This column was originally published on RealMoney on July 5 at 2:38 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.Brazil's Vivo ( VIV), India's Reliance, and China Unicom ( CHU) have been reported to be considering launching GSM network expansions to substitute for their current CDMA operations. This potential new wave of GSM (global system for mobile communications) infrastructure expansion is a substantial surprise. Just a few months ago, Vivo, Reliance and Unicom were largely expected to stick with relatively aggressive CDMA (code division multiple access) expansion plans. Brazil, India and China are the core mobile telecom growth markets, and if the leading CDMA operator in every one of these markets switches to a GSM growth track, the implications for both infrastructure and handset markets are profound. If these operators move from the contemplation to the operational phase, their actions could spur a dramatic shake-up of the global wireless market and potentially give major long-term benefits to Ericsson ( ERICY) and Texas Instruments ( TXN) most notably. Potential losers in this mobile migration include Qualcomm ( QCOM), Verizon ( VZ) and Sprint ( S).
GSM SurpriseBrazil's Vivo, which has 30 million subscribers, was reported last week to have opened GSM network order negotiations with Ericsson, Siemens ( SI), Nokia ( NOK), Alcatel ( ALA) and Huawei. Reliance and Unicom are both already dual-standard operators -- but they are now apparently considering jacking up their GSM coverage decisively while de-emphasizing future CDMA buildup. Reliance has 20 million subscribers, China Unicom more than 110 million. The first phase of the GSM network rollout likely would cost $2 billion to $3 billion. India's Reliance is seen planning a GSM expansion of 10 million to 12 million phone lines -- major orders likely coming from Ericsson, Nokia and Motorola ( MOT).
Growth ImplicationsFor the phone market, the issue of future growth tracks may seem subtle, but it has pretty big implications. Two years ago, CDMA phones were projected to grab perhaps 20% of the global phone market by 2008. At the beginning of 2006, that figure seemed to sink closer to 18%. If several major CDMA operators flip decisively, the number actually may move close to 16%. This is a big deal. It would imply that the dollar value of the CDMA phone market may never grow again. This segment would become a shrinking market defined by a couple of major operators in the U.S. and South Korea (most notably Verizon ( VZ) and Sprint ( S)). Making money and maintaining margins in a shrinking market is very, very tough. Was this why Nokia dissolved its joint venture with Sanyo and opted to pull out of CDMA phone design and manufacturing? More importantly, was this why the Lucent-Alcatel merger and the Nokia-Siemens network merger arrived so rapidly earlier this year?
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