Some analysts are expecting Code Division Multiple Access infrastructure spending to taper off in 1999 as cdmaOne infrastructure deployments in China remain questionable.
“I think China is the lynch pin for CDMA infrastructure going into next year and to a certain extent greater Asia,” said Crispin Vicars, equipment analyst with the Yankee Group in Boston. “Technology upgrades are going slow.”
China is at a standstill in deploying cdmaOne technology. Though China Telecom Great Wall is operating a test cdmaOne system, the Chinese government will not allow it to expand commercially since the People’s Liberation Army owns 50 percent of the network. The government since summer has been trying to push the PLA out of commercial affairs, including telecom, in an effort to eliminate corruption the government says is associated with the army. The PLA is not budging so far.
China Unicom, a Global System for Mobile communications competitor to state-owned China Telecom, once planned to deploy cdmaOne technology as a way to differentiate itself, but the Chinese government ordered the operator to continue with GSM technology.
“China Unicom is out of the CDMA picture completely,” said Hui Pan, chief economist with Information Gatekeepers in Boston. “The government has told the operator that it must compete with China Telecom on services, not technology.”
Also clouding the future of cdmaOne technology is China’s stance on third-generation technology. The Chinese government put much of its development effort into next-generation technology rather than implementing cdmaOne technology, sources indicate.
“China is the wild card that could save 1999,” said Jeffrey Schlesinger, senior wireless technology analyst with Warburg Dillon Read in New York.
Nortel Networks’ recent contract win with Australian mobile operator Telstra helped balance out the losses in China today, said Vicars. Australian operator Hutchison is expected to grant a cdmaOne contract in the coming weeks.
Also troubling, say analysts, is that some operators in the economically distressed Asia-Pacific region have slowed their expansion plans because of sluggish subscriber growth. Devalued currencies make equipment purchases expensive, and operators like Indonesia’s PT Excelcomindo Pratama are having difficulty collecting money from their subscribers, say analysts.
South Korean operators, which all operate cdmaOne networks, are expected to reduce capital spending next year as well, said Schlesinger. LG Telecom, for example, plans to reduce capital expenditures by more than 50 percent in 1999.
Schlesinger also believes cdmaOne infrastructure spending will slow in the United States given the consolidation of the mobile phone market and the massive buildout of personal communications services networks during the last two years. In Japan, he expects infrastructure spending at DDI Corp. and IDO to decline dramatically next year as the two complete the coverage phase of their cdmaOne project by the end of March.
But the silver lining is that cdmaOne handset costs are falling, which is one of the key considerations for some developing markets, said Vicars. Raymond Ho, wireless analyst with Gartner Group Hong Kong Ltd., said many carriers still operate analog networks, and their requirements in the coming two years will be migrating to digital networks.
“For those AMPS operators, it is very likely they will use cdmaOne technology because of a smoother migration,” said Ho.
Truc Do, equipment analyst with SoundView Financial Group in Stamford, Conn., said new carriers want to be technology competitive and likely will use cdmaOne technology to do this.
“GSM has had a significant advantage as a business case because of cheaper handsets and equipment,” said Do. “Now that’s not much of a case anymore because CDMA is a volume-deployed technology now.”
While pricing in all technologies has become competitive, cdmaOne pricing pressure has intensified significantly, say analysts.
Nortel, said Schlesinger, has become extremely aggressive in bidding for new contracts, bidding in some cases about 30 percent below its competition. Sources say Nortel’s recent win with AirTouch Cellular in Los Angeles was a result of severe discounting on equipment. Nortel will replace Motorola Inc.’s cdmaOne equipment in Los Angeles, and indications are Nortel may replace more gear in other markets. AirTouch is said to be extremely pleased with the price of Nortel’s equipment.
“We believe Nortel’s action is a reflection of its recent market share losses in the European GSM market, which has caused a major deceleration in the company’s wireless revenues,” said Schlesinger. “Nortel appears to be using price as a means of increasing its wireless market share, particularly in new greenfield CDMA contracts.”
Analysts indicate cdmaOne equipment has experienced a 15-percent price erosion year over year.
