CTIA: What a Difference a Decade Makes

With the CTIA Wireless I.T. & Entertainment show upon us, it's worth reflecting on how the North American wireless industry has gotten to where it is today.

Ten years ago, the region's wireless infrastructure vendors were sitting pretty at the dawn of the 3G era. Approaching commercial W-CDMA launches as the world leader in CDMA 2000, Lucent had a head start in commercializing CDMA-based technology. Motorola Inc. (NYSE: MOT) was wielding "Aspira," a menacing-sounding partnership with Cisco Systems Inc. (Nasdaq: CSCO), master of the new IP networking universe. Meanwhile, most other wireless infrastructure vendors were cobbling together their own in-house GPRS data platforms, some based on ancient circuit switches. When Nortel Networks Ltd. landed Europe's first big W-CDMA supply contract with what was then BT Cellnet, North America's wireless infrastructure vendors looked as if they would take some stopping.

When it came to a North American wireless terminal industry, however, 10 years ago wireless operators and consumers the world over were at various stages of giving up on it. Motorola, once the world's largest cellphone maker, was watching Finland's Nokia Corp. (NYSE: NOK) disappear into the distance as the world leader in mass-market GSM phones. Notwithstanding Nokia's rise, a view that was widely held back in 1999 was that the future of 3G and 4G smartphones belonged to Asia. With their mastery of low-cost manufacturing; leadership in camera and display technologies; and insight into high-end consumer electronics, the smart device market looked set to be increasingly shaped by the Japanese and the Koreans, and ultimately perhaps the Chinese. Back then, North American players looked set to be consigned to the sidelines of this emerging opportunity.

What a difference a decade makes. All three infrastructure vendors ended up flunking the W-CDMA test. Lucent merged with Alcatel. Nortel's primary wireless infrastructure units are being acquired by Ericsson AB (Nasdaq: ERIC). And Motorola still lacks a compelling partnership to realize its wireless infrastructure ambitions.

The unraveling of the early 21st century has been just as confounding, albeit very much kinder, to North America's wireless device vendors. Decline has admittedly continued apace in plain old cell phones as Motorola's market share has fallen still further. But at the high end, North American players have attained a level of global competitiveness that few would have dared predict 10 years ago. The Apple Inc. (Nasdaq: AAPL) iPhone now throws up more than 1 million results when twinned with the word "iconic" in a Google (Nasdaq: GOOG) search. BlackBerry was recently rated the world's fastest-growing company, bar none, by Fortune magazine. Now, building on the pioneering efforts of Palm Inc. and Compaq to integrate cellular radios into their Palm and iPAQ computing devices, Dell Technologies (Nasdaq: DELL) is preparing to launch its own smartphone.

The rise of the Asian terminal vendors hasn't really materialized. Certainly, Samsung Corp. has established itself as the global No. 2 across the total cellular handset market. But at the high end, Samsung has done well enough without really blowing anyone away. In the U.S. the "Instinct," billed by Sprint Corp. (NYSE: S) as an "iPhone killer," might have landed a blow or two here and there, but nothing that remotely constitutes homicide. And despite impressing with many of its P-Series in the early smartphone days, Sony Ericsson Mobile Communications has failed to excel and execute consistently and is now nursing significant losses. Doubts about the joint venture's long-term viability have been fueled by Sony's recent announcement of its own cellular-enabled e-book reader, which AT&T Inc. (NYSE: T) will pitch against Sprint Nextel's Kindle.

Japan's NEC Corp. (Tokyo: 6701) and Panasonic Corp. (NYSE: PC) might also have been expected to make inroads globally, but High Tech Computer Corp. (HTC) (Taiwan: 2498) is now the bigger player outside Japan. As for the Chinese, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) are producing great HSPA dongles, but not much in the way of smartphones yet.

On the surface, Nokia's position as undisputed market leader might not appear to have changed much. Even in smartphones, Nokia still secured 45 percent global market share in the second quarter of 2009, according to Gartner Inc. estimates. Then again, at 18.7 percent and 13.3 percent respectively in the second quarter, RIM and Apple have grown market share very aggressively over the last two years. Moreover, whereas Nokia was taking 70 percent of the profit pool among wireless handset vendors 10 years ago, the company accounts for less than half that now. And in the last couple of years, most of that lost share of the profit pool has been conceded to RIM and Apple. Importantly, none of Nokia's new smartphone products has come close to matching the iPhone's "wow" factor.

The emergence of North American companies as leading 3G and 4G players is stimulating the development of a globally competitive industry in wireless content and applications of the kind that CTIA Wireless I.T. & Entertainment will showcase next month. If the last 10 years prove anything, it is that whatever assumptions you have about this remarkably dynamic industry, you can't subject them to scrutiny often enough.

— Patrick Donegan, Senior Analyst, Wireless, Heavy Reading

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