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Nokia Preps for W-CDMA War

Nokia Corp.'s (NYSE: NOK) financially stricken networks division claims to have put its 3G equipment problems to bed and is now gearing up for an assault on chief rival LM Ericsson's (Nasdaq: ERICY) crown.

Earlier this year Nokia's efforts in the wideband code division multiple access (W-CDMA) market suffered a major setback when reports suggested the British operation of Hutchison 3G Ltd. was experiencing problems with the performance quality of its infrastructure (see Hutch's Nokia Network Woes?).

These fears were amplified in July when Hutchison 3G HK Ltd. publicly dumped the vendor as its primary base station supplier, replacing it with kit from NEC Corp. (Nasdaq: NIPNY) and Siemens AG (NYSE: SI; Frankfurt: SIE) (see Nokia Suffers 3G Blow and Nokia's Asian Angst).

Nokia today touched on the extent of these problems, citing issues with "handover functionality" between existing 2G networks and new 3G W-CDMA technology.

"During the first quarter of this year, when rolling out software to the market, we found we needed to do much more field testing in each network environment in order to ensure stability in the software," admits Kai Konola, director of market development at Nokia Networks.

"In W-CDMA especially, you really need to pay attention to the optimization of the network and plan interoperability between W-CDMA and GSM so that you can get the handovers working. When we built GSM [Global System for Mobile Communications] networks, we didn't have any fallback."

Nokia’s network man believes the company has suffered from the negative publicity surrounding the problems, but is now on the road to recovery. "In terms of publicity, we are a little bit labeled by those facts... but we have learned a lot in the first half of this year and those lessons are improving the quality of the networks. There were challenges, but we have seen increasing stability in the last three to four months."

Konola is keen to play up the company’s recent fortunes in the W-CDMA contract war, noting that between 15 and 20 operators worldwide will have launched networks by the end of this year. Nokia expects to have supplied kit to "roughly ten" of these projects.

Such success will aid Nokia’s quest to wrest the top W-CDMA vendor spot from Ericsson (see Nokia Claims WCDMA Lead). According to a recent Unstrung Insider report -- "W-CDMA: Disrupting the Technology Chain" -- Nokia controls approximately 32 percent of the market, behind Ericsson’s 40 percent majority.

"We have set ourselves a target to reach 35 percent market share... and we are well on track to reach this over the next few years," adds Konola. "As the market consolidates, I believe that would be enough for the number one position. Our target is to be the number one W-CDMA network vendor. The market share we have today puts us in a good position to grow on this."

The W-CDMA air interface is part of the Universal Mobile Telecommunications Standard (UMTS), adopted as the European 3G standard. Used with existing GSM core networks, W-CDMA-compliant handsets and base stations can potentially increase wireless data transfer rates to a maximum of 2 Mbit/s.

— Justin Springham, Senior Editor, Europe, Unstrung

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