WIRELESS:MOBILE DATA TO SHIFT PURCHASING PATTERNS

Base stations markets expected to decline

The introduction and gradual acceptance of mobile data is turning out to be both a good thing and a bad thing for carriers and their vendors.

High-speed 2.5G network technologies like GPRS and 1X RTT have made it easier for mobile carriers to rapidly multiply the kinds of services they can make available to their customers. Some carriers are even ready to move further in those data evolutions to EDGE and EV-DO, respectively. While network upgrades are always good news to the suppliers in position to get the business, the upgrades increasingly are being focused on investments in software and other enhancements to existing facilities, rather than the billion-dollar contracts to purchase new base stations that were once the norm.

The result of this fundamental change in wireless network expansion and maintenance is that the markets for base stations and base station component technology are in the initial years of what is expected to be a sharp decline, said Alan Nogee, principal analyst for the wireless equipment market at In-Stat/MDR.

INDUSTRY RESOURCES

Nogee blamed the decline partly on sluggish data revenue for carriers thus far, and partly on the fact that carriers have tried to cap spending after many years of shopping sprees focused on improving their network coverage. Also, manufacturing efficiencies and other factors contribute to dropping prices and consolidation in the component market.

“There is no one main reason why base station semiconductor revenue is forecast to decrease over the next five years, but rather many, that when taken together, spell decreasing revenues,” Nogee said.

If traditional base station equipment and component revenues will take a big hit in the coming years, who stands to gain?

First off, providers of capacity-enhancing technologies for existing networks, such as high-temperature superconducting add-ons for base stations, likely will see increasing interest. “We provide carriers a way to get new capacity, but put off new purchases of base station capacity,” said Neal Fenzi, vice president of product management at STI.

Lower cost amplifiers and in-building repeaters that help extend the reach of wireless signals also should increase demand. Other groups of vendors that stand to gain are the companies that provide software-based upgrade and other software products for carriers. In some cases, these include the traditional base station suppliers, who will see more of the revenue shift to software, if they haven't already.

In other cases, vendors of messaging servers, media gateways, security products, mobile/Wi-Fi roaming solutions and content applications are positioned at the doorway of future hot markets.

In messaging the recent strong growth in the short messaging services market in the U.S. has carriers lining up to make strategic investments in the multimedia messaging services area.

The interest is not limited to just the biggest national carriers, as LogicaCMG has found.

“You will see MMS demand wherever you see a 1X RTT network deployed,” said Ray Vinson, product manager for North America Wireless Networks at LogicaCMG. “Small carriers need to have the same services as the big ones, especially with the advent of local number portability.”

The apparent demand drove LogicaCMG to partner with content syndicator ClearSky to develop an MMS hosting service and clearinghouse targeted at Tier 2 and smaller carriers that might not have the staff and resources to develop and manage MMS applications and distributions in the manner of larger carriers.

Vinson said smaller carriers often will look to offer localized content and applications. “MMS content really represents the next generation of the hosted services business,” he added.

In the media gateway market segment, vendors of softswitches and gateways are seeing more of the spending traditionally allotted for other infrastructure come their way.

Media gateway player Starent Networks has announced three new carrier customers—U.S. Cellular, Rural Cellular Corp and SK Telecom—just in the last few weeks. Telica, Sonus Networks and other wireline softswitch and media gateway vendors have seen enough near-term revenue potential in wireless to launch their own efforts—Motorola even acquired pure wireless vendor Winphoria Networks to tap into the opportunity.

Network and device security are other areas poised for increased spending by wireless carriers, and some interesting products are surfacing. Bethesda, Md., start-up Koolspan has developed a small USB “smart token” for laptops and other mobile devices that contains standard AES encryption to protect mobile data transmissions.

“A lot of small and medium-sized businesses can afford VPNs,” said Koolspan founder and CEO Tony Fascenda. “They can buy our client keys in a pack of 20 and all their employees can carry one around. Also, carriers could offer this as a security service to their smaller enterprise customers. They could eventually store service-level agreement policy data on them.”

Another security developer, Bluefire Security Technologies, recently announced its Mobile Firewall Plus platform which pushes enterprise firewall security into smartphones and PDAs being used by corporate users on both CDMA and GPRS networks.

“This is a company we started because we saw the eventuality of mobile devices becoming connected to the corporate enterprise network,” said Mark Komisky, CEO of Bluefire Security. “I think carriers are starting to understand the enterprise security implications of mobile data.”

Ultimately, carriers envision the corporate enterprise as the ideal customer for mobile data services. Even though investment in new base station purchases stands to decline, it would be a mistake to presume carriers have stalled their spending on data. Much of what they are investing is going into software, applications, devices and non-base station gear designed to give them a better shot at winning enterprise business.

Though the mobile world is not yet covered in 3G technology, as many in the industry hoped and expected it would be by now, carriers do seem pleased with their progress.

“Mobile data is coming to represent more of a portion of ARPU,” said Rob Hyatt, executive director of data product management at Cingular Wireless, which saw 107% growth in its data revenue between the second quarter and third quarter this year.

Though many carriers aren't breaking out exact data revenue numbers as part of their earnings, others tend to agree.

“So much of it is the applications,” said Ted Hoffman, vice president of technology development for Verizon Wireless. “When we started offering CDPD service back in 1993, it eventually caught on because we had the applications to support it. It has been the same with our service on 1X RTT, and it will be the same with our service on EV-DO.”

INDUSTRY RESOURCES CTIA www.wow-com.com Open Mobile Alliance www.openmobilealliance.org Organization for Promotion and Advancement of Small Telecommunications Companies www.opastco.org 3GPP Forum www.3gpp.org IEEE Wireless Standards Zone www.standards.ieee.org/wireless/overview.html CDMA Development Group www.cdg.org GSM Association www.gsmworld.com