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Handset Demand Hots Up

By Maxine Carter-Lome and Bob Chapin, Wireless Marcom, L.L.C.

As handset manufacturers jockey for position in the North American market, the real opportunities belong to those companies that have kept pace with the increasing popularity of cdmaOne technology and products. cdmaOne subscriber growth continues unabated resulting in its subscribers finding themselves in a statistical dead heat with TDMA (IS-136).

Fueled by the marketing prowess of such carriers as Verizon Wireless (the new union of AirTouch, PrimeCo and Bell Atlantic Mobile announced in April and now the largest US operator) and Sprint PCS, the sale of cdmaOne handsets in 1999 outstripped that of TDMA and GSM.

Despite this, the lack of choice among digital handset models has been one of the biggest challenges for carriers deploying cdmaOne-based networks in North America. In fact, the traditional 'Big Three' handset manufacturers-Nokia, Ericsson, and Motorola-seem to have been taken by surprise by cdmaOne's market momentum, and have been slow to respond with product. Of the three, only Nokia and Motorola are currently in the North American market with cdmaOne handsets. In the past, cdmaOne has been Ericsson's Achilles' Heel; however, it now plans to begin shipping its A1228C, an entry-level cdmaOne handset, in June of this year. A source close to Ericsson says its market share plans are modest for the near term but in the long term it hopes to capture 10 percent of the cdmaOne handset market. A tri-mode unit is on the drawing board for introduction in early 2001. Ericsson has no ambition to be a market leader in cdmaOne, having cut out niches for itself in other technologies, but it does want a cdmaOne component to complement its strong product line.

The big winner in cdmaOne has been Qualcomm, which garnered the highest volume of cdmaOne handset sales in 1999, selling close to 50 percent of all digital phones sold in North America and then selling off its handset division to Japan's Kyocera Corp. for an undisclosed sum. cdmaOne has also helped to bolster the market positions of Audiovox Communications Corp., a company staging an amazing market comeback, and Samsung Electronics Co., Ltd.

"The growth of the U.S. cdmaOne market continues to play havoc with the market share fortunes of the industry's traditional Big Three handset manufacturers," says Bryan Prohm, senior industry analyst at Dataquest. It has also provided a window of opportunity for companies with a limited history in the North American digital handset market, opening the door for a number of Asian manufacturing companies.

Year 2000 is expected to be another banner year for the technology. Projections run from 60 million to 75 million gross sales of cdmaOne handsets for the year.

Kyocera, the new owner of the Qualcomm handset business (although it has stated that it will continue to brand the product as Qualcomm), has set the pace in the cdmaOne market by introducing a number of products to help cdmaOne carriers jump-start the market and gain competitive market differentiation.

Data arena
Kyocera/Qualcomm's Thin Phone, which features a cdmaOne microbrowser, is how many cdmaOne wireless carriers plan to enter the wireless data arena. Vodafone AirTouch plc, now part of the Verizon merger, and GTE Wireless, part of the BellAtlantic joint venture, both announced plans to launch limited data services that involve linking wireless phones to laptop computers via a cable, allowing the phones to act both as a voice device and wireless data modem.

Canada's Bell Mobility launched Kyocera/Qualcomm's QCP-2760 Thin Phone in the Canadian market late last year. Also in the Kyocera/Qualcomm arsenal is the pdQ smartphone, an all-in-one digital wireless phone and pen-based personal digital assistant (PDA) that integrates cdmaOne technology with the Palm Computing platform.

Despite Kyocera/Qualcomm's head start in the market, the big story in cdmaOne is Audiovox Communications Corp., a past contender in the analog cellular phone market but a company that kept a low profile in the early days of digital cellular and PCS. Still maintaining a low profile on the radar screen due to its own OEM relationships with wireless operators, and with supplier OEM agreements in place with a number of different, mostly Asian handset manufacturers, Audiovox hit the market in 1999 with a product portfolio of retail-oriented cdmaOne phones.

In a 1999 ranking of US handset manufacturers, Audiovox ranked fourth behind Nokia, Kyocera/Qualcomm, and Motorola for cdmaOne handset technologies. But by the end of last year, Dataquest elevated Audiovox to the Number 2 slot for cdmaOne handsets, a striking rate of growth for an apparently low-profile company. Not since Nokia snuck into the North American market providing handsets to mass market retailer Radio Shack, has such a surge been witnessed.

