The Yankee Group Research Notes


 Covering the week of March 5, 2002

The Yankee Group's Weekly Analysis of the Hottest Topics in the Information Technology and Communications Industries
Tell us what you think of the HTML version of Research Notes: feedback@yankeegroup.com


Should you have any questions, comments, or concerns, please contact us at feedback@yankeegroup.com or (617) 956-5000.

Please be sure to check yankeegroup.com for analysis on current events.

Table of Contents

1.   Mega Outsourcing on the Rebound: IBM Signs $4 Billion Contract with American Express

2.

  China Unicom's CDMA Update: False Start or Blame Game?
3.   Fujitsu Announces Laptop with Wireless Internet Functionality

4.

  Brazil's Remaining PCS Licenses Reauction Scheduled to March 12
5.   The Mood Is Somber at the 3GSM World Congress
6.   NTT Communications Offers International Wide-Area Ethernet Service

7.

  U.S. Carriers Prepare for Mobile Commerce

8.

  Cingular's Retail Outlets Go "Live"

9.

  Sun Burns off the Fog Around Its Storage Market Intentions

10.

  Vésper Will Be Limited to Restricted Mobility

11.

  Japan Online: Accelerating Consolidation of Japan's ISP Market

12.

  Wintel Announcement Revisited
     
    Publications for the week of March 5, 2002
    Audio Conferences
    Conference Information
    About the Yankee Group

1. Mega Outsourcing on the Rebound: IBM Signs $4 Billion Contract with American Express

Technology Management Strategies
by Carrie Lewis

Event Summary

On February 25, IBM Global Services announced the signing of a seven-year, $4 billion outsourcing contract with American Express (Amex)—one of the largest users of IT in the United States. Amex processes over 1 billion transactions a day for credit card and travel companies. Under the contract, IBM will operate Amex's data centers, host its Web site, and provide help desk support. In addition, the contract provides for scalable computing (utility computing) so that Amex can buy additional computing resources only as needed.

Market Impact

Mega outsourcing deals are on the rebound, but their structure is changing radically. First-tier players such as Accenture, IBM, and EDS have all announced mega contracts since the start of this year. The key changes in today's contract features are:

Recommendations

Back to Table of Contents

2. China Unicom's CDMA Update: False Start or Blame Game?

Wireless/Mobile Asia-Pacific
by Shiv Putcha

Event Summary

China Unicom's long-awaited and much-hyped CDMA network has struggled off the starting block. Unicom reported just over 200,000 subscribers in early February. The numbers are somewhat misleading, as most of the reported CDMA users have migrated from the erstwhile Great Wall Communications service to Unicom's new offering.

Market Impact

Unicom has tried to explain away the slow uptake as the result of simple teething problems, but the new service is up against several challenges, the biggest of which is the general lack of IS-95 CDMA handsets. China's MII has licensed 19 domestic manufacturers (including Motorola's China unit) to produce the devices, but the phones are both expensive (in the US$300–US$500 range), and have also reportedly displayed poor quality.

Having spent US$2.9 billion (RMB 24 billion) on the CDMA network, Unicom's success is predicated on two key factors; first, its ability to attract new users and transition existing GSM subscribers to CDMA, and secondly, the speed with which it can upgrade the new network to high-speed next-generation services. So far, Unicom has fared poorly on both counts.

Another key factor inhibiting user uptake is the positioning of the new service at the high end of the market. Most of these users are already locked into GSM services, particularly with Unicom's rival China Mobile. Moreover, Unicom is not offering pricing discounts or incentives to lure these new users over to CDMA.

With all the delays, Unicom will find it difficult to upgrade its networks to cdma2000 as originally scheduled. And with limited coverage, high handset prices, and non-incentivized tariffs, Unicom risks losing its current small CDMA user base entirely when it tries to migrate them to 1X services in the near future.

Recommendations and Conclusions

Back to Table of Contents

3. Fujitsu Announces Laptop with Wireless Internet Functionality

Consumer Technologies & Services
by Margo DeBoer

Event Summary

On February 26, Fujitsu PC Corp. announced its LifeBook P Series laptop computer is available with built-in wireless LAN (802.11b).

Market Impact

The Fujitsu LifeBook P Series laptop comes equipped with embedded 802.11b hardware, but still requires the consumer to purchase wireless network based hardware for the home and a monthly service through a retailer or ISP. In addition to IEEE 802.11b wireless LAN connectivity, the LifeBook P Series includes a built-in modem and an integrated 10/100 base-Tx Ethernet standard. Especially important to the mobile professional or home office worker, mobile devices allow consumers to maximize productivity by eliminating boundaries to work seamlessly in the home, airport, restaurant, or hotel. The laptop is the next productivity device to adopt wireless data network functionality, following the mobile phone and the PDA, as a result of evolving consumer mobility patterns.

