NEW YORK-A wide and growing array of handset choices has caused some carriers to evaluate whether to winnow down the number of makes and models sold at their own retail stores.
Is this a case of product oversupply? No, it’s only half the story.
Telecommunications equipment analysts project that growth in demand, particularly for digital wireless phones, will match the increase in handset availability.
Raj Srikanth, a telecommunications analyst for Schroder Wertheim & Co., New York, said he expects subscriber growth to be in the 32-percent range worldwide for the next three years. The rapid increase of cellular and personal communications services around the globe will cause the handset market to double and then some by 2000-to 220 million units from 101 million at the end of 1997, he said.
At least in the United States, the fastest growth for the next several years is expected to be in dual- and tri-mode, analog-digital phones, according to The Strategis Group, Boston. By 2002, tri-mode Code Division Multiple Access and Time Division Multiple Access phones could be running neck and neck, with 28.9 percent and 28.1 percent domestic market share, respectively, Strategis predicted.
Except for plain vanilla analog phones, Ray Jodoin, senior analyst for In-Stat, Scottsdale, Ariz., said he doesn’t believe there will be an oversupply because of increasing consumer demand. Global System for Mobile communications, the most widely used technology, will retain dominance, but the CDMA-based phone market will grow the fastest, he said.
“Quite a few makes and models will be coming in (later) in 1998, (whereas) today, you see predominantly a couple of handsets being offered,” said Perry LaForge, executive director of the CDMA Development Group, also known as the CDG.
Richard Lynch, chief technical officer for Bell Atlantic Mobile, a CDMA cellular carrier, said he expects as many as 14 CDMA phones to be available this year-up from four in 1997. Realistically speaking, BAM probably won’t sell more than three or four of these in its own stores, he said.
Bob Dinsmore, director of subscriber equipment for PrimeCo Personal Communications L.P., a CDMA PCS carrier, echoed Lynch’s assessment.
“We’ve done a lot of business with Qualcomm-Sony, and it’s a great manufacturer, but `the more, the merrier’ is the right way to look at it,” he said.
“That’s not to say we’ll feature handsets from all manufacturers. We don’t want to confuse our customers, so we’ll go out and do the shopping for them. It’s a delicate art. We won’t give all of our product line to any particular manufacturer. Our drive is to offer a good, better and best selection to our customers.”
Among the manufacturers that expanded their CDMA handset line last year or announced plans to introduce handsets this year are, according to CDG: Audiovox Communications Corp., Fujitsu Network Communications Inc., Hyundai Electronics Industries Co. Ltd., Maxon America Inc., NEC America Inc., Nokia Mobile Phones, Oki Telecom Inc., Philips Consumer Communications, Qualcomm Inc., Samsung Telecommunications America Inc., Siemens Wireless Terminals and Sony Wireless Telecommunications Co.
In-Stat’s Jodoin offered this breakdown of actual CDMA 800 MHz retail sales to end users in 1997 and projections for year-end 1998. Worldwide, some 3 million handsets were sold, including 365,000 in the United States. Jodoin expects that number to hit 6.9 million, of which 517,000 will be domestic sales.
For CDMA at 1900 MHz, Jodoin said there were 700,000 units sold worldwide last year, of which 445,000 were to U.S. consumers. This year, In-Stat projects that 1.5 million will be sold globally, of which about 1.21 million will be to U.S. subscribers.
Worldwide, cdmaOne handset manufacturing capacity will approach 15 million units per year by the end of 1998, according to the CDG, which has developed cdmaOne, a CDMA cellular and PCS terminal certification program, in conjunction with the Cellular Telecommunications Industry Association.
“The widespread availability of cdmaOne handsets, in turn, is expected to substantially reduce handset prices and make cdmaOne wireless services available to an even-larger customer base,” the CDG said.
CDMA is the newest kid on the block, so the steep upward slope of the supply-side curve may not be surprising. However, the same situation appears to be the case with the more established GSM technology.
Jodoin said In-Stat tallied actual retail sales worldwide of GSM-900 handsets at 36.4 million last year, and is projecting 48.3 million by the end of this year. For PCS-1900, 1.7 million handsets were sold last year, of which 300,000 were in the United States. In-Stat projects worldwide sales of these PCS phones to total 2.3 million worldwide, with the domestic market accounting for 800,000, he said.
George Schmitt, president of Omnipoint Communications Services Inc., said he expects 17 to 18 single-mode GSM PCS phones to be available this year.
“That’s too many different models, more models than we need. We’ll have to settle down to a dozen,” he said.
That’s a nice position for a carrier to be in, according to J. Clarke Smith, vice president of finance and administration for Aerial Communications Inc., also a GSM PCS provider.
“Phone prices dropped fairly quickly in 1997 and we anticipate they will decline more so in 1998 because more competitors are coming in,” he said. Smith declined to offer a ballpark estimate about the amount of the price decline he is expecting.
Ken Woo, external communications manager for AT&T Wireless Services Inc., said last month that the TDMA cellular and PCS carrier had an adequate supply and variety of handsets, “more than enough for the holiday rush.
“The CTIA show will be a taste test” for new makes and models coming into the domestic marketplace, he said.
“The availability (in January) of a tri-mode (Nokia) phone and the possibility of two more suppliers in the first half of 1998 gives AT&T Wireless seamless nationwide coverage,” wrote Stephanie Comfort, a telecommunications analyst for Morgan Stanley Dean Witter, Denver, in a late January report.
For TDMA-800, In-Stat reported there were 1 million handset sales last year, of which 603,000 were in the United States. Of the 1.2 million it expects to be sold in total this year, 660,000 will be to U.S. customers.
American consumers bought all of the 200,000 TDMA-1900 handsets sold last year, and they will account for 443,000 of the 500,000 such phones In-Stat expects to be sold this year, Jodoin said.
In a late January research report for NatWest Securities Securities Corp., telecommunications analyst Jeffrey L. Hines projected that handset volume growth, which reached 57 percent in 1996, will slow to an annual range of 29 percent to 33 percent by 1999. Hines, who has since moved to BT Alex. Brown Inc., New York, said handset makers in recent years have been able to increase their profit margins by reducing unit manufacturing costs and by selling more digital phones. That trend is unlikely to continue this year, particularly given competition from new entrants.