Having just debuted its new line of cdmaOne-based, compact, chic clamshell-style cellular handsets in September,1999, Audiovox followed up with three new cdmaOne models that it introduced at CTIA's Wireless 2000 show in New Orleans at the end of February this year. The slim, lightweight Audiovox PCX-1100 supports the PCS 1900MHz frequency. Sleeker and lighter than its predecessor, the PCX-1000, the updated PCX-1100, which weighs in at 4.5 ounces, comes equipped with such features as 4-line/56-character LCD display, 99 number alpha memory, menu-driven operation, caller ID, voice mail notification and SMS (short message service).

The Audiovox PCX-3600 is a compact, clamshell-style handset that also supports the PCS 1900MHz frequency. It weighs just 3.7 ounces, and includes many popular options such as Preferred Roaming List (PRL) and vibra-alert. Also announced at Wireless 2000 was the CDM-8000 dual-band, tri-mode, web-enabled cellular phone. The new handset, which is web- and data-capable, will support the cdmaOne and AMPS 800MHz frequencies and the PCS 1900MHz frequency. While beefed up in features, the handset weighs in at just 4.6 ounces.

Not resting on its laurels, Audiovox followed up in April by announcing its progeny, the CDM-9000, a phone that will support the cdmaOne and AMPS 800MHz frequencies and the PCS 1900MHz frequency. One million of these handsets will be provided to Verizon under a $200 million contract. Compact and slim at just 4.8 ounces, the CDM-9000 offers advanced features such as a Web Browser with two soft-touch navigational keys for easy access to the internet, vibrating alert and alarm clock, voice-activated dialing, data capabilities, enhanced phonebook and memory, caller ID with name, short message service, voice mail notification and a choice of 15 audible rings including 11 distinct melodies.

Sprint PCS, which has been on a three-year shopping spree to secure product commitments, is finally reaping the rewards of that effort by adding many new cdmaOne handsets to its arsenal-specifically benefiting Samsung. Three years ago, Sprint PCS signed a contract with Samsung valued at $600 million. Today, Sprint PCS and Samsung are both benefiting from the strong marketing effort that positioned the dual-band, voice-activated Samsung SCH product line as the cool, new, must-have phones.

Easy messaging
Samsung's latest offerings include the SCH-6100, SCH-6500 and the SCH-8500. The SCH-6100 offers voice dialing to 20 locations, eight minutes of voice memo, Internet access and a calendar, a 'to-do' list, calculator and a 'Worldtime' function. A T9-enabled keypad from Tegic (recently acquired by America On Line, [AOL]) provides easy messaging.

At 79g (2.7oz) with slim battery, the SCH-6100 is among the smallest and lightest flip-type PCS phones available, fitting easily into the palm of the hand, pocket or purse. A single battery charge offers up to three hours of continuous talk time or six days of standby.

Samsung's top-of-the-line SCH-8500 offers everything available on the SCH-6100, plus 10 minutes of Voice Memo and 250 programmable phone numbers. It comes in flip-phone or clamshell format and weighs only 110g (3.8oz). Both the SCH-6100 and the SC-8500 feature a microbrowser that allows users to view select text versions of popular Web sites via the Sprint PCS Wireless Web, as well as check e-mail and receive short messages, including news and information updates. The phones also can be used as a wireless modem for Internet or corporate intranet access through a laptop, Palm computing device, or handheld computer.

Motorola is now focused on the cdmaOne market with a vengeance, boosted by a collaborative effort with Sprint PCS to deliver wireless Internet capabilities through Motorola's full line of dual-band, digital cdmaOne wireless telephones. Today, Motorola is considered the largest producer of cdmaOne phones for the U.S. market.

Last year, Motorola introduced its first dual-band cdmaOne digital wireless phone, the ST7867W, which operates at cdmaOne 1900MHz and analog 800MHz, and the cdmaOne StarTAC ST7860W dual-mode, single-band wireless phone. Both phones have an integrated microbrowser for Internet access and 14.4 kilobits per second data speed. Combined with TrueSync software, the phones' expanded phone books allow users to download and synchronize the names and numbers in their phone with desktop personal information managers and Web-based address books.

Also in September, Motorola announced a collaborative effort with Sprint PCS to deliver wireless Internet capabilities through Motorola's full line of dual-band, digital cdmaOne wireless telephones, including the new StarTAC ST78677W, the Motorola Timeport P8167, and the Motorola TalkAbout T8167, in conjunction with its new Sprint PCS Wireless Web service.

