& cplSiteName &

Forecasting 4G Fortunes

Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes
Heavy Lifting Analyst Notes

If the recent news from Nortel Networks Ltd. that it's seeking to "de-risk" its investment in 4G Long Term Evolution (LTE) technology underscores just one thing, it's that the market for wireless infrastructure is ultra-competitive and over-supplied. (See Nortel 4G Plans Up in the Air.)

The surprise is that this needs saying at all. Back in May 2004, when the sector was on the upswing, I wrote a report highlighting the unsustainable cost structures of radio base station suppliers, given the overall size of the market and unrelenting pricing pressure. (See the Unstrung Insider report "Open Base Stations: Cutting the Cost of 3G Networks.")

Vendors responded admirably with technical innovation and streamlined R&D, but the rise of Chinese competitors, and sheer industrial logic, forced the big-name Western suppliers into a round of consolidation that saw the creation of Alcatel-Lucent (NYSE: ALU) and Nokia Networks , along with the subsequent exit (more or less) of Nortel, NEC Corp. (Tokyo: 6701), Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY), Panasonic Corp. (NYSE: PC), and Motorola Inc. (NYSE: MOT) from the 3G UMTS market.

The new industry structure – discussed in another Unstrung Insider report, "Vendor M&A Frenzy: What Happens Next," published in September 2006 – saw the emergence of the "big four" of suppliers that dominate the wireless equipment market today: Ericsson AB (Nasdaq: ERIC), Nokia Siemens, Alcatel-Lucent, and Huawei Technologies Co. Ltd.

Even after consolidation, however, pricing discipline has been hard to come by, thus it's no surprise that vendor margins are in the single digits, if they're profitable at all. The situation isn't helped by the ongoing consolidation in the carrier market and the sophisticated purchasing power these huge, integrated operators command. The upside now is all around managed services and the potential to upgrade the customer footprint, gained at the expense of profit margin over the past few years.

Against this background, as the market looks to next-generation WiMax and LTE wireless technologies, it's legitimate to ask: How do the smaller vendors betting the farm on 4G expect anything other than a hard landing?

I'm currently working on a Heavy Reading report on LTE base station products and implementation of the Evolved UTRAN. There are about 10 significant vendors developing eNodeB products (that's not counting the armada of WiMax companies). History tells us they won't all make it, and that the only viable suppliers are those with the global scale to support the R&D budgets required for 4G.

Is that the end of the story for anyone outside the big four? Possibly not. History also shows that generational shifts in technology do create opportunities, and clearly that's what the WiMax players are banking on. Could some nimbler, more focused players upset the big four in the 4G market? Huge R&D organizations created through M&A are not always the most productive or innovative. (See 1 + 1 + 1 Does Not Equal 3).

It's fascinating, then, to examine the differing product strategies LTE base station suppliers are deploying in their attempts to anticipate the requirements, preferences, and schedules of the carriers likely to lead on LTE. Stay tuned to Heavy Reading for my upcoming report, which will seek to shed light on this subject.

— Gabriel Brown, Senior Analyst, Heavy Reading

(0)  | 
Comment  | 
Print  | 
Related Stories
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
More Blogs from Heavy Lifting Analyst Notes
Heavy Reading's Gabriel Brown takes stock of the recent TIP Summit, praising the progress made by the industry body but highlighting some blind spots.
Sunrise Communications, the second-largest telecom operator in Switzerland, reported third-quarter service revenue growth of 2.0%.
With service providers installing so much fiber in their plant right now and seemingly no end in sight, the need for automated test solutions will only keep growing.
For the Australian incumbent, reskilling an entire workforce is the route to a successful network and IT transformation.
Four key themes emerged from a recent HPE and Intel reception, 'From NFV to Cloud Native: Future Proofing Your 5G investment.'
Featured Video
Upcoming Live Events
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events