppliers twisting in the wind. With equipment
suppliers
confronting shrinking revenues and fewer operators, look for these plays to start
consolidating in 2003.

The Battle for The Consumer

While macro economics is influencing mobile industry structure, technology trends are also
shaping its
future. The most important trend is the growth of data services which has it own set of
challenges. For
example, the end point (a phone, PDA, laptop, etc) supply chain is very complex. The value
chain and user
experience need to be tightly aligned for a successful service. To deliver value to the
user, a digital end
point needs to incorporate a color display, a browser and applications such as games,
internet access and
plain old voice. These technologies are offered by a wide range of companies, making the
integration into a
end point difficult and intricate.

The shift in the end point feature load is pitting operators against end point
manufactures such as Nokia,
Ericsson, Sanyo, et al. The end point players want to entice consumers with features while
operators want
to deliver features as a service. This is a major shift from the past where end point
manufacturers worked
with operators to deliver features. But now there is a battle over who will own the
customer fracturing the
once friendly partnership between manufacturers and operators.

In short there is a branding war occurring in the mobile market over who will have control
of the industry,
the end point folks or the operators. It’s too early to tell who will win this match too
with so much
technology in flux. But what it does do is create more confusion over which type of mobile
infrastructure to
build to support internet based services since it’s unclear if those features should be
part of the end point
or the network.

Second Thoughts on GSM

Not only are the end point manufacturers and operators in conflict, so too are the
equipment suppliers and
operators. There is shift in thinking that questions if the European’s GSM based mobile
wireless network is
the right technology model to support data or internet access. The European’s are ahead of
the US in
subscriber adoption rates and most importantly the ability to roam across Europe with a
single phone and
receive voice service. This is all thanks to the past tight partnership between equipment
suppliers such as
Nokia and Ericsson and the mobile operators.

But mobile operators are struggling. They struggle to service their high debt. They
struggle to support a
boom in SMS data traffic that is occurring on a network that was not designed for SMS, but
is a control
channel for SS7 traffic. They struggle to keep quality up while supporting more and more
data subscribers
on an under designed data network. They don’t have the capital to build a new network.
While they
struggle, equipment suppliers keep pushing the operators to build out 3G, a multi-billion
dollar spend
proposition.

This problem/solution mismatch is straining these long standing partnerships between
equipment suppliers
and operators. For many of the equipment suppliers, survival is linked to 3G rollouts. But
the operators are
saying, they need to add incremental value on top of their infrastructure that generates
revenues today.
They are not interested in a massive multi-billion EUR 3G spend which requires a huge
swap-out of
equipment. Not only that, 3G forces operators to swap voice channels for data services
putting their voice
revenues at risk. Operators do not want the option of either taking spectrum from voice to
add data or doing
expensive things such as implementing more cells.

As if it couldn’t get any worse for GSM mobile operators, for first time, these operators
are increasingly
vulnerable to CDMA based operators. The beauty of GSM is also its difficulty. Since GSM is
common
between operators, subscribers can roam between networks. But this commonality limits
differentiation.
There is little competition or technical advantage between GSM operators since they all
offer the same
basic services built on the same infrastructure. The only way to gain market share is on
price or to acquire
your competitor, which Vodafone has done very successfully.

But the Europeans will continue to dominate the mobile equipment market since the GSM
standard
controls 80% of the world market. The GSM operators aren't expected to make the switch to
CDMA 2000
any time soon. But CDMA 2000 has made inroads in South Korea, Japan and Latin America. The
wild card
is China, which still hasn't chosen. CDMA with public wi-fi 802.11 has the potential to
leapfrog the
traditionally strong European market over time.

Looking Toward Asia

CDMA operators have the flexibility to offer data services without the huge capital spend
required in GSM
networks. For data service innovation look toward the CDMA operators. The US is primarily
a CDMA
country. Also US operators have better balance sheets then their European competitors.
This provides
some major U.S. wireless-phone operators flexibility to invest in new services. Verizon
launched a
high-speed Internet service for mobile phones earlier this year. Sprint’s PCS is planning
similar services
during YE2002/Q12003. CDMA 2000, one US approach to 3G wireless data services, is used by
Verizon
and Sprint. CDMA 2000 and its various forms allow operators to offer data services with
smaller capital
outlays rather then the fork lift upgrade GSM operators are confronted with.
The Asian CDMA operators are being more aggressive and smart about data services too.
First they are
segmenting the market into age groups and gender. Second they are launching a range of
experimental
data services such as sharing photos on digital mobile phones which is now being exported
to the US by
Sprint. Their innovation spans telecommunications and TV programming linking the two in
profit sharing
interactive TV shows.

It’s All About Internet Access

Mobile operators worldwide require open data network standards to build out next
generation wireless
systems. Larry Lang, Vice President and General Manager of Cisco's Mobile Wireless Group
offers this
analogy. In many respects the conflict over 3G mobile network standards is much like the
debate over
ISDN in the early 90s. Narrowband and broadband ISDN was driven by Bell heads rooted in
the
telecommunications industry. These folks underestimated the internet and growth of data
traffic. ISDN
offered too little bandwidth for data and it did so over the wrong infrastructure. GSM’s
3G, like ISDN, is too
little to late and cost too much. The internet folks like packet mode interfaces for data
services and for
good reasons. We have a few in CDMA 2000 and 802.11.

Data traffic is driving a massive change in mobile communications much like it did to the
circuit switched
voice network in the late 90s. While public 802.11 based wireless services will not
replace or eliminate
2.5G or 3G mobile infrastructure it will surly slow their adoption rates even further as
mobile operators seek
ways to offer new data services with lower capital spend. Add to the mix a complex value
chain of new
digital end points and the ensuing branding battle between end point manufactures and
operators and the
real winner could be wi-fi operators equipped with a simple high speed service for wi-fi
enabled end points.
Your comments are always welcome. Check out the new message board area at
www.lippis.com/community.html.

The Next Lippis Report...
Wi-Fi operators: a new approach to delivering high speed wireless internet access.

IP Telephony Market and Vendor Report:

Many of you have requested detailed information on the IP Telephony market, particularly
vendor/equipment supplier information. Here is our response. If you’re serious about
implementing IP
Telephony then you need to read The IP Telephony Market and Vendor Report, available for
immediate
release at www.lippis.com. This report is written by Nick Lippis, a world-renowned
authority on corporate
computer networking, and Chris Aronis, an experienced networking consultant and analyst at
Lippis

Consulting.

The IP Telephony Market and Vendor Report is written with the insights that only Lippis
and Aronis can
provide. They discuss the major changes that are occurring in the voice market and how
enterprise IT
managers can exploit these changes to increase your business productivity and EBITDA. In
this report
Lippis Consulting profiles and accesses all the major enterprise IP Telephony vendors
including Avaya,
Nortel, Cisco, 3Com, Mitel, Vertical Networks, Shoreline and Pingtel.

Think Cisco is leading the IP Telephony market, think again! Can Mitel’s PBX business
survive or will it end
up like Fujitsu’s? Can Avaya and Nortel keep their customers? Is Vertical Networks boxed
in? Can 3Com
and Shoreline scale up? Can Pingtel execute on its open IP Telephony model?

Lippis and Aronis provide detailed recommendations that will guide you through the thought
process of
developing an IP Telephony solution and, most importantly, what you may expect as you
start
implementation. They draw upon experience with large enterprises of assessing network
architecture for IP
Telephony readiness, RFP development and vendor selection to deliver the insights others
simply can’t
provide.

Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/