The weight of a new generation

Attempting to make a bigger splash than they did in the second generation mobile communications race, Alcatel and Fujitsu have formed a joint venture to develop and manufacture third generation mobile communications network systems. The collaboration aims to leverage the technological strengths of both companies while maximizing development efficiency and economies of scale. With a better position in this market, the companies intend to deploy a 3G offering by the first half of 2001.

GSM may not have a huge presence in the U.S., and it may be too late to increase it, but Alcatel plans to pursue what it considers a big opportunity for next generation technology in the U.S., among other places, said Jean-David Calvet, vice president of marketing and product management support for the radio communication division of Alcatel.

"As far as the mobile market is concerned, we may not have as much presence in the U.S., but we think the joint venture [will help], even if it mostly will involve targeting a UMTS solution for Europe and Japan," he said. "We also will be targeting the EDGE market development in the U.S. and Europe."

The joint venture will be controlled by Alcatel, which holds 66% of the shares. More than 2000 engineers will concentrate on product definition and marketing, R&D and manufacturing policy for high-quality mobile communications radio infrastructure. That includes GSM, its different evolutions - primarily general packet radio service and enhanced data for GSM evolution - and 3G.

"[Alcatel was] not as strong in terms of 2G as they could have been, so they are trying to develop a strategy so 3G does not pass them by," said Rudy Baca, an analyst at Legg Mason's Precursor Research Group.

However, 3G revenues may be further away than some think. In an April 28 research report, PRG examined if global investors are too optimistic about 3G wireless. Although the group confirmed its belief in wireless data, it suspects the global transition to 3G could cost more, take much longer and be less robust than some suggest.

But much has changed since 2G digital wireless was introduced, which could hamper the rollout of 3G. The adoption of multiple 3G standards goes against the supposed 2G wireless advantages of single standard-based higher penetration rates found outside the U.S. Other 3G concerns include bandwidth constraints, communications device size limitations and network capacity.

The report concludes that there are many potential regulatory or technical impediments that could hinder the transition to 3G.

Despite the report's findings, Calvet expressed confidence that the venture with Fujitsu will help Alcatel accelerate production of a universal mobile telecommunications system (UMTS) solution. The joint venture will distribute its products, using Alcatel's and Fujitsu's sales organizations. Alcatel primarily will be responsible for Europe, while Japan will be a preferred territory of Fujitsu.

Although the venture may pose a competitive threat for strong 3G equipment vendors such as Motorola, UBS Warburg, the investment banking division of UBS AG, said the development has little impact on other vendors' ability to gain a sizable share of the 3G UMTS market. Citing Motorola's strategic alliance with Alcatel, a Motorola spokesman declined to comment on the matter.