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Technology continues to lead the markets
Mobile phone use continues to rise — and rise.
A new technology is hitting the markets. It is called wireless application protocol (WAP). WAP is a standard that allows mobile phones and the Internet to work together. Everyone from providers of Web site content to giant telecommunications corporations are working toward products and services built around this new concept.
Asian telecommunications and Internet companies are gearing up to take advantage of the new technology for Asia’s growing number of mobile phone and Internet customers. Companies, such as Hong Kong Telecommunications, a major wireless operator, also are looking for ways to introduce additional services tied to WAP. Hong Kong Telecommunications announced on June 9 that it was the first network operator in Hong Kong to test WAP technology and that before the end of the year, they expect to launch several WAP-based services, which will include movie ticketing, telephone directories and flight information.
Mobile phone companies, such as Nokia, Ericsson and Motorola, have announced plans to have WAP telephones ready for customers in 1999. Nokia, a Finnish telecommunications equipment maker, has been producing road shows over the past several weeks that demonstrate the new technology and drum up more interest in that sector.
Nokia’s new launches
Nokia unveiled two new mobile phone products in conjunction with the CommunicAsia 99 event held in Singapore. The Card Phone weighs 58 g and contains a PC card with built-in dual band that supports the High-Speed Circuit Switched Data protocol. This enables fast wireless data transmission speeds. The Card Phone 2.0 operates in both the GSM900 and 1800 networks and should be commercially available during fourth quarter 1999. Nokia also unveiled the 8850 dual band phone for GSM900 and 1800 networks. This phone weighs 91 grams, including an aluminum case, and also should be commercially available during fourth quarter 1999.
The reason behind such interest in the Asian telecommunications industries is clear. Wireless communication throughout Asia is poised to grow rapidly over the next few years. Globally, the number of mobile phone users is estimated to reach 1 billion, or about one-sixth of the world’s population, by the year 2003. According to Nokia, there are only 300 million mobile phone users at this time. Much of that growth will be in Asia.
Further fueling this growth will be rapid change in what customers can do with a mobile phone. In addition to straight telephone communication from anywhere in the world, these new mobile phone systems soon will provide customers with data, such as pages similar to those found on Web sites. Sooner than we might imagine, mobile phone users actually will see the person on the other end of the line. Nokia is playing that concept through their current ad campaign with the headline: “Smile, you’re on the phone!”
The distant future?
In reality, it will be some time before customers actually will see the person to whom they are speaking. These products are considered “third generation” technology and are some distance in the future from being commercially available. However, what you will be able to tap into by year-end still may be very interesting. Mobile phone users will have access to e-mail, movie schedules and financial services, as well as other scheduled information, such as airline flights and various reservations. Nick Fund, head of chip card and e-commerce at Standard Chartered Bank in Hong Kong, suggests that mobile phones might become your personal ATM machine.
Content providers should be especially excited because they already have many of the building blocks from their work on the Internet. They will need only to design special pages that can fit onto the mobile phones.
Early versions of the WAP hardware are already in place. Nokia already has come out with demonstration models of the new phone, called the 7110, designed for users who want access to the Internet. The model has a display area that is about 80% larger than the one on Nokia’s current top-selling mobile phone line. Other hardware makers are expected to have products in the market before year’s end.
Star performer
Our firm’s core holding in the wireless telecommunications equipment sector of the economy is Nokia. As I have said before, from the investor’s point of view, for a company to be a star performer, it must have good people, be a leader in the market and stay on the leading edge of technology. Nokia is such a company. It is a leader in the technology equipment sector and meets all of my other requirements. Nokia Corporation trades as American Depositary Receipts on the New York Stock Exchange under the symbol NOK. As of this writing on June 23, 1999, Nokia is currently trading at $86.38/share. We first purchased it for client accounts on Aug. 27, 1998 at $36.38/share.
With 65% of its sales from wireless handsets, Nokia should continue to benefit from the stronger market demand for wireless handsets. The majority of cellular operators in Asia, Europe and the United States have largely completed conversion of their infrastructure from analog to digital. Nokia is on the cutting edge of this new digital technology. Handset upgrades accounted for approximately 34% of the 160 million wireless phones sold in 1998. Equipment vendors are forecast to sell 215 million to 225 million phones in 1999, with replacements accounting for up to 40%. Even taking into consideration the possibility that product mix shifts toward low-end phones, wireless handset sales should increase by close to 20% in 1999. This trend should favor both Nokia and Motorola, with their strong and improved product offerings.
Nokia has cut prices on its mid-range 6100 GSM platform by an average of 30%. This is the first major price cut for Nokia since it introduced the platform in December 1997. Prices on other phone platforms are stable. Nokia recently expanded its manufacturing capacity, and I believe the prices were cut to further expand market share. With the telecommunications equipment sector of our economy ranked number 5 of over 150 sectors, per William O’Neal & Company, publishers of Investor’s Business Daily, I feel Nokia is strongly positioned as the leading company in this sector and is on the cutting edge of the industry to greatly reward shareholders.