AirTouch Communications Inc. reportedly is close to awarding a new contract to Nortel Telecom Inc. to replace existing Motorola Inc. Code Division Multiple Access equipment in Los Angeles.
Industry sources indicate the two still are negotiating terms of the contract. The sticking point is AirTouch wanting severe discounting of equipment and software. AirTouch and Nortel declined to comment.
“Carriers are more and more demanding and are adding penalty performance clauses in contracts,” said one financial equipment analyst. “It’s cut-throat. CDMA year over year has experienced a 15-percent price erosion. The key in the business is to gain a footprint and make money by getting the expansion contracts.”
Lucent Technologies Inc. so far has reaped the benefits from Motorola’s blunders. Lucent recently replaced Motorola’s eight switches and more than 1,200 base stations during the past six months in PrimeCo Personal Communications L.P.’s network. PrimeCo reportedly was dissatisfied with the performance of Motorola’s equipment.
Sprint PCS, which is rapidly rolling out CDMA service nationwide, is expected to grant another expansion contract in the coming months. Keith Paglusch, senior vice president of technical services and network operations, said the company plans to build thousands of cell sites next year.
Lucent won the most recent expansion contract in June. Sprint PCS expects to spend up to $700 million during the next three years with the vendor. Sprint PCS has existing contracts with Motorola and Nortel and expects to continue expanding its nationwide footprint with all three vendors.
Industry sources say Nortel is working to fix software problems associated with the vendor’s mobile switching center. Sprint PCS denies any problems with Nortel’s switches and traces a few problems to a trial service it was testing in certain markets. Nortel declined to comment.
Around the world, competition for vendor contracts has become intense as well, as vendors race to gain marketshare, analysts indicated. In Brazil, where A-band cellular license awards recently were completed, Telefonica Group awarded Lucent contracts to build CDMA systems in Rio de Janeiro and Sergipe. Salomon Smith Barney expects the company to win $1 billion in contracts in Brazil-a market dominated by Nortel and L.M. Ericsson.
“Lucent is stepping up in Latin America, but I don’t think they will be putting Nortel away,” said Truc Do, equipment analyst with SoundView Financial Group in Stamford, Conn. “Lucent has a certain advantage of going in there to carriers that have an installed base. Carriers don’t want to deploy their competitors’ equipment.”
In Australia, Nortel was the winner of a $200-million CDMA contract with Telstra, the country’s largest mobile phone operator. Analysts and industry executives indicated L.M. Ericsson was aggressive in trying to convince the nationwide operator to deploy Time Division Multiple Access technology. Ericsson is the only major vendor that has yet to license Interim-Standard 95 CDMA technology.
“CDMA is growing, and Ericsson is afraid,” said one analyst. “Ericsson has become very aggressive on pricing.”
Pricing is likely to play a significant factor in the Asia-Pacific region where carriers have been hit by economic downturn. In Latin America, some vendors are trying to convince governments to stop auctioning PCS spectrum and wait for wideband CDMA technology to mature.
