Tuesday, October 08, 2002

How do I make money from this?

Just a brief further comment on my CDMA2000 v UMTS/GSM observations. A key point I was making, which I also made in a Slashdot comment , was that IS-95 CDMA networks are already in place in lots of Asia. The operators that have such networks have generally done badly competing with GSM and are somewhat unfashionable because of this. (Those companies with both IS-95 CDMA networks and GSM networks have generally sold the GSM network hard and neglected the CDMA network). However, these networks can easily be upgraded to CDMA2000. If CDMA2000 applications become a big deal, which appears to be happening in both Japan and Korea, these networks can upgrade extremely quickly and their perceived position could change extremely quickly.

The thing I perhaps didn't emphasise enough is that This is exactly what has happened in Japan over the last six months. NTT DoCoMo has been the long term market leader, with its 2.5G i-mode mobile internet service. KDDI's WAP version 1 service was far less successful and the company was perceived as second best. However, KDDI has updated to CDMA2000, and has added several million users from scratch since March. DoCoMo on the other hand has just got itself burned repeatedly over W-CDMA. The technology shift was quick, because it was IS-95 to CDMA2000. The perception shift was equally quick. I expect to see this shift happen elsewhere as well.

If I was still a stock analyst, I would say that the implications of this change in perception are generally as follows. I think we are on the bring of one of those changes in perception that leads to a major rerating of certain companies. Buy KDDI. Buy Telstra. Buy Telecom NZ. Buy Sprint PCS. Buy China Unicom. Buy anything Korean you can get your hands on that is close to being a pure cellular play. (Both in terms of equipment and networks). And of course buy Qualcomm. Accumulate Lucent and Motorola. Hold Ericsson. Sell AT&T Wireless. Sell NTT DoCoMo. Sell SingTel. Sell Hutchison Whampoa. Sell Nokia. (As for Vodafone, which is the world's largest GSM operator and is a major GSM proponent, but which owns a large stake in the largest IS-95 operator in the US, that one requires a lot of analysis. As does Hutchison Telecom Australia, which is being pulled along by its parent company, but which has a IS-95 network in Australia. If Hutchison was to spin that network off into a separate company, I would be bullish about it. The same is true of Hutchison's IS-95 network in Hong Kong).

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