The Real Story Beyond Wireless Telecom:
On Squawk Box last week, Maria Bartiromo asked me about investment opportunities in the wireless market. The markets were watching Research In Motion (RIMM: Nasdaq) edge its way up after they got a favorable ruling on some patents after a three year dispute with NTP. The patents are only a small part of the story. There’s more competition in the market and in competing technologies. Research in Motion’s BlackBerry technology has dominated the wireless email market because ActiveSync was never as effective as push email, but BlackBerry’s are not the only player anymore. Microsoft has added push email to its Windows Mobile and Exchange platform, Nokia is planning to offer a free push email according to software vendor Seven, and Intellisync announced add new push email called Wireless Email Express that will go on nearly all cell phones. I saw an ad for a Verizon phone made by Samsung’s (SCH-i730) which they will start selling sometime this summer. This phone will support the EV-DO network. EV-DO is a wide band wi-fi access over most cities right now. This 3G high-speed wireless network opens a wide channel for data on an existing CDMA network that can travel at very high speeds, up to 2.4 Mbps. On this network, the phone will not only have push e-mail but the access speed makes using the internet and downloading large files, like music and videos, something you can actually do.
This is definitely going to impact RIMM’s BlackBerry because the competition is not just Palm any more. So, yes, they’re winning the patent story, but RIMM is now competing with all wireless operators with coverage.
But competition is the real game in this wireless story. Lately the news has been very focused on China, with the controversies over the Unocal offer, undervalued currency accusations, and a rising trade deficit. Those are chump change compared the real story. The real story is technology and they’re beating us to death. It’s not just in education, although that’s important. China graduates six engineers for every one of ours, and the average age of an engineer in China is 29 years old compared to 45 years old in the U.S.
It’s technology. Recent stories out of the newspapers report on the fastest broadband in the world, at speeds of 40 gigabytes, being developed in China, development of new internet standards, and government subsidized wide scale roll out of broadband access.
Too many people, including the regulators, are worrying about the 20th century stories, like Lenovo acquiring IBM. These are PCs in boxes, hard assets, and they are not the source of advances in technology.
Right now, the game is how fast and how wide you can make broadband and fiber wireless coverage. In the U.S., broadband is strung across the country like Christmas lights between the NFL cities—and that’s not a joke. China is bringing high speed access into small towns all over the country and using it for education and technology. Here in the U.S., we’ve gone from number 1 to number 16 in the world in the last five-years. China is doing things to promote the development of high speed communications while we are doing things to retard it. China is about expanding fiber. The big story in America is about whether we will get rid of the $3 a month “temporary” telecom tax that we put in to finance the Spanish-American war 109 years ago. We don’t get it, but China does. This is a very dangerous situation for U.S. service companies and our next generation of workers, because without that access, they just can’t compete.
The last 5-years have seen the collapse of telecom capital spending in the U.S. largely due to the 1996 Telecom Act. That law is being rewritten now in Congress. If Congress gets that right, we will see capital spending coming back on here in the U.S. Telecom and communications investment is booming already in Asia and most of the rest of the world. The companies well positioned to take advantage of this are the telecom equipment makers, companies like Cisco, Intel, Nortel, and Lucent. Those are great bargains because their trailing history is so bad, but their prospects are getting much better.
JR
