Tricky Mobile Trends
By Tero Kuittinen
Spring Surprises
Recent mobile subscriber statistics show interesting and somewhat surprising
trends. The key issue here is that there are considerable differences between
different segments of mobile phone markets. Phone sales for first-time users
are not that disappointing, while upgrade sales are slumping badly. There are
also sharp contrasts between how different digital standards are meeting
earlier growth projections.
GSM subscriber growth has been moderating, but not falling off precipitously.
After adding 15.3 million subs in February and 15.4 million subs in March,
GSM operators added 13.7 million subscribers globally during April. The April
GSM subscriber figures are pretty robust considering the dire comments from
Infineon, Sawtek and some other handset component manufacturers.
The most ominous recent comments come from Gemplus, a leading SIM card
manufacturer. Gemplus sees global handset sales around 400 million this
year. SIM cards go to all GSM phones and Gemplus has more than 40% of
the market. This is why the comments of the company probably have more
weight than some recent, rather bullish annual sales projections of certain
research firms.
However – the recent GSM subscriber growth figures more or less prove that
the bulk of the current GSM phone sales problems are in the upgrade market
– not in the market for phones sold to first-time users. This is a specific
problem for Matsushita and Siemens – companies that have this year
targeted GSM upgrade buyers with relatively pricey models. Apparently the
mobile phone inventory situation may have taken another turn for the worse
during April – which is a sizable disappointment considering how large some
of the first-quarter inventory write-offs were.
The biggest recent global upset has been the relative performances of CDMA
and TDMA operators in Latin America. During the first quarter of 2001, CDMA
operators added only 950’000 subs in this region, while TDMA operators
added 3.9 million. This is a remarkable reversal of fortune, as nearly all
American industry observers have forecast that CDMA growth in Latin
America should easily eclipse TDMA. The Latin American weakness has
already dragged the overall CDMA subscriber growth below the growth rates
of GSM and TDMA.
This is of crucial importance, because the phone sales growth in USA may
now be slackening. If North American mobile handset sales soften this
summer, the global growth projections for CDMA will have to be revised once
again.
Latin American TDMA juggernaut explains why Nokia was able to hit 20%
phone sales growth during the 1Q 2001 despite the European weakness.
Nokia is the only major phone vendor that has paid serious attention to TDMA
market in recent years, as Asian vendors have concentrated on boosting their
CDMA programs. The Latin American reversal explains why Matsushita, NEC
and Mitsubishi have slipped in global rankings recently– their aggressive bets
on CDMA phone development are not paying off, as the Latin CDMA engine
sputters. The global CDMA sales are now dangerously reliant on just two
markets – USA and Korea. The implications of this should become clear
during the second half of the year if Korean and US consumer spending slip
even a bit.
Rio-Beijing Connection
The Latin American reversal is a danger sign for people projecting pie-in-thesky growth numbers for China Unicom’s new CDMA network, launched for
2002. The Latin American CDMA growth seemed healthy during the initial
phases of the network launches, as operators advertised the services heavily.
However – as the artificial early boosts wore off, the real competitive situation
started emerging. In a direct head-to-head competition, CDMA has failed
spectacularly to dent TDMA’s momentum. The showcase market here is
Mexico, where the incumbent TDMA operator is going from strength to
strength – despite early predictions of how the challenger CDMA operator
would waltz in and grab market share hand over fist.
Two years ago, CDMA cheerleaders like George Gilder talked big about Latin
America as a real test of CDMA’s innate superiority over TDMA. Curiously, at
the moment there seems to be almost no coverage on Latin America from the
observers who touted the region as the supreme battleground between digital
standards. The supposed drivers of CDMA phone sales were going to be
superior stand-by times and lower retail prices. Where did these advantages
vanish during the past two years? If the advantages are so great - just why is
GSM growing faster than CDMA even in United States?
Today’s deafening silence about South America is easy to explain. The
mobile telecommunications market of this region has shown how hard it has
been to translate the theoretical benefits of second-generation CDMA
technology to the marketplace. Latin America is a case study how messy and
unpredictable real life competition between rival standards can be. And so the
CDMA cheerleaders have moved on – just as crucial statistical evidence from
the region is starting to trickle in. At the moment when TDMA and GSM
growth has moved ahead of CDMA growth, there is almost no public
discussion in the American mobile telecom circles about why this has
happened and how the predictions of so many turned out to be so wrong.
Despite the failure of CDMA to compete against TDMA in Latin America and
against GSM in markets such as Israel and Australia, the China Unicom
CDMA network launch is now billed as CDMA’s big break-through. I disagree.
The big break-through of CDMA was supposed to be its triumphant conquest
of South America. If that didn’t pan out – why should anyone expect the
Chinese launch to succeed? If CDMA has not been able to take subscribers
from GSM in Israel, Australia or Hong Kong – why should it succeed in
China? The number of GSM subscribers in China has already topped 100
million. That’s a big chunk of the middle class of the entire country. And that
chunk is gone. It’s not a potential market for the new CDMA network – it’s the
potential market that has been lost. Few people would claim that since
Microsoft Windows has 100 million American users, USA has to be a great
market for a new PC operating system. But a lot of people are claiming that
since China has 100 million GSM subscribers, it has to be a great market for
CDMA phones. The disconnection between fantasy and reality is jarring.
Before investors buy into the current sky-high CDMA subscriber growth
projections of China Unicom – let’s have a moment of silence to contemplate
the memory of the Grand South American Adventure of CDMA. The
implications of failed growth projections are important for investors
contemplating handset vendors, chipset manufacturers and mobile operators.
Looking at past assumptions about international growth patterns tell us how
much the current projections are worth. Not a lot.