Duo Flexes MMS Muscles

Wireless heavyweights LM Ericsson (Nasdaq: ERICY) and Nokia Corp. (NYSE: NOK) have bulldozed their way into a dominant position in the multimedia messaging services (MMS) system market, with two contracts announced this week the latest evidence of their suzerainty (see Ericsson Wins in Estonia and Ericsson Goes Live! in Egypt).

Analysts at Ovum Ltd. and the Arc Group estimate the Scandinavian duo have between them won about 70 percent of the contracts for MMS systems, which enable GSM carriers to deliver picture messaging services to their customers. Ericsson claims 47 customer deals and Nokia 50.

This leaves the specialist vendors, such as LogicaCMG (London: LOG), Comverse Ltd., and Tecnomen Corp., with less than a third of the market to share among them.

The popular belief is that Ericsson and Nokia took advantage of their ability to supply MMS-capable handsets along with the MMS systems, though neither admits to such packaged deals.

Ovum senior analyst John Delaney believes the firms made the most of their portfolios. He highlights the positive correlation between the timing of signed MMS center contracts from Ericsson and Nokia in 2002 and the months (April and June) during which new handsets became available (in Ericsson's case, from its struggling joint venture Sony Ericsson Mobile Communications). In addition, CMG, in its second-half year 2002 interim report (prior to its merger with Logica), admitted that it failed to secure a number of significant contracts due to its inability to offer bundled deals, including handsets.

Given the Scandinavians' dominance, the merger of SMS system stalwarts Logica and CMG (see LogicaCMG Starts Trading) was seen as an attempt (some might argue, last-ditch) to beef up for future contract tussles. But while the merged company can claim third spot in the market, its current haul is only about 15 contracts.

LogicaCMG remains optimistic, regarding MMS as a long-haul game. “No one is going to have a dominant position in MMS like Logica and CMG had in the SMS space,” says company spokesman Will Cameron. “There isn’t going to be the same kind of 'duopoly.' ”

Ovum's Delaney disagrees. “It is entirely feasible that Nokia and Ericsson may end up dominating the MMS installed base to the same extent that Logica and CMG did [in the SMS system market],” he predicts. “It might be too soon to write an epitaph for the wireless data services side of LogicaCMG, but its future prospects are dimming.”

But there's plenty of business still to be won. Harri Heikkinen, senior marketing manager at Nokia Networks, emphasizes the market's infancy. “Don’t forget there are more than 460 GSM operators out there, most of which will be looking to upgrade their infrastructure,” he enthuses. “We are just at the beginning of MMS. There is still plenty of business left.”

Arc Group analyst Paul Merry goes one step further. “Nokia and Ericsson’s strategy may have been to push their MMS solutions out into the market as quickly as possible, and then step back now and concentrate on handset design, allowing the more traditional players in this market to shine.”

But, although none of the industry watchers or players is prepared to estimate the financial size of the MMS system market, Ericsson and Nokia may also feel reluctant to relinquish a ready source of revenues now that they've built such an early dominant position.

Nokia announced its latest financials last week (see Nokia Posts Solid 4Q), while Ericsson reveals all on Monday February 3.

— Justin Springham, Senior Editor, Europe, Unstrung
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