New Cellphone Networks Seen as Risky Bets

[David Farber <dave () farber net>]

------ Forwarded Message
From: Dewayne Hendricks <dewayne () warpspeed com>
Reply-To: <dewayne () warpspeed com>
Date: Sun, 06 Feb 2005 20:52:49 -0800
To: Dewayne-Net Technology List <dewayne-net () warpspeed com>
Subject: [Dewayne-Net] New Cellphone Networks Seen as Risky Bets

New Cellphone Networks Seen as Risky Bets
  Sun Feb 6, 2005 02:52 PM ET
By Sinead Carew
<http://www.reuters.com/newsArticle.jhtml?
type=businessNews&storyID=7549569&src=rss/businessNews>

  NEW YORK (Reuters) - U.S. wireless companies are investing billions of
dollars in networks that deliver video and music to cellphones, but
some investors worry whether the new services will turn a profit.

  Sprint (FON.N: Quote, Profile, Research) and Verizon Wireless, a
venture of Verizon Communications (VZ.N: Quote, Profile, Research) and
Vodafone (VOD.L: Quote, Profile, Research) , are spending billions on
so-called third generation (3G) networks. These networks allow for
wireless data speeds similar to wired high speed Web access offered by
phone companies to consumers.

  Some analysts believe the investments will eventually pay off, with
services that could command profit margins estimated as high as 60
percent. But others question when, or if, these services will ever even
turn a profit.

  "We think 3G will be adopted but we don't think it's going to be a
significant financial benefit to the carriers," said Tim Ghriskey of
Solaris Asset Management. Uncertainty around 3G is a main reason his
firm does not include operator stocks in the $650 million worth of
investments it manages.

  Mobile providers around the world are betting advanced services will
beef up profits, which have suffered as price wars eroded cellphone
call rates by about 20 percent a year. Since most people already own a
cellphone, operators compete on price to retain customers.

  "Video streaming creates a very large revenue opportunity. I believe
it's quite possible that could offset yield declines should they
continue on the voice side," said Sprint Chief Financial Officer Bob
Dellinger.

  But Charter Equity analyst Ed Snyder says wireless stocks could come
under pressure if the companies do not meet profit targets for wireless
3G services and voice prices continue to fall.

  "The prospects at this point are poor," he said.

  Sprint, Verizon Wireless and their biggest rival Cingular Wireless, a
venture of SBC Communications (SBC.N: Quote, Profile, Research) and
BellSouth (BLS.N: Quote, Profile, Research) declined to reveal specific
3G growth targets.

  Executives from Verizon and Cingular say they expect strong growth
from high-speed data services but note that it will not surpass voice
in importance for the foreseeable future.

  "I wouldn't tell you that's going to happen any time soon." said Peter
Ritcher, chief financial officer of Cingular, which also plans to build
a fast data network.

  "Anyone who takes their eye off the voice market has taken their eye
off their most important revenue stream," Verizon Wireless Chief
Executive Denny Strigl said.

  Some analysts say Verizon's 3G video phone service, available in about
30 U.S. markets, could have mass appeal. But so far it has not given
profit or customer growth targets.

  "The only demand that makes any difference to investors is profitable
demand," Charter's Snyder said. "If it turns out 3G is a flop,
(operators) don't have nearly the potential for upside the Street has
come to expect of them."

  If experience in Asia is any indication, U.S. carriers have a long
road ahead before they make easy money on 3G services.

[snip]


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