WIRELESS INTERNET MOMENTUM BREWING TROUBLE FOR NOKIA

Verizon decision is halting Finnish vendor's momentum in CDMA

Verizon Wireless' plans to launch mobile Internet services based on BREW technology could derail the momentum Nokia finally established in the CDMA handset market.

The advent of BREW — or binary runtime environment for wireless, a Qualcomm-developed wireless Internet platform — runs counter to Nokia's plans to sell a unified portfolio of handsets based on J2ME (Java 2 Micro Edition) and Symbian operating system devices, a core part of its Series 60 line. But at least one of its largest CDMA customers, Verizon Wireless, will launch BREW-based service nationwide next month. Verizon sees a long-term strategy with Java applications eventually running over a BREW platform. A Verizon spokeswoman declined to comment about how that might change the dynamics of the carrier's relationship with Nokia, but analysts say it could strain the bond.

“This could be a potentially serious disconnect Nokia needs to address if it wants to maintain its momentum,” said Bryan Prohm, senior handset analyst for Dataquest.

BREW currently is supported only by Qualcomm's CDMA chipsets, although Qualcomm has indicated it is committed to enabling competitors' chipsets and other air-interface technologies with BREW technology. Nokia makes its own CDMA chipsets, and adding a BREW capability could cost more in R&D and licensing fees to Qualcomm.

“[BREW] could be problematic for Nokia,” said Mark Roberts, analyst with the wireless communications technology practice at Wachovia Securities. “If they support BREW, it will be as they have typically approached CDMA. They will do it because they have to, not because they want to.”

Nokia's primary focus today is on developing J2ME-based handsets, but the Finnish powerhouse is willing to work with its customers to support their technologies, a Nokia spokesman said. Last month, Nokia introduced two new models of CDMA 1X handsets, one supporting J2ME, that will hit the market in the second half of this year.

Nokia, which currently has a worldwide handset market share of more than 30%, has a poor history when it comes to CDMA. The world's largest handset maker struggled in 1999 and 2000 to overcome technical issues that prevented Verizon Wireless from purchasing the manufacturer's CDMA handsets. Sprint PCS stopped selling Nokia phones altogether and has declined to sell any models to date.

In late 2000 and early 2001, Nokia made a turnaround of sorts by partnering with Telson Electronics in Korea to target the Korean CDMA market. It also opened more R&D and support centers, and focused heavily on performance.

Last year, Nokia made inroads with Verizon, selling large volumes through the carrier in the fourth quarter, according to analysts. Nokia even agreed to incorporate an OpenWave WAP browser instead of its own browser in the 3285 model.

Jorma Ollila, chairman of Nokia, told analysts in January that he was pleased with the growth of Nokia's CDMA market share in 2001, which reached double digits.

“We will see 1X in volumes at the end of the second quarter,” Ollila told investors during the company's first-quarter conference call. “We will have about 20% of the global market in the near future. We have our act together, so we're making solid progress.”

And while Nokia can sell into CDMA markets such as Latin America, Korea and soon China, the U.S. market remains the biggest market for CDMA. It also is the most competitive, with cutthroat wholesale pricing on all wireless devices. Designing one-off solutions like BREW in that environment could be a difficult task.

“The CDMA market across the Americas is a critical piece of Nokia's long-term success because competitors in GSM are going to expand quickly in 2002,” Prohm said. “More of the Europeans and Japanese are coming to the U.S. market. GSM is going to be more competitive in the states than CDMA has ever been.”

Still, it remains to be seen just how successful BREW may become. Sprint PCS is running in the J2ME camp, while other CDMA operators — including Leap Wireless — have not yet decided whether to embrace BREW. In the end, Nokia may be forced to decide just how important Verizon is to its overall CDMA strategy.