Conclusions

Back to Table of Contents

4. Brazil's Remaining PCS Licenses Reauction Scheduled to March 12

Brazil Market Strategies, Wireless/Mobile Latin America
by Luis Minoru Shibata

Event Summary

Brazil's regulator Anatel announced the creation of a Special Auction Commission to be responsible for conducting the auction process for the remaining PCS D-band and E-band licenses. As of February 26, seven companies had purchased the new rules announcement, a necessary step in order to participate in the auction process. The potential bidders are Brasil Telecom, TNL (owned by Telemar), TCO, and Telemig Celular; and three anonymous consortia: WXYZ 0006 Holdings S/A, Guadalupe Participações Ltda, and Carvalho de Freitas e Ferreira Advogados Associados.

Market Impact

The decision to create a special commission demonstrates Anatel's desire to avoid repeating its earlier failures in the first E-band auction, which did not attract any interest for Regions II and III. Although the D-band was totally sold, the Italian operator TIM will not use the spectrum in some areas where it already has cellular operations. In these areas, TIM forfeited control of the D-band PCS spectrum and, therefore, Anatel will reauction the licenses for these areas. In order to increase the competition levels in Brazil's mobile market, the regulator named seven people to be part of the commission and modified the original auction model. The licenses to be purchased will cover smaller geographical areas, similar to 10 areas of the A-band and B-band mobile operators, and together with the PCS license, the buyer will win a long-distance license. The payment for these new licenses can be done over the long term: 10% of the price is required at time of purchase with the remaining 90% to be paid over six payments: one each year after the first three years of operations, which means the last payment will be made only after eight years of operations.

Conclusions

Back to Table of Contents

5. The Mood Is Somber at the 3GSM World Congress

Wireless/Mobile Europe
by Declan Lonergan

Event Summary

From February 19–22, the world's GSM community congregated in Cannes for one of the mobile communications industry's largest annual events, the 3GSM World Congress. As usual, the exhibitor and delegate lists contained the names of all established GSM players, as well as the usual batch of hopefuls, scrambling desperately for delegate mind share.

Market Impact

Having attended each of the last six GSM Congresses in Cannes, we are now just as interested in the mood on the exhibition floor as we are in the multitude of content, demonstrations, and announcements. Traditionally, the GSM Congress has been the venue of choice for wireless equipment vendors to showcase new service concepts, to demonstrate unrivalled insights into the industry's changing dynamics, and to announce new partnerships and products. This year, however, many were clearly still consumed by the turbulence of the past 12–18 months. Where there were new announcements, most were wisely focused on immediate or short-term opportunities for their customers, the mobile operators, to achieve competitive differentiation, retain more of their customers, or generate new revenue streams.

Conclusions

Back to Table of Contents

6. NTT Communications Offers International Wide-Area Ethernet Service

Japan Market Strategies, Convergent Communications Asia-Pacific
by James Walsh

Event Summary

On February 21, leading long-distance and international carrier NTT Communications introduced Arcstar Global e-VLAN Package Service, an international wide-area Ethernet service aimed at corporate users. By renting LAN switches and other terminals, users will be able to send Ethernet traffic between sites over their existing ATM and frame relay (FR) circuits. NTT Communications is in fact positioning the new service as an option to its existing international ATM and FR offerings.

Market Impact

To meet growing capacity requirements on corporate WANs, and satisfy the need for global network reach, Japanese MNCs are increasingly looking to upgrade their corporate WANs. Many are considering migration away from traditional networks based mainly on FR and ATM, to newer protocols, such as IP VPNs and Ethernet. Japan's major carriers are responding to this shift by expanding their portfolios. NTT Communications has already been offering a domestic wide-area Ethernet service called "e-VLAN," which, unlike the new global service, requires the use of dedicated Ethernet infrastructure. The new service offers attractive benefits. Users will be able to provision Ethernet cheaply over their existing corporate networks to enjoy seamless Ethernet connectivity between global sites.

Recommendations/Conclusions

Back to Table of Contents

7. U.S. Carriers Prepare for Mobile Commerce

Wireless/Mobile Enterprise & Commerce
by Adam Zawel

Trend

In 2002, most major U.S. wireless carriers will launch their next-generation networks, supporting speeds of 30–60 Kbps. Complementing the network launches, carriers are selling a wide variety of devices capable of data applications, like graphics, photos, MP3s, and more. Since carriers are hoping to profit by charging for these premium data services they are deploying their next-generation content and billing strategies.

