Subject: [NEXTEL-1] More Data Usage Isn't Pushing Wireless Infrastructure Sales

From: [email-masked]
Date: Thu, 22 May 2003 01:00:04 -0400

More Data Usage Isn't Pushing Wireless Infrastructure Sales
May 21, 2003 8:11pm

Vol. 11 No. 10

Industry research shows that wireless infrastructure revenues fell 14 percent from the 2002 fourth quarter to the first quarter this year. Meanwhile, two major network technology vendors predict flat growth this year, and the leading infrastructure supplier expects telecom equipment spending to drop more than its previous forecast of 15 percent.
Dell'Oro Group analysts report first-quarter sales of GSM infrastructure were down due to seasonal factors, price declines and capital spending reductions, and CDMA network sales growth in Asia wasn't enough to offset a drop in North America. Dell'Oro expects similar results for full-year 2003 because of reduced capital spending and continued economic weakness.
Similarly, Allied Business Intelligence reports numerous operators in international markets have encountered significant obstacles to recovering their investments on spectrum licenses for next-generation networks. According to the firm, operators have billions of dollars tied up in license fees and, because little capital is available today, widespread launches of third-generation services and myriad data services those service enable aren't likely until 2004. In addition to capital issues, technological hurdles continue to plague 3G implementations, particularly for wideband-CDMA network operators.
Wireless infrastructure sales leader Ericsson [Nasdaq: ERICY] in particular is feeling the slump in wireless network spending.  

The Swedish company says it must to cut 7,000 more jobs worldwide in the next 18 months, and it will not reach profitability by the end of the year as it forecast earlier. Ericsson, which has some 61,000 employees today, lost $524.2 million on revenues of $3.1 billion in the first quarter, compared with a $360.8 million loss on revenue of $4.5 billion for the same period a year ago.  The company also says it expects telecom equipment spending this year to drop more than its previous forecast of 15 percent.
Nokia [NYSE: NOK] and Motorola [NYSE: MOT] aren't predicting a drop in wireless network spending, but both companies say the outlook for infrastructure sales remains flat. Nokia's networks division had first-quarter sales of $1.3 billion, down 15 percent from a year ago, and it incurred a pro forma operating loss of $127 million.

First-quarter sales by Motorola's Global Telecom Solutions Segment were down 12 percent from a year ago to $952 million, and the division's orders declined 28 percent to $935 million. Overall, the U.S. company's sales were down 2 percent from a year ago to $6 billion, while its bottom line grew to a profit of $169 million from a loss of $449 million a year ago.
Among other major wireless infrastructure providers, Siemens' [NYSE:SI] Information and Communication Mobile unit
generated a profit of $60.7 million in its latest quarter, compared  with a $48 million profit a year ago.

The infrastructure division of the unit earned $48 million on sales of $1.16 billion, up from a $36 million profit a year ago. Consumers Challenging Fees U.S. wireless service providers are facing challenges to the fees they collect from customers to cover their costs for such services such as enhanced 911 coverage and number portability capability. While including those fees on customers' bills enhances carriers' average revenue per user (ARPU) levels, opponents contend the fees often are not necessary and simply amount to rate increases.
Consumer advocates and officials in some states consider the fees entirely unnecessary baseless. In April, Missouri prosecutors filed complaints against Nextel Communications [Nasdaq:
NXTL] and Sprint PCS [NYSE: PCS], alleging those carriers are identifying the fees as taxes levied by the government.  Early this month, a lawsuit requesting a class action was filed against Nextel in the Pennsylvania Court of Common Pleas, also alleging that the carrier is misleading customers by identifying its fees as taxes.
Padding ARPU levels with fees added to customers' bills boosts earnings in the near term, but it is likely to produce costs for carriers in the long term. The more service providers exaggerate the nature of these fees, the better it is for investors because the surface numbers imply better margins than what the core businesses actually generate. However, the more the companies exaggerate, the greater their chances are to incur challenges from regulators and consumers, reports Albert Lin, wireless market equity analyst for American Technology Research.
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