In spite of mammoth debt, operators are beginning to loosen their purse strings to buy equipment again, according to a report by market research firm Dell’Oro Group.
The report said UMTS equipment revenue jumped fourfold to about $800 million in the third quarter of this year, in contrast with the second quarter, when recorded revenue totaled $149.8 million.
Although this cheerful news may spread to the United States eventually, most of the current buying is taking place in Europe and Japan.
L.M. Ericsson and Nokia Corp. took the lead in contracts, with NEC Corp. and Fujitsu coming in third and fourth.
“During the quarter, both Ericsson and Nokia had a large portion of their mobile infrastructure revenues generated from W-CDMA systems and we expect that several other vendors will begin to recognize revenues over the next few quarters,” said Greg Collins, director of the market research firm.
But carriers aren’t necessarily buying more equipment. “Rather, the advent of W-CDMA revenues in Europe is a function of revenue recognition of systems shipped, installed and tested, over a period of two years,” Collins said. Market revenues will reflect prevailing economic conditions and acceptance of advanced data services in the second half of next year when market growth may slow down again.
But some industry experts say this may demonstrate the beginning of carrier spending on a large scale in Europe and Japan.
“I think we are starting to see that lead operators like Vodafone and Hutchison are planning serious commercial launches next year,” said Scott Wickware, director of UMTS products at Nortel Networks Ltd., pointing out two developments favoring carrier spending. The first point is that subscriber acquisition, minutes of use and average revenue per user have reached a plateau. The second explanation, he said, is that carriers are finding out that end users are buying SMS and MMS-enabled phones.
NTT DoCoMo’s launch of its wideband CDMA services account for NEC and Fujitsu’s high profile in the ranking. As carriers buy more around the world, their positions may change, according Collins and Wickware. Both NEC and Fujitsu have partnerships with Siemens AG and Alcatel Althsom for marketing and selling the systems in Japan.
Collins said, however, that in spite of the revenue ramp, the contracts were “more of MOUs” due to the absence of specific shipment and revenue terms and the carriers’ preference to let vendors compete against each other.
“Vendor financing is also quite common for W-CDMA contracts, where a service provider can pay for equipment over a period of years at less than market interest rates,” he said. “I think there was minimal cash commitment from the service providers when the contracts were signed.”
Wickware said while Vodafone and Hutchison will take the lead, traditional operators like Telecom Italia, T-Mobile and MmO2 are taking a wait-and-see approach, falling one or two quarters behind. He added that the “greenfield,” or new, operators, which are predominantly MVNOs, will fall behind even further.
U.S. operators do not factor into the report because of spectrum constraints. Carriers are grappling with “down-banding” because the 2.1-GHz band is not available, focusing attention on clearing the 1900 MHz and 850 MHz bands.
Nokia said the Dell’Oro report approximates its outlook to reach 35-percent market share, according to Laurie Armstrong, company spokeswoman. Ericsson said it expects 2003 will not decline but will stabilize, according to company spokeswoman Michelle French.