Trend Analysis

We expect at least one carrier (AT&T is a good bet) to duplicate the DoCoMo model, establishing a service that bills customers directly (on their phone bill) for digital content. Verizon will focus on BREW and selling downloadable content that can be manipulated on the device. Sprint PCS now offers premium content ("Ringers & More") for a flat monthly fee, but most U.S. carriers are deploying billing solutions that enable them to charge by the download or by the kilobit (this later method is more likely to be used by businesses).

On the content side, most carriers are hoping that application developers will be eager to utilize their billing and delivery platforms. If SMS starts to take off (and we expect it will now that U.S. carriers are finally enabling interoperability), the carriers will soon offer multimedia messaging services (MMS). This is where the distinction between messaging and content starts to blur. On February 25, Sprint PCS communicated its second announcement with digital imaging solution vendors, implying that Sprint is betting that consumers will use their phones to view images and photos.

Recommendations and Predictions

Back to Table of Contents

8. Cingular's Retail Outlets Go "Live"

Wireless/Mobile Services
by Knox Bricken

Event

Recently, Cingular Wireless launched its new Live Bar initiative—an interactive retail counter that enables customers to test drive voice and data solutions on the carrier's network while in the store. In addition, Cingular retail sites will have PCs set up, which will enable customers to see demonstrations, pay bills, and download ringtones. The stores will be comfortable "café-style" locations, which Cingular hopes will better attract consumers and encourage them to spend more time in the retail outlets.

Analysis

In an effort to reduce churn, wireless carriers are looking for ways to develop a stronger relationship with their customers. Obviously, the point of sale represents an ideal place to begin this process. Cingular Wireless is hoping to use its retail sites as a place where customers can develop a stronger comfort level with wireless technology, as well as leverage the opportunity to better educate customers on wireless data tools and capabilities.

Recommendations

Back to Table of Contents

9. Sun Burns off the Fog Around Its Storage Market Intentions

E-Networks & Broadband Access
by Jamie Gruener

Event Summary

Sun Microsystems recently announced its expanded storage market strategy, upgrading its focus on the market by rolling out a series of software, hardware, and service offerings designed to give it a wider portfolio. Sun hopes to demonstrate a compelling vision that will attract enterprise customers, and all of these recent product and services arrivals fill voids Sun faced within its storage strategy. It is clear that Sun's commitment to the storage market dramatically increased through this event, and the company showed its plans to be as aggressive here as they has been in building a top-tier server business.

Market Impact

Sun's new storage strategy takes aim at a number of its fellow system vendor competitors at two tiers: traditional infrastructure vendors such as IBM that can provide a wide breadth of products, as well as the more recent demigod EMC, which has been the storage market leader for the last half decade. Sun wants to start recapturing its own backyard by retaking server-attached storage that has been surrendered to EMC, as well as expanding its role in storage area networks and heterogeneous storage environments in the longer term. We estimate the network storage market will grow to a $24 billion market by 2005. Sun will still have its work cut out for it, as the rest of the top-tiered vendors have had a number of years to make inroads in this market. This announcement laid much of the foundation for this initiative to stake a claim.

Because Sun is so late to market with an articulated strategy, it will need to emphasize things other vendors may not in order to gain market momentum. The company has made a number of acquisitions and partnerships in the last two years to assemble its offerings. It acquired HighGround Systems and LSC to build its storage resource management and file system offerings, and partnered with Hitachi Data Systems for high-end storage arrays in August 2001. New software products are the results of these acquisitions, including Sun's Storage One Software architecture, storage resource management suite StorEdge, and a new higher end file system QFS/SAM-FS. This announcement also expanded Sun's midrange systems with two new storage arrays (StorEdge 3900 and StorEdge 6900), as well as added new partnership and service offerings focused on broadening its storage services and channel partners.

Conclusions

Back to Table of Contents

10. Vésper Will Be Limited to Restricted Mobility

Brazil Market Strategies, Convergent Communications Latin America
by Raphael Duailibi

Market Event

The Brazilian press reported on February 25 that Anatel would impose sanctions on fixed-line operator Vésper if it accepts mobile operators' claim that Vesper's fixed-wireless service allows residential clients to use their cordless handsets beyond the radius of a cellular transmission tower. Baptized "Vésper Portátil," this product was launched on October 31, presenting three major singularities: it has a prepaid payment, offers unlimited use of local fixed-to-fixed calls, and provides limited mobility.

Market Impact: Fixed Telephony

As anticipated by the Yankee