Carl Weinschenk spoke with Allen Nogee, principal analyst, In-Stat. Nogee's report, Worldwide Cellular Base Station Forecast Driven by Data, was released late last month.
Weinschenk: What did the report look at?
Nogee: I do this report every year. It covers cellular macro base stations. These are the big base stations service providers use worldwide. The report covers new shipments by technology and region and how many are running out there, how they are deployed by technology and a regional ongoing status report. There are a lot of different groups that follow this. It is quite a big and important area. Base stations are an unusual category to cover. They are not replaced often. Handsets go up and down, but base stations, once they are out there chugging along [they are fairly constant]. The numbers can change based on how much data usage there is, how many subscribers there are, the land area covered, data usage, voice usage and the new technologies coming out. This can spur overnight a whole new slew of base stations.
Weinschenk: What did you find?
Nogee: What we found is that the last few years, from 2005 to 2007, were fantastic to base stations generally. Now there is a more normal state, if you will. 3G has come to most of the areas that are going to deploy it. In general, most of the big operators are done worldwide. If companies want 3G, they have it, or they will ride out 2G for a while. Base stations did not have a bad year, but did not have a fantastic year. It is an average year, but the last several were really good. The big next push is LTE, and most operators won't do that until 2012 or 2013. We were kind of nearing a more normal state this year, with nothing exceptional going on.
Weinschenk: Where is the growth, and where is it stalled?
Nogee: Most people, when they think of new base stations, think of 3G. In reality, GSM is growing at a fast clip. There are hundreds of millions of people in Africa, India and China that are getting phones for the first time. Sometimes they get EDGE, sometimes just GSM. These are low-cost phones, $20 to $30. Usage isn't great on these phones, there are not a lot of base stations existing now. In Africa, there are potentially over a billion users. There are 300 millions subs now and the numbers are growing very quickly. There is a lot of growth in those regions.
Weinschenk: How about in developed countries?
Nogee: In the more technologically evolved areas like the U.S., Europe, Japan and Korea, there is some slowdown. There already is fairly good penetration in those areas. There's a general slowdown in how often people are replacing phones. New features are not attracting as many subscribers.
Weinschenk: What impact will femtocells have?
Nogee: Femtocells potentially can displace macro cells and eliminate the need for new ones. I don't see it for several years down the road. Some operators who are opting for WiMax are looking at femtocells as replacements for macro cells. It still remains to be seen. It is only in the talking stages. Five years down the road, I think you can see femtocells in a small way replace the need for many new macro cells.
Weinschenk: You suggest that WiMax providers may use femtocells. Can you comment more broadly on WiMax?
Nogee: Some of the manufacturers, such as Samsung, Motorola and Nokia Siemens, jumped on the WiMax bandwagon. They do not want to take a chance in case it is a great market. They do not want to be left out. Ericsson, on the other hand, does not see any need for WiMax and is not going there. They are going with LTE. Some companies do not forecast a giant market, but do not want to be left out if there is revenue there. The Xohm network is relying on a bunch of equipment makers. They are in Baltimore and say they will be in three cities by end of the year. So they are mixing and matching. Most big operators go with two manufacturers and split the business. LTE isn't going to be out for several years. I think both use similar technology and equipment-wise are similar. Cellular guys always are lucky in that they don't need [new sources of] revenue for new technology. Rather, revenue from old technology keeps moving along. You would not have 3G if 3G had to pay for it. But 2G revenue is paying for 3G. Cellular has been around for 20 years. It is not something that happened overnight.
Weinschenk: But base station vendors are struggling.
Nogee: They have struggled. You have to go no further than annual reports. During the last few years of Nokia Siemens, Alcatel Lucent [have merged]. Things happen and companies have to merge and combine resources in hard times. Nortel is big in base stations. Motorola is not as big in base stations as a few years ago. They are focusing on WiMax also. There's an evolution going on. Ericsson is probably the leader in base stations shipped. They are doing better than most, but even things for them are not real rosy.
Weinschenk: Things must look dire as the worldwide economy tanks.
Nogee: If you are asking if the world economy and recession is going to affect cellular, the answer is that the wireless business generally is a little bit more resistant than other services. People tend to think of mobile phone as a necessity and are willing to pay for it. People in the third world pay two months' salary to have their phones for a year. Even in the U.S., a lot of phone revenue is driven by kids that message and text and parents pay. They are less affected than parents by the economy and are not restricting their use as much overall. The impact will be perhaps a bit less than other businesses. Still, people are watching their money and may not be so inclined to get new phones or use new services that are not really necessary now. So it could be worse, it could be better. People are using more data services. The iPhone is turning things around, but the economy may not chug along as fast it would if other problems hadn't occurred. It is better off than most businesses, but it still is not recession-proof.