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No. of Recommendations: 24

Let's define this whole "CDMA takes over the world" and "replaces GSM" thing. GSM is now used in 130 countries, by more than 300 million people. The current projection for GSM subscribers in 2005 is 1 billion. As in one thousand million.

It's possible that many of those GSM subscribers will start buying dual-mode phones around 2003-2005. These phones would also incorporate W-CDMA, a third generation digital standard designed to offer 1 Mbps data transfer speed. Or they might choose to buy GPRS/GSM hybrid phones with 50-100 kbps data speed, starting next year. Or maybe EDGE/GSM phones with perhaps 200 kbps data speed, starting 2001-2002.

We don't know. There's no way of telling what are the data transfer speed requirements that suit most consumers ideally. And whether consumer want 50 kbps next Christmas or 200 kbps in 2002 or 1 Mbps in 2004. Maybe they want all three. You may think that everyone will want a 1 Mbps mobile phone as soon as possible; but that really depends on the price of the handsets. People will *not* pay anything for high data speed, not even PC users who could really benefit from it.

Now here's the relevance to Sonera: they are among the worlds first, if not *the* first mobile operators to offer technologies like GPRS and W-CDMA. So regardless of which mobile data technology ends up dominating the field, Sonera is among first operators using it. And developing content/m-commerce solutions. And these solutions are possible to sell worldwide, since GSM is breaking through 500 million sub barrier within three years. It's a lot tougher for AT&T or Nextel to sell their solutions worldwide, because the digital standards they use are not dominant outside of the Americas.

Sonera has already been granted a W-CDMA license and it will probably be the first European operator to launch the commercial service (along with smaller Finnish operators like Radiolinja) in the spring of 2002. Comparison to Sprint, AT&T or Nextel is stark - these operators have their 3G time schedules up in the air. 2004 is one possible date mooted by some analysts.

In my opinion, this puts North American operators at a disadvantage in transforming themselves into global m-commerce and mobile internet players. We already see a big gap in WAP implementation. Sonera is offering it now, US operators maybe next summer.

In any case, the whole "GSM is being replaced" spin does not compute. The GSM subscriber growth during 1999 is substantially ahead of earlier estimates. The reason Nokia changed their target date for 1 billion mobile subscribers worldwide from 2003 to 2002 lies largely with the GSM explosion in countries like China and Turkey. If people want to call CDMA's 1-2% market share in China "inroads" they can do so. English is a flexible language.

But as far as Europe, Africa, Asia or Australia are concerned, GSM is not being replaced. It's being enhanced by GPRS, EDGE and W-CDMA. The core networks can't be replaced, since they offer pan-European and global roaming, which took nearly a decade to build. We *could* get into a very nasty argument about the true nature of W-CDMA and which companies really control this technology. But maybe we better not to, since this a Sonera thread. Whoever the genuine big kahoona in W-CDMA manufacturing is, in the operator side Sonera is probably the first non-Asian implementor. And that counts for something, because the the first Asian operators in Japan and Korea are not offering W-CDMA/GSM dual service. That's where the big markets are.

Of course, none of this means that Sonera can't screw up its first-to-market advantage. They probably can. Vodafone, Mannesmann or some other big players may decide to throw so much money at mobile data that they can come from behind. That's why it's very encouraging that Voda is considering licensing Zed from Sonera. If the licensing ball starts rolling now, Sonera may hang on to its R&D advantage which dates to mid-Nineties.

What should give investors pause is the fact that Sonera now has a bigger market cap than General Motors; only one year after the IPO. The speed of mobile operator stock appreciation has been supernatural. It's not going to continue through 2000 at this pace.

Tero







































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