According to most industry observers, all systems are go in the worldwide wireless industry.
Predictions show significant sales opportunities in emerging markets like India, where handset costs are plummeting below $50, and some carriers have figured out how to make money from $5-per-month service plans. In developed markets like the United States and Japan, it appears replacement handset sales remain strong, and wireless slowly is chomping up wireline usage.
“We see three broad growth drivers in wireless: subscriber growth in underpenetrated markets, voice traffic growth in more mature markets, and nonvoice services in the most advanced markets,” wrote Merrill Lynch in a recent investor note on the wireless industry. The firm does business with a variety of wireless companies.
The ramifications of a solid worldwide wireless business trickle down to operators, handset makers, equipment providers, software vendors, chipset dealers and all the other players in the industry’s nooks and crannies. And though there always will be losers in a competitive, capitalistic environment, indications are there’s plenty winning to be had.
“Net additions in the mobile industry in 2005 are set to hit their highest level ever, exceeding 380 million,” wrote research and consulting firm Informa Telecoms & Media. “The long-term outlook for the industry is positive.”
Even Wall Street seems to have acknowledged the optimism; the RCR Wireless News Stock Index has increased almost 250 points during the past three months to about 2,389 in trading Friday. The expansion largely mirrors that of the tech-heavy Nasdaq, which rested at 2,109 Friday.
On the carrier side, Merrill Lynch said its recommendations skew toward fast-growing markets like China, Russia, Brazil and Indonesia-where wireless sits as an important alternative to shoddy fixed-line networks.
“We think the wireline replacement story is a good one for mobile, and it has room to run in most markets,” Merrill Lynch wrote.
The story is a bit different in developed markets, however.
“Our industry analysis suggests that we are close to saturating the market for prime credit, contract customers, and that growth of the industry appears set to slow down, which may trigger a more competitive marketplace,” Morgan Stanley wrote in its analysis of the U.S. wireless market. The firm does business with a variety of wireless companies.
As carriers raise penetration rates, handset makers are cashing in on sales to new and existing subscribers. Nokia Corp., the world’s largest handset vendor, recently increased its revenue expectations by about $350 million to around $10.4 billion for the coming quarter.
“Nokia’s 3Q ’05 results have primarily come from better-than-expected industry volumes (probably close to 200 million units in the quarter vs. our expectation of approximately 190 million),” wrote UBS. The firm makes a market in Nokia securities.
For the full year, UBS recently upped its handset forecasts from 724 million to 762 million.
Strong subscriber additions and handset sales push prosperity down to chip vendors and infrastructure companies. Nokia’s raised expectations pulled investors to Texas Instruments Inc. and RF Micro Devices Inc. Qualcomm Inc. also increased its expectations. On the network side, analyst firms rallied around companies like L.M. Ericsson and Lucent Technologies Inc. on increasing capital expenditures.
“For 2005, our global wireless capex estimate moves to 9 percent growth from approximately 5 percent previously, while our 2006 estimate increases to 5-percent growth from approximately 2 percent previously,” wrote Lehman Brothers. The firm does business with a variety of wireless companies. “In general, we consider solid investment levels in infrastructure and applications should help vendors such as Comverse Technology Inc., Powerwave Technologies Inc. and even Lucent.”
China specifically could spark the infrastructure market; UBS expects up to $3.4 billion in third-generation spending in 2006 if China issues its long-awaited 3G licenses.
Despite generally rosy outlooks, threats to wireless remain.
“While there is a clear trend towards complete wireline replacement, broadband and VoIP have clouded the picture,” Merrill Lynch wrote.
However, wireless ultimately could cash in on its biggest gamble to date-3G. Carriers have spent billions upgrading to W-CDMA and CDMA2000 EV-DO networks, and analysts now predict 3G sales could catch fire after several quarters of sluggish growth.
“The usage statistics for 3G content services are particularly encouraging,” said Declan Lonergan, director of European wireless research at Yankee Group. “Although some of these services are offered as special promotions to encourage 3G adoption, there is nonetheless a healthy appetite for rich 3G content among certain early-adopter customer segments.”
