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Wireless network growth may have peaked

Growth in personal communication services fueled the infrastructure business last year, but this market's glory days may be numbered.

Growth in personal communication services (PCS) last year spurred business for companies that build wireless networks, but the infrastructure market's expansion may not continue for long.

Dataquest said the infrastructure market grew 63 percent last year to $5.3 billion, up from $3.3 billion in the previous year. PCS spending alone increased to $2.8 billion last year from $530 million in 1995. The market research firm added that the expansion is expected to continue this year.

"PCS carriers built their networks fast and furiously in 1996, and 1997 should be even better," said Clint McClellan, industry analyst for Dataquest's personal communications program, in a research report.

Some analysts, however, question how long the growth will last. "This market will not grow and grow and grow. It will peak and then drop off significantly," said Iain Gillott, an analyst with IDC Research.

By 2001, he expects infrastructure spending to drop back down to about $670 million. "Who will be building networks in 2001? Once they are built, that's it," he added.

These infrastructure companies may then be left with mainly maintenance work and smaller equipment orders in the future, which generate less revenue than building extensive networks.

Lucent Technologies (LU) held its U.S. industry lead in both the cellular and PCS arena with 37.2 percent market share, but Northern Telecom showed the strongest growth with an increase of more than 100 percent, according to the Dataquest study. Ericsson and Motorola (MOT), meanwhile, posted steady cellular and PCS growth but lost market share because of Northern Telecom's tenacity in winning PCS contracts.

Ericsson and Motorola are nevertheless well poised for global growth as each have larger installed bases than Lucent and Northern Telecom internationally, the report said.

Although Lucent and Nortel showed the largest market share and growth, Gillott said the two companies also bear most of the risk. "The true winners are the ones getting dollars in the door, not the ones financing deals, because those deals put them at risk if the they don't work out." Lucent and Nortel are involved in financing a lot of expansion, he noted.

But Gillott added that big companies like Nortel, Lucent, and Motorola cannot afford not to take those risks.