DESPITE ECONOMY, VENDORS SEE GROWTH FROM DATA DEMAND

Notebaert declined to add details to guidance for next year, saying picture still was too unclear from carriers themselves. “Their guidance isn’t as strong as it was 6 months ago and our whole success is based on them and what they do and what they see. Who would have thought a year ago we would have seen negative net line growth at the base level?” Responding to point by audience member that some other companies were giving guidance, Notebaert said that was surprising given current economic uncertainty. “I'm not sure any of us in the industry understand the true ramifications of Sept. 11 to our business,” he said. Notebaert lauded Verizon’s response to World Trade Center terrorist attack. “From a telecommunications infrastructure perspective, very few people understand the depth of the destruction,” he said. To aid in restoration of service for Verizon at West St. facility, Notebaert said Tellabs expedited product shipments to company.

Ericsson has posted 17% increase in GSM sales year-to- date, although in several areas “freefall” in parts of Latin American economy have been drag on company’s financial picture, Pinkham said. He reiterated Ericsson guidance that mobile systems in 4th quarter were expected to be down 10% from last year, and wireline sales would be down “significantly due to the downturn in Latin America,” he said. Latin America market is driven largely by Brazil, which accounts for 50% of sales in region, and Mexico, which has 1/3, Pinkham said. In Brazil, issue has been lack of capital for building out networks, he said. While fiscal policy changes can turn that situation around over time, “when is the question,” Pinkham said. In Mexico, telecom sector is largely tracking economic downturn in U.S. Pinkham touted effects of company’s massive “efficiency plan” that he said was running ahead of cost reduction targets for next year. Ericsson has 40% market share in 3rd generation wireless/UMTS market, he said. Asked by investor whether company would sacrifice “a little bit” of market share in near term for sake of profitability, he said Ericsson would.

Nokia Networks 3G Market Relations head Joseph Barrett said wireless data market was going through current period of “overcriticism” following period of “overhype.” He stressed importance of proper pricing for mobile data and choice of content-based applications for users. In markets such as Singapore and Malaysia, some operators get 50% of their revenue from wireless messaging services, offering that’s long been popular in Europe, he said. But some service providers in U.S. are charging $5 per month just to have messaging added to their wireless service, he said: “That does not stimulate business.” In some markets that are rolling out General Packet Radio Service, commonly referred to as 2.5G, subscribers are wooed with offers of free data services up to certain megabyte limit for first 3 months, Barrett said. For broader consumer adoption, “those types of things need to happen.” But new routes for wireless-based ad revenue, such as entertainment information delivered on push basis to young adult subscribers, is coming to market soon, Barrett said: “You will see these things happening in the next few months.” Nokia started to deliver 3G systems in April and expects to have 25 test networks delivered worldwide by year-end, he said.

To make carrier spending decisions easier, particularly for targeting business customers, Lucent Wireless Networks Group COO Cynthia Christy outlined company’s “data first” strategy for wireless networks. After migrating customers to data, service providers then can integrate voice and data applications into their networks, she said. Lucent is basing such decisions on information from chief information officers at companies that employees who travel frequently need data rates in excess of 64 kbps and throughput rates of 100 kbps, speeds that aren’t sustainable with 2G and 2.5G networks, Christy said. “When you have integrated voice and data, you're not optimizing for data,” she said of service providers that were migrating to 3G networks. Data First initiative planned in 2002 by Lucent provides carriers with way to get short-term return on investments from license and spectrum expenditures, she said. UMTS operators don’t have to focus immediately on integration of voice and data, so startup costs are cheaper, Christy said. Near-term “availability of services will be key,” she said. “The first and second people into this market space make the majority of money.” -- Mary Greczyn

UBS Warburg Conference Notes…

Motorola Chmn. Chris Galvin told conference late Tues. that he projected 50% of all voice minutes would be wireless by 2010. After running that figure by head of China Telecom, Galvin said he was told that in China that point could be reached as early as next 2 to 3 years. Other Galvin forecasts: (1) 70% of all new vehicles will be equipped with telematics equipment by 2010. (2) 20-25% of all Internet access will be on wireless devices by 2010. In Q&A, Galvin was asked when company would stop reporting quarterly one- time charges and instead post “clean numbers across the board.” He said timing was hard to predict: “I would say it depends on what happens with our plans over the next year. I can’t say it’s over yet.” He said company would place “intense” focus on returning to profit in 2001, but said Motorola didn’t plan to sell semiconductor part of its business despite losses in unit. While unit has unused manufacturing capacity because of downturn in demand, Motorola would receive less than ideal price in current economy, he said. “When the business comes up again” and demand comes back, it would then be more expensive to acquire such capability again, he said.

----

Acknowledging opposition of Senate Commerce Committee Chmn. Hollings (D-S.C.) to Tauzin-Dingell bill, Verizon Co- CEO Ivan Seidenberg said that didn’t mean some version of broadband relief legislation wouldn’t make it through Senate. “Tauzin-Dingell will pass the House in some form by the end of this session,” he said in Q&A with investors. When House passes legislation, “rash” of bills will emerge on Senate side, he said. Seidenberg said he spoke at Washington event recently with several Senate Democrats, including Torricelli (N.J.), Reed (Nev.), Wyden (Ore.) and Curzon (N.J.) “They all want to do something,” he said. He dismissed press reports that there was tension between Verizon and its wireless venture partner Vodafone. Seidenberg said he spoke with Vodafone Chief Executive Chris Gent twice or more per month. “I think it’s a good relationship.” As for upcoming IPO of Verizon Wireless, Seidenberg said offering was expected in first quarter of next year.

