From wireless gear makers, a positive spin

Makers of equipment for cell phone networks, faced with the likely merger of two major customers, are dismissing predictions of tough times to come.

If Cingular Wireless' purchase of AT&T Wireless passes regulatory muster, as expected, then the gear makers would have one less customer to which to sell. To win contracts in this more competitive environment, Cisco Systems, Nortel Networks, Lucent Technologies and others will have to offer steeper discounts on their products, according to Jupiter Research analyst Joe Laszlo.

Those manufacturers and the companies that buy from them are gathering in Atlanta for CTIA Wireless 2004, which begins Monday.

If consolidation continues--Verizon Wireless is often described as a suitor for Sprint PCS--competition among "big box" makers would only get fiercer, and prices of network equipment would decline even more.

"It?s very tough for equipment vendors to spin this as a net positive," Laszlo adds.

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But that doesn't mean they won't try. Cisco Systems Chief Executive John Chambers, set to speak at the CTIA show Monday, is expected to note how a new wave of spending on equipment is due to come from carriers now beginning to rely on the Internet Protocol (IP) in their networks. By converting to IP, carriers can combine their once separate voice and data networks, and save money in the long run, Chambers is expected to say.

In addition, the number of overall U.S. cell phone subscribers continues to grow, according to representatives of network equipment makers introducing new products at CTIA. That growth should keep the amount of network equipment that carriers need at the same level, they say.

"The only thing that really matters is the number of subscribers," said Bill Gough, telecom industry manager at Sun Microsystems, which plans to announce several telecommunications equipment upgrades at the show.

The market for telecommunications equipment was a dour place in the early years of the decade, when a sagging global economy forced carriers to cut down on capital spending to survive.

"The tone in our industry has certainly changed in recent months," Pat Russo, Lucent's chief executive, said during a recent address to analysts. "It feels a heck of a lot better now than it did during the course of the last couple of years."

Still, not everyone is out of the woods just yet. Maker of chips used inside base stations, for instance, could become ancillary victims of consolidation, according to analysts.

Here again, though, providers are trying to put out a positive spin. For instance, Texas Instruments, which has recently placed more emphasis on supplying the silicon needed to run cell phone base stations, believes consolidation does not pose a threat, according to Sandeep Kumar, the company's strategic marketing manager for wireless infrastructure.

"Consolidation doesn't mean you need fewer base stations," Kumar said. "There are still the same millions of customers that need to be serviced."

Indeed, sales of cell phone handsets this year are expected to surge to between 580 million and 585 million units.

Announcements expected Monday from major manufacturers of gear for cell phone networks include the following:

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• Lucent intends to show off base stations capable of real-time instant messaging of video and of handling roaming between high-speed cell phone networks and smaller, but faster, public Wi-Fi hot spots. Lucent also intends to display new equipment based on an up-to-date cell phone technology capable of downloads at 14 megabits per second.

• Aside from unveiling new equipment for both GSM (Global System for Mobile Communications) and CDMA (Code Division Multiple Access) wireless networks, Nortel plans to announce a new pact with security specialist VeriSign. Under the terms of the deal, some of Nortel?s equipment can now tap directly into VeriSign?s telephone number database. One of the advantages is that cell phone subscribers who use the caller ID feature no longer have to manually enter names and telephone numbers into their handsets, VeriSign executives said.

• TI is expected to announce a new set of cell phone infrastructure chips that support GSM and CDMA, two of the world?s most popular standards, plus the next-generation standards UMTS and TD-SCDMA, which is expected to be popular in China?s growing cell phone market. • Sun and corporate wireless e-mail pioneer Research In Motion are expected to announce plans to extend to cell phones applications once available only through a wired connection to a corporate database. Insurer eAgency is among the earliest customers for products developed by the long-time partners, said David Rivas, chief technology officer in Sun?s consumer mobile systems group.