Commitment
While Nokia sells the most popular handsets in the world, holding more than 30 percent of the total business, the company is struggling to gain a foothold in the North American cdmaOne market. Numerous times over the years, Nokia has publicly reaffirmed its commitment to cdmaOne, but the overwhelming popularity of AT&T's promotion of Nokia's 6100 series TDMA phones has been something of a distraction. Nokia has also been plagued with chipset problems, preferring to develop its own instead of buying from Qualcomm. Nokia currently offers two cdmaOne-based handset models in North America, selling to Sprint PCS, US West Wireless, and Bell Mobility, among others. The 6185, Nokia's leading cdmaOne product, is a dual band/trimode phone featuring numeric paging capability, Email capability, calendar/event reminder features, Caller ID, internal vibrating alert, and one-touch access to voicemail and text messages.

Nokia also has plans to introduce its 7100 Series phones into the market, including a cdmaOne model which company officials have indicated will hit the market later than TDMA and GSM versions. The 7100 series features an extra large display and built-in WAP-compliant microbrowser, as well as a Navi-Roller, a mouse-like navigation button for quick, scrollable control over every phone feature.

The North American cdmaOne handset market promises to become even more crowded this year as manufacturers set their sights on the market's biggest growth opportunity.

Based on a 129 percent growth rate in cdmaOne in 1999, up from a 50 percent growth rate in 1998, industry observers conservatively project sales of some 75 million units in 2000. But this figure could potentially be much larger given the momentum cdmaOne networks have been demonstrating.

Hyundai Electronics Industries of South Korea has announced it will introduce two new wireless handsets in the U.S. in 2000, including the Model PE2, a cdmaOne dual-band, tri-mode handset capable of 2.5 hours of talk time and 100 hours of standby time. Hyundai says it will be the first phone on the market with the five-point navigational button, which allows users to access most of the features with that one button.

Kyocera is also expected to pump money into the North American handset market through its acquisition of Qualcomm's handset division. Kyocera currently manufactures cdmaOne handsets in Asia, but does not have a strong North American presence. After the sale, the company publicly announced plans to produce about 16 million wireless handsets, including cdmaOne units, in the fiscal year ending March 31, 2001, doubling its total shipments to date. Siemens is another international handset powerhouse with its sights on the North American cdmaOne market. In April, Siemens announced it is re-entering the U.S. handset market in a big way and plans to spend $500 million over two years to revamp and broaden its scope beyond GSM. Siemens plans include a cdmaOne/GSM world phone.

The company also holds a position in NeoPoint Inc., a fledgling start-up offering CDMA-based smart phones. Last year Neopoint debuted the dual-mode NeoPoint 1600 handset for cdmaOne networks. The NeoPoint 1600 supports wireless Internet, e-mail, PC synchronization and personal information management. It has a 1,000-name organizer, 30-number call history and can function as a wireless modem to send and receive data from laptop computers, among other features. It also has an 11 line by 24-character screen that supports graphics.

Evolving the market
Smaller players like LGC, selling OEM to carriers, will also play a role in evolving the market. In April, MCI Worldcom Wireless began a high-priced marketing campaign promoting the new branded LG cdmaOne. The campaign focuses on the benefits of cdmaOne and offers a mass-market product, the LGC-330W.

While the North American market is a potential goldmine to some, others have eyed it and decided to walk away. NEC America Inc. last year announced yet another plan to establish itself as a solid handset supplier to the U.S. market. That plan included a cdmaOne version of the company's tri-mode phone. But plans change, and the firm wiped the board clean of its cdmaOne intentions. Instead, NEC decided to concentrate its research and development money on TDMA technology and enhanced data rates for GSM evolution (EDGE).

Success in today's generation of CDMA technology will guide handset vendors' success into the third generation market, say analysts. With worldwide cdmaOne growth up over 129 percent in 1999 and most likely even more in 2000, and the technology the fastest growing in the US, it does appear that the US cdmaOne market is where the battlelines for 3G will be drawn.

Maxine Carter-Lome and Bob Chapin are principals with Wireless Marcom, L.L.C., a strategic marketing and communications company for the wireless industry, specializing in market research, market position and marketing communications. They can be emailed at maxine@wirelessmarcom.com and bob@wirelessmarcom.com

Top 5 CDMA Handset Manufacturers Percent of CDMA Market Q3'99
Kyocera (Formerly Qualcomm) 27
Audiovox 21
Samsung 15
Motorola 13
Nokia 11
Source: Dataquest