----

One vulnerability in European wireless sector in near future is expected decline in roaming, which typically has been lucrative revenue stream from subscribers who travel among countries in region, UBS Warburg Global Telecom Analyst Uberto Ferrari said. Since Sept. 11, British Airways has reported 36% decline in premium business travel, dropoff that’s likely to affect mobile operators, he said. While “safe haven” status of European telecom carriers for investors has been overstated, Ferrari said economic uncertainty in wake of Sept. 11 has affected both U.S. and European sector. In U.S., many mobile carriers have been supported by “organic wireless growth” because there’s still room for higher penetration beyond current rate of 45%, Ferrari said: “In Europe, growth has ground to a halt on the wireless side.” One key problem is that last year wireless was expected to “explode” and that hasn’t happened yet, he said, so potential declines in roaming for European mobile carriers won’t be offset by subscriber growth. As examples, he said E-Plus added 2,000 wireless subscribers in 3rd quarter of this year vs. 629,000 in same period last year, and Britain’s Vodafone added 22,000 in 3rd quarter, down from 877,000 year ago. Outside of Europe, Ferrari said China’s State Council had target of 300 million subscribers for China Telecom’s wireless growth, but only way to get there was for prices to fall. In contrast, Korea Telecom has “been a ray of sunshine in a gloomy telecom environment,” Ferrari said. ADSL growth has been very strong for that telco in last 18 months and mobile subscriber increase has ramped up significantly from as recently as May, he said.

----

Acknowledging disappointment in rock bottom stock price of Williams Communications, Chmn. Howard Janzen told UBS Warburg conference company wasn’t for sale. “There is no question in my mind that there will be another wave of consolidation in the industry,” he said. Touting competitive edge of company’s nationwide fiber network, Janzen said: “Our goal is not to be an acquisition candidate. We have never been a company with a big ‘for sale’ sign.” Williams Communications has been trading in range of $1.30 per share in last few months, down from 52-week high of $20.63. “Our stock price is at levels that make me cry every night,” he said. He said company remained on track to hit positive territory by year-end for earnings before interest, taxes, depreciation and amortization (EBITDA).

----

“Data trends are still fundamentally strong,” SBC Senior Exec. Vp-CFO Randall Stephenson said at UBS Warburg conference Tues. But he said data revenue, excluding customer-premises equipment sales, was up 15% in 3rd quarter, which “is a little softer than you're used to seeing.” Usually growth figure is closer to 40%, Stephenson said. Impact of dot.com downturn in Cal. has been among key drivers behind decline, he said. One benefit of Cal. had been growth driven by Internet-based companies when sector was strong, he said. With “ISP fallout,” he said, “California is having an effect on our revenue growth.” Genuity Chmn. Paul Gudonis also had cited impact of dot.com industry on short-term revenue, saying dot.coms and ISPs that had run out of funding had migrated out of customer base. On long distance side, Stephenson said SBC was awaiting answer from Cal. PUC on its Sec. 271 application by late Jan., at which point 90-day review process would begin at FCC. “Everything is moving on schedule,” he said.

----

Without providing specifics on when he expects to see economy rebound, Sprint COO Ronald LeMay said “despite the downturn in the economy, there is definitely room to grow in the telecom industry.” He told UBS Warburg conference Wed.: “Telecommunications has always been a growth engine for the U.S. economy and we believe that will continue to be the case.” While data services revenue has been growth driver for Sprint, including 6% year-over-year increase in 3rd quarter, LeMay said Web-hosting services had “been impacted in the short run by the economy.” He said: “We believe it will be a significant opportunity over the longer term. Sprint is in a solid position to take a profit share in this area.” On PCS side, LeMay said customer turnover rate (churn) hit 2.6% in 3rd quarter, down from year-ago period but significant increase from 2nd quarter. Increase was result of higher churn at Sprint PCS “resulting from an increase in bad debt.” He said: “We believe this is mainly driven by the economy.” He reiterated Sprint PCS’s position that carrier didn’t need more spectrum to roll out advanced wireless services. LeMay said company paid average of 50 cents per MHz per pop for its markets vs. $4 per MHz per pop that NextWave spectrum fetched in Jan. re-auction of licenses by FCC.

----

Settlement talks over NextWave licenses that were part of FCC’s Jan. re-uction “appear to be moving toward some resolution,” said Harvey White, chmn. of Leap Wireless International, which was among successful bidders for licenses. He also characterized market tests of new content- based offering called “Slice” as demonstrating initial success. Wireless data service “pushes” snippets of information to subscribers, instead of having users surf Internet to download same content, he said. “Wireless Internet has not been a big success because people don’t want to sit around and surf the Internet on their handsets,” he said. Leap offering provides short clip of information for users, giving them option to download fuller text, White said. Leap is at point of converting subscribers from 60-day free trial period and is finding that 1/3 are opting for paid service at $2.95 per month.