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Ericsson, Nokia pin hopes on 3G phones for revival

date: April 22, 2001 - source by: Business Report

As telecoms titans and arch-rivals Ericsson and Nokia revealed the extent of the slowdown in handset sales growth, both were pinning their hopes on the success of third-generation (3G) mobile telephony.

"There should be no doubt about the strong demand for 3G," said Ericsson chief executive Kurt Hellstroem. "It is driven by the need for increased voice and data capacity, along with the emergence of the mobile Internet."

But doubts remain over the future of the next generation cellular phone, which operators hope will woo subscribers with high-speed video and Internet services.

The launch of universal mobile telecommunications system services, also known as 3G, has been plagued by delays and no one really knows how popular they will be.

The success of wireless application protocol (WAP) services, offering limited Internet access, has been far from overwhelming.

Analysts warned that even if 3G was a success, operators rather than handset makers might reap the lion's share of the rewards, after a brief splurge in infrastructure spending dried up.

"It isn't so much new people buying the phones that will continue to fuel growth; it is increasing use of these phones," said WestLB Panmure analyst John Tysoe.

As Nokia and Ericsson went head to head on first-quarter results, it appeared at first sight that Nokia had emerged victorious. Certainly, its 10 percent rise in pretax profits dwarfed a 90 percent plunge of its Swedish rival.

But even Nokia's results were nothing to ring home about, and it cut its full-year sales forecast to 20 percent from a previous estimate of 20 percent to 25 percent because of "more difficult market conditions".

Part of the problem, according to analysts, was that telecoms equipment makers relied heavily on business from telecoms operators, which are struggling under a mountain of debt after paying dearly for a slice of the 3G pie.

"Their major customers in Europe have just spent an aggregate of E116 billion (about R840 billion) on licences - the net effect of that is that they are, to varying degrees, in financial difficulties," said Tysoe.

SG Securities estimated that the valuations of incumbent operators, mobile and fixed line, had tumbled by 63 percent on average over the past year.

"Despite over 60 percent of western European mobile subscribers being controlled by just six players, we believe that consolidation has still a long way to run," SG Securities predicted in a recent research note.

Operators and equipment makers hoped that 3G would provide the magic cure for the sickly telecoms sector, but they faced a bumpy ride to next-generation mobile telephony, analysts warned.

"The pain is not over," predicted SG Securities.

 



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