OCTOBER 26, 2000
SPECIAL REPORT--THE TECH SECTOR
Wireless: Waiting for the Next Generation | Consumers are hanging on to their cell phones longer than expected. Will the 3G technology in the wings get things buzzing again?
| It's a time of reduced expectations in the wireless industry. That's not an easy state of affairs for a sector grown accustomed to enormous growth figures year in and year out. Five years ago, less than 10 million people in the world had wireless telephones. Today, more than 570 million do. That growth curve is startling enough, but now compare the U.S. wireless market to Japan's. Although the penetration rate there is similar to that of the U.S., more than 12 million Japanese use their cell phones not just to talk but also to trade messages and e-mail, buy stocks, and check on sports scores.
That promise of a wireless Web is driving the market's hopes. Unfortunately, overall phone handset growth is slowing. Handset makers Ericsson (
ERICY
), Motorola (
MOT
), and Nokia (
NOK
) all agree on their expectations that total global handset sales will be somewhere around 420 million in 2000. Next year, they expect that figure to be closer to 525 million. Sure, that's an impressive 25% growth figure, but it's nothing compared to the 60% growth the industry has seen in the last two years.
Part of the problem is that the industry expected consumers to change cell phones every 18 months, much like they do with other electronics devices that offer rapid, dramatic improvements. Instead, the duration between new handsets has been closer to every 22 months according to research firm Strategy Analytics, in part due to large monthly wireless bills that cut into consumers' discretionary spending.
GENERATION GAP. Meanwhile, many are opting for cheaper phones made by Asian companies like Samsung and Sony. These models have cut overall profit margins in the handset industry, since they earn their manufacturers much smaller profits.
But the introduction of a new generation of wireless technology, called 3G (for Third Generation), should see a significant change in handset purchases. 3G will allow much greater speeds for data downloads, which will finally allow phone companies to realize their dream of making the mobile phone the centerpiece of a wireless Internet. Service providers like AT&T (
T
), Sprint (
PCS
), and Nextel (
NXTL
) are all in the process of building a new 3G network that should be ready sometime in 2002. At that point, handset and infrastructure equipment sales should take off.
Wireless stocks would rather their 3G salvation come earlier. The Dow Jones Wireless Communications Index is off 42% from its 52-week high. In addition, AT&T Wireless (
AWE
), the highest-profile wireless issue, is selling well below its April initial public offering price. That's because the days of meteoric growth for this technology are over, and it will be some time before the next generation of tech can get the industry flying again. But with 3G in the pipeline, the best may be yet to come.
By Sam Jaffe in New York
Edited by Douglas Harbrecht
|
Copyright 2000, Bloomberg L.P.
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