Battle joined over next-generation telecom networks

HELSINKI, FINLAND: The economic downturn has pushed the next-generation WiMax wireless system to the sidetrack of the mobile world and set up a battle between network gear makers for a share of future technology upgrades.

Mobile telecom operators are looking at WiMax and Long Term Evolution (LTE) to cope with surging data traffic from smartphones and laptops with mobile data cards. Mobile data traffic grew almost five-fold last year, Nokia Siemens said.

But many are reluctant to spend extra money on the completely new networks needed for WiMax, which faces a dire future.

LTE has become mobile operators' favoured solution as it can be bolted on to existing systems and investors are following the situation closely.

"We are starting to see the vendor landscape play out," said Scott Siegler, analyst at research firm dell'Oro.

Ericsson, market leader in telecom equipment, has invested heavily in LTE and its market position is strongest. Alongside struggling Alcatel-Lucent, it last week won an order from Verizon for LTE radio network deliveries.

Research firm Strategy Analytics said the Verizon deal positions Ericsson and Alcatel-Lucent to grab market share as operators seek to work with proven solutions. Analysts are looking now at which companies fail to get LTE contracts early.

"The deal is hitting the headlines but is of almost zero relevance for top-line in 2009. The relevance is much more important for Nortel and Motorola, which have not been selected," said WestLB analyst Thomas Langer.



Major order

As likely winners analysts named also Nokia Siemens Networks, which won the first major LTE network order from NTT DoCoMo, and Huawei, which will deliver the new technology to TeliaSonera alongside Ericsson.

The telecom equipment market has seen cut-throat competition for new business during the past few years, driven by Asian vendors, and the outlook remains tough.

Shares in Alcatel-Lucent are down 70 percent from a year ago, just like Nokia which is also suffering from falling demand and profits in its key handset business.

However, Ericsson shares have risen 15 percent over the last 12 months as the company has reported solid earnings, so far little affected by the economic downturn.

WiMax is seen as a long-term successor to Wi-Fi, the wireless computer standard popularised in coffee shops and used in homes and restaurants.

Mobile WiMax is technically ready before LTE for major rollouts, but operators would need to build completely new networks and in the current economic situation it is likely to be destined for niche status.

While being the first new technology of its generation is usually a considerable advantage in the fight for new standards, WiMax may end up being hurt by entering the market too early.

"Operators are trying to sweat their 3G assets more," said Patrick Bossert at telecom services group Convergys. "I don't think the LTE timescale will be much impacted, but WiMax is suffering".

Technology too far

Nortel, which filed for bankruptcy protection last month, has already decided to exit the WiMax business.

"With the financial crisis the way it is, a lot of the customers who had mobile WiMax aspirations were new operators, they had unproven track records and they needed access to capital markets to get funding to build these projects," Scott Wickware, head of Nortel's WiMax unit, said in an interview.

In addition to Nortel's exit, WiMax received another blow last month when the world's top cellphone maker Nokia ended production of its only WiMax device.

Major mobile telephone operators see LTE as a natural way to boost their networks' data-carrying capacity as some of their network equipment can be upgraded with just new software, lowering entry costs.

Shaun Collins, chief executive of research firm CCS Insight, said WiMax does not have a bright future.

"The downturn in the economy, the increasingly competitive tariffs being offered by carriers and the sheer cost of rolling out a new network is making WiMax look like a technology too far," Collins said.