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Faster technology may not help Nokia's sales

Nokia Oyj, the world's biggest mobile-phone maker, was set yesterday to reveal the high-speed handset it's counting on to turn around sliding sales and combat mounting rivalry from the likes of Motorola Inc.

Nokia's challenge is to convince the seven out of 10 Europeans and half the population of the US, who already own cellular phones, it's worth replacing them with ones that will let them watch live sports and music videos, investors said.

With the first of the new services arriving next month in the UK from Hutchison Whampoa Ltd's `3,' Nokia is relying on service providers to boost the market for so-called third-generation phones. That may take time as Europe's debt-ridden phone companies delay the rollout of new networks and amid a lack of compelling services, investors said.

"3G won't boost handset demand in the foreseeable future," said Mika Heikkinen, who helps manage 368 million euros (US$359 million) in securities at FIM Asset Management. "A new technology alone won't make a consumer to replace his handset."

Nokia held a press conference in Helsinki at 2pm local time yesterday to show the new handset.

Phone companies spent a total US$100 billion on licenses to build networks based on the Universal Mobile Telecommunications System in Europe. Yet some of the faster services can be offered with current technology. Deutsche Telekom AG has said customers of its T-Mobil unit can already record and send video clips.

``3G won't have an impact on any company we follow before 2005,'' said Richard Windsor, an analyst at Nomura Securities, who recommends investors sell Nokia shares. ``Nothing will happen before companies come up with something consumers can do with 3G phones they can't already do.'' Nokia expects quarterly sales to rise for the first time in more than a year this quarter, aided by demand for new mobile- phone features such as color screens and built-in cameras. In the first half of 2002, the company's handset business accounted for 80 percent of its sales and 95 percent of its operating profit.

Still, Nokia is far from the 1990s' growth levels of as much as 50 percent. The Finnish company expects sales to increase between 3 percent and 10 percent in the second half and more than 10 percent from next year. Its shares have dropped 80 percent from their June 2000 peak as growth prospects have diminished.

Yrjo Neuvo, Nokia's technology chief, has predicted it will take more than two years for UMTS services to take off.

The new handsets, which use wideband code-division multiple access technology, will account for less than 10 percent of Nokia and rivals' sales next year and in 2004, analysts said. Some 10 percent of Europe's mobile-phone users will be subscribing to UMTS services in 2007, according to a Forrester Research Inc. study.

"It all depends on how attractive services operators can build," said Timo Korhonen, a professor of telecommunications system engineering at Helsinki University of Technology.
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