What Price a 3G Base Station?
Topping the list of complaints are: operators demanding ever lower prices; higher R&D costs; the emergence of low-cost Chinese suppliers; and cut-throat competition [ed. note: so, nothing new there then].
Eiji Aono, director of telecom equity research at Credit Suisse First Boston Corp. in London, explains that the basic concern is that vendors won’t be able to maintain today’s average 10 percent operating margins. “The commoditization of the market makes it difficult to maintain profitability at these levels,” says the vowel-rich analyst. “Pricing pressure will cap revenue opportunities, and vendors need to develop business models to cope with this.”
To illustrate the point, Aono notes that the GSM base station market at its peak in 2000 was worth around $30 billion, but that when the market for third-generation wideband CDMA (W-CDMA) base stations peaks in 2007 he expects it to be worth just $20 billion, despite the expectation that more units will be shipped than at the top of the GSM sales cycle.
Brett Simpson, analyst at research firm Arete Research LLC, says the typical node B -- the radio link between wireless devices and the rest of a cellular network -- today is selling for around €25,000 (US$29,500), down from €60,000 ($70,960) or €70,000 ($82,780) a year or two ago.
“We expect it to drop below €15,000 [$17,740] in a few years, and some operators are telling us they want node B’s for the same price as a GSM BTS [€11,000 or $13,000] in the next couple of years,” says Simpson. “Vendors aren’t going to make money from this.”
Speakers at the event from Lucent Technologies Inc. (NYSE: LU), Motorola Inc. (NYSE: MOT), Nokia Corp. (NYSE: NOK), and Siemens Information and Communication Mobile Group all agreed that the way to combat falling price is to move to common hardware platforms and increase use of third-party modules.
Others say the mobile equipment industry should take inspiration from the aircraft, automobile, computer, and steel industries, and learn from how they moved to using standardized components and processes to increase efficiency.
Ed Candy, technology director at European carrier Hutchison 3G HK Ltd., jokingly explains why operators want to keep equipment prices low: “To develop new services, a much higher proportion of our network consists of application servers [than was the case with GSM]. We’re looking for really cheap base stations so we can go and spend all our money with the IT vendors."
— Gabriel Brown, Chief Analyst, Unstrung Insider