Telecom N.Z. May Follow India’s Reliance in Move to GSM Network

Telecom Corp., the worst-performing stock on New Zealand’s benchmark index this year, may have to spend NZ$400 million ($264 million) to switch mobile phone technology because of dwindling global support for its system.

The former government monopoly uses CDMA, or code-division multiple access technology, a system that has seen its global market share drop to 18 percent, from 21 percent in 2004. GSM technology, used by rival Vodafone Group Plc, has 82 percent, attracting more investment from handphone makers.

“The risks are moving a little bit against us,” said Telecom Chief Financial Officer Marko Bogoievski. The company isn’t yet at a stage where it would choose to dump its existing technology, he said in an interview.

Telecom would follow carriers such as India’s Reliance Communications Ltd. and Brazil’s Vivo Participacoes SA in moving to GSM, part of a global groundswell that’s prompting equipment makers to alter course. Nokia Oyj, the world’s largest cell- phone maker, is reducing investment in CDMA because the technology is losing momentum in newer markets.

“The momentum is going towards GSM,” said James Lindsay, who helps manage the equivalent of $300 million at Tyndall Investment Management Ltd. in Auckland and holds Telecom. “Nokia is a big loss for CDMA.”

For handset makers such as Nokia, switching to the GSM system means lower costs because Qualcomm Inc., which pioneered CDMA, collects higher royalties. Shares of the San Diego, California-based company have fallen 10 percent this year.

Shares of Telecom have tumbled 26 percent this year after the government in May said the company would be forced to end its fixed-line monopoly to encourage competition and bolster use of services such as high-speed Internet. The stock rose 8 cents, or 1.8 percent, to NZ$4.44 yesterday in Wellington.

Telecom Vs Vodafone

Telecom is trying to win back mobile customers in New Zealand, where Newbury, England-based Vodafone has snared 63 percent of the NZ$2.1 billion market since starting in 1998.

Vodafone’s GSM handsets offer services such as video calling and high-speed Internet access, and give the company more models than Telecom. GSM’s global dominance means there are more countries where customers can use their phones, more services get developed and handsets are cheaper.

GSM-based technologies “appear to be gaining an edge over CDMA,” Ian Martin, who has a “hold” rating on Telecom at ABN Amro Holding NV in Melbourne, said in June. “Telecom risks becoming the poor cousin in mobile with insufficient CDMA applications to help drive non-voice revenue growth.”

Nokia’s Strategy

Espoo, Finland-based Nokia, which sells one of every three mobile phones in the world, on June 22 abandoned plans to develop CDMA handsets with Sanyo Electric Co. and said it would “ramp down” its own CDMA activities by April 2007.

Stockholm-based Ericsson AB, the world’s largest maker of mobile-phone networks, has also effectively withdrawn from building CDMA networks, Credit Suisse analysts Kulbinder Garcha, Eiji Aono, Vivek Doval and Rajib Nandi said in a report this month.

“The GSM standard is going to be very big in the next five years,” said Paul Richardson, who helps manage the equivalent of $140 million at BT Funds Management Ltd. in Auckland, and holds Telecom. “The risk is that the products that Vodafone can offer become better, snazzier, cheaper and faster.”

India’s Phone Market

Mumbai-based Reliance Communications Ltd., India’s largest CDMA carrier, is seeking approval to start GSM-based services in New Delhi and Mumbai, India’s two biggest cities. Reliance may drop its CDMA services in favor of GSM, the Financial Express reported in June, citing government officials.

Vivo Participacoes SA, Brazil’s largest mobile-phone company, said in July it plans to invest in a nationwide GSM network to reverse a slide in market share, which it will operate alongside its existing CDMA network. Vivo is jointly owned by Telefonica and Portugal Telecom SGPS SA.

For New Zealand’s Telecom, changes closer to its home market may have a more immediate impact.

Telstra Corp., Australia’s largest telephone company, last year said it will close its CDMA network by 2008 in favor of GSM. That means Telecom customers won’t have a network to roam on when they visit Australia, which accounted for 62 percent of New Zealanders’ short-term trips overseas in the year ended July 31, according to government figures.

Telecom’s Options

Telecom’s Bogoievski said the case for switching to GSM isn’t yet compelling.

“The bounds of probabilities and risks have shifted a little bit but nowhere near enough to say that now we’re changing gears and here’s a new investment program,” he said.

Telecom may opt to use both technologies, or reduce the costs of switching through an alliance with a GSM-based rival, he said. The company is also awaiting the arrival of handsets that can roam on either network, Bogoievski said.

Samsung Electronics Co., the world’s third-largest maker of wireless phones, has developed a handset which works on both CDMA and GSM networks. The phone is being tested and should be on sale early next year, Telecom said this month.

Source- http://www.bloomberg.com/apps/news?pid=20601081&sid=ae_3gzHO_.TU&refer=australia

Technorati : CDMA, GSM, Mobile, Nokia, Samsung, Vodafone
Ice Rocket : CDMA, GSM, Mobile, Nokia, Samsung, Vodafone