1998 MARKS BEGINNING OF SHIFT FROM ANALOG TO DIGITAL PHONES

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NEW YORK-For handset manufacturers, next year likely will be a transition period as new entrants gear up to enter the rapidly expanding wireless marketplace, said Jeffrey Schlesinger, wireless technology analyst for UBS Securities L.L.C.

Brightpoint Inc. projects that sales of new handsets in North America alone will total 24 million, said Robert Laitkin, the company’s chief executive officer, at a recent UBS Securities Telecom Conference. Of these, 9 million will be based on Advanced Mobile Phone Service technology, 7 million will use the Time Division Multiple Access protocol, 5.5 million will be Code Division Multiple Access-technology based and 2.5 million will use Global System for Mobile communications 1900 personal communications services technology.

“Replacement sales (worldwide) will outnumber new subscriber additions,” said Jim Caile, vice president of marketing for Motorola Inc.’s Cellular Subscriber Sector.

The overseas market also is likely to grow in size, with Asia outstripping North America, according to UBS projections. So large and so rapidly growing is the overall Asian market that Motorola doesn’t anticipate any diminution in demand even if individual countries, like Indonesia and the Philippines, experience economic difficulties, Caile said.

Worldwide, Motorola has seen unit volumes increasing 40 percent “year over year, providing an opportunity to reduce costs and maintain revenues,” he said.

Five years ago, handsets cost more than $1,000 each, whereas there are digital phones available today for about $200, Laitkin said. Airtime-which used to cost 40 cents to 50 cents per minute-is now available in some cases for 3 cents per minute.

Frequency availability has quadrupled to 400 megahertz of spectrum today from 50 megahertz when cellular first became available, Caile said.

The prospects for dramatic increases in subscriber growth and penetration rates led Brightpoint in late November to revise its projections for worldwide wireless users, Laitkin said. By the close of this year, the company predicts about 225 million worldwide wireless users, with 300 million by the end of next year, 375 million by the end of 1999 and 450 million by the end of 2000.

Nokia Corp.’s projections are a bit more conservative for 1997 and a bit more optimistic by the start of the new millennium. The world will ring out 1997 with 200 million wireless customers, whose numbers will grow to 470 million in 2000, said Matt Wisk, vice president of customer marketing USA for Nokia Mobile Phones. In 2000, AMPS subscribers will account for 18 percent of the total handset marketplace, down significantly from 43 percent at the close of last year.

“Everyone thinks digital conversion is a straight line, but in Nokia’s view it’s shaped more like a hockey stick, and the difficulty is being able to forecast that inflection point,” Wisk said. “We think analog still has some interesting opportunities, although the future is digital.”

Worldwide, Ericsson Inc. projects that by 2000, “the bulk of the opportunities will be based on TDMA, including TDMA-GSM,” said Michael Farese, vice president of the manufacturer’s American Standards Business Group. “The key to the market is multiband, multimode phones that can be used in the Americas, in Europe, in the Asia-Pacific region.”

Ericsson, he added, introduced the first dual-band, triple-mode phone, which works on TDMA Interim Standard 136 networks at 800 MHz and 900 MHz and on AMPS networks at 800 MHz.

In the longer term, data communications, now less than 1 percent of overall network traffic, have the potential to outstrip voice communications in use and importance, according to UBS.

Farese said TDMA IS-136 already has a standard in place for data and fax transmissions. The Wireless Access Protocol Initiative is working on handset standards for e-mail and Internet access.

Carlton Peyton, national sales director for Samsung Telecommunications America Inc., a CDMA handset maker that entered the U.S. market this year, said he disagreed with Ericsson’s Farese about technology choices as translated into handset market share.

“I think CDMA will be much greater and there will be a bit of a plateau in TDMA,” Peyton said. “One of the things opponents of CDMA said is, `What will it take to bring a reasonably priced (CDMA) phone to market?’ We think the $350 price in 1997 will drop to $250 in 1998 and to $150 in 1999.”

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