With upbeat third-quarter results snapping several quarters of melancholy, wireless players may be about to turn their purse strings loose.
The good news is infectious, touching not only carriers, but also equipment vendors, chipmakers and startups that are basking again in venture capital. Those that did not make profits found joy in diminished losses.
But, as some observers have noted, this is just one quarter.
“We are certainly encouraged by the year-over-year growth in carrier revenues, as we believe revenue growth is a crucial element in the carriers’ desire to spend on equipment,” noted UBS Warburg in a research note on equipment spending. “However, one quarter is not necessarily indicative of a turnaround, especially after six straight quarters of declining year-over-year revenues.”
The research firm said it expects wireless growth in the fourth quarter to move up 42 percent sequentially compared with 31 percent in the year-ago period.
“The news is good for the industry,” said Martin Dunsby, vice president and chief operating officer of consulting firm inCode Telecom. “Carriers will start spending more to improve the user experience.”
In a newsletter on venture capital for the third quarter, Rutberg and Co. said 57 private wireless companies announced $432 million in new financing during the quarter, with investments primarily covering semiconductor, enterprise infrastructure and carrier infrastructure sectors.
Dunsby said carrier campaigns like the Verizon Wireless’ “Can you hear me now?” are “striking a cord with consumers.” Sprint PCS and AT&T Wireless Services Inc. also have joined this ad campaign frenzy.
The campaigns, he noted, arise from the challenge of bringing efficient services to the millions of users who continue to suffer dropped calls, poor voice qualities and imperfect new-generation services.
Carriers have stepped up investment in network quality and capacity, and this makes them target areas of capacity challenges, Dunsby said. High-traffic areas include city centers and in-building coverage like airports, campuses and railway stations. The operators are building backhaul to support the areas of investment, and converged networks connecting Wi-Fi with cellular is part of the strategy.
“Carriers and OEMs continued to explore different combinations of converged networks,” wrote Rutberg and Co., referring to Sprint’s launch of its wide area network/wireless wide area network as well as Nortel Networks Ltd.’s study about converging voice and data within local area networks.
“We see these and other announcements as positive indicators for the convergence of wireless services over wireline networks,” said Rutberg and Co.
Push-to-talk services is another area identified as attracting increasing spending in the wireless arena, following the success of Nextel Communications Inc.’s Direct Connect service. Industry chimed in, with some major vendors creating a common platform to drive the technology and facilitate carrier involvement.
Both Rutberg and Co. and Dunsby identified messaging, especially picture messaging, as enjoying more attention.
“We continue to be encouraged by the market traction and potential for picture messaging,” noted Rutberg’s newsletter, explaining that carriers are dedicating marketing resources toward user education.
Dunsby said both short message service and multimedia services are enjoying increasing investment in all tiers of the industry. Rutberg, however, noted the image enhancement sector growth will be spurred by new and interesting applications, near-term market uptake of picture messaging, user frustrations and the “complementary role of enhancement technologies within the incumbent ecosystem.”
Dunsby said carriers will seek ways to pursue certain enterprise services like location-based services, which have not yet been commercially available. The operators also are pursuing value-added services. The launch of CDMA2000 1x EV-DO services by Verizon Wireless focuses on speed, hoping that enterprises will identify the kinds of services that will redound from mere capacity and coverage.
“You will need to work in more areas than San Diego and Washington,” said Dunsby, referring to Verizon’s DO launches in those two markets. He said carriers have to focus on the verticals and facilitate integrated services for areas such as transportation, healthcare and financial services.
The carriers will need to facilitate the bundling of hardware, software, devices, middleware and integration services with the pipes, which the carriers provide. For instance, IBM Corp. may provide middleware, companies like Siebel and SAP may cater to software, devices may use the services of Symbol and Intermec, while carriers provide the pipe. Integration services companies will have to knit them together.
“The carriers need to create the value and differentiate themselves or run the risk of being commoditized,” he commented.
Rutberg identified three other areas attracting spending, especially in venture capital areas. The first area includes nontraditional applications, such as game consoles and handhelds.
“We are encouraged by the opportunities for short range wireless technologies in nontraditional markets, including not only game consoles, but also other consumer electronics products, telematics, home automation, and building automation, among others,” said Rutberg.
The second area is ultra-wideband technology, which has to compete with 802.11x. The third is investment in Asia, where carriers are serving as prominent customers.
In spite of an anticipated fourth-quarter ramp, UBS Warburg expects first-quarter capital expenditure to decline. The note said fourth-quarter equipment sales will grow between 2 percent and 3 percent, but excluding the percentage of non-equipment capex, it estimates growth of between 10 percent and 15 percent.
“Capital expenditures by the carriers include other elements besides equipment dollars such as capitalized labor, capitalized interest, construction permits, etc,” wrote UBS.
