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Wednesday, October 01, 2003 1:49:46 PM
Reasons to be cheerful in adversity: IN THE PRESIDENT'S CHAIR: Sari Baldauf: In a rare interview, the president of Nokia Networks talks about prospects in the company's mobile infrastructure business
Financial Times (London,England)
October 1, 2003
By CHRISTOPHER BROWN-HUMES
This is going to remain a tough industry for a while, but I am positive about thelonger-term trends which I see emerging. The network equipment market is going to fall by 15 per cent or more in euro terms this year, compared with last year. It may be flat next year compared to 2003, but we don't see any fast recovery. But a lot of things are starting to suggest a brighter future.
If we take the transition to 3G (third generation mobile telephony), half a year ago there was a lot of discussion about whether there was going to be 3G at all. We are over that kind of discussion. There's definitely going to be 3G. Roll-outs are taking place at full speed. Operators are really planning their commercial launches. Some will take place this year and some will take place in the first part of next year.
There are many reasons for being more optimistic than even a few months ago. First, many operators have dealt with their financial difficulties and balance sheet issues, and they are in better shape. Second, networks are getting more resilient and stable. Third, the whole industry is getting much more consumer driven and less technology driven. We now have terminals available that are attractive to customers and faster data speeds. And fourth, there is an increasing amount of content available and there are different types of service delivery platforms.
But there are still things which we need to do. There's still a lot of work to be done in terms of interoperability. The handover from 2G to 3G networks is one area that is receiving particular attention. Another big challenge is making sure we have service compatibility. And then there's handsets - the operators are particularly concerned about the availability and attractiveness of handsets compared with the handsets currently available. It's not easy to get people to move from GSM and GPRS to wideband CDMA (W-CDMA, the 3G technology currently being deployed in Europe and Asia) if the handset looks clumsier and heavier and is more expensive than what they are used to. While some products are more appealing to business users, we are increasingly seeing products that are more consumer orientated.
In fact, when I describe where we are now, I like to use a sea analogy. When you come from a narrow gulf into the open sea, you get cross waves. It's always very difficult to sail there. You don't know how the boat will go. Our industry is in those cross waves right now.
On the one hand we have had an industry whose main application was and is voice. There are growth opportunities still in emerging markets but we are coming to saturation point in other markets. On the other hand, we have a new industry emerging based around data, music and entertainment.
But there's one big difference between the situation now and the situation in the early 1990s when the transition from analogue to digital began. In the early 1990s, there were hardly any mobile phone users-there were only 17m in 1991. Today we have 1.2bn mobile phone users around the world. They are used to getting good coverage and good services. So expectations are extremely high.
As for the W-CDMA 3G standard compared with CDMA2000 (a rival technology which Nokia does not supply infrastructure to), we believe that W-CDMA will take more than 80 per cent of the market, compared with 20 per cent for CDMA2000.
The big thing is that W-CDMA is an openly specified environment, as opposed to a proprietary one, so it's easier for people to develop their own applications and get them up and running across different operators' networks in several countries. That means you cannot take applications from Korea and implement them in Beijing with CDMA2000 unless you adopt exactly the same service delivery platform in both countries, which is typically not the case.
CDMA2000 has taken off faster, but while it's fast to develop, it's difficult to expand. W-CDMA is like a snowball: it takes a while to get going, but then it just gets bigger and bigger.
The choices that China makes about 3G are going to be very interesting. We think they will make their decisions in the first half of next year. It's very likely that China will go in a major way with W-CDMA, but there will also be a role for TD-SCDMA (a standard for which Siemens and Datang, a state-backed Chinese company, are doing research and development). TD-SCDMA could be a good complement for W-CDMA in hotspot areas. But it will be very interesting to see whether China Unicom (the big mobile operator) goes the W-CDMA route or the CDMA2000 evolution route.
One thing that is a bit misleading is the situation with intellectual property rights. There is a belief that with TD-SCDMA, the patents are only held by Chinese companies. In fact many of the IPRs are held by international companies, including Nokia.
As for our overall position, we have well over 30 per cent of the W-CDMA market. If we are not the market leader, we are definitely a leading company in this area. Four of our W-CDMA networks are already commercially launched and we are rolling out networks to more than 20 customers. Also, we have supplied more than 20,000 base stations. We did have some problems earlier this year with the networks being supplied to Hutchison in Hong Kong and the UK but those issues have now been sorted out. It was a software issue to do with the radio network controller and it showed itself in an environment where there was a heavy increase in traffic in the networks. All the players have had these kind of issues. It's not untypical in the early phases of introducing new technologies into commercial use. And that's because there are some things you cannot figure out in the labs. In the labs it's impossible to create live network loading conditions. Those issues have been sorted out, and the networks have been opened with Nokia as a network supplier.
From a management point of view it's been very challenging. We are having to be very careful with our costs because of the current market situation, but we are also introducing a very complicated new technology to the market. We had to lay off quite a lot of people earlier this year because we know the market will shrink this year. But the market hasn't worsened since that time, and the measures should be sufficient. I strongly believe that, based on the measures we have taken, we can take this business back to profitability.
mschere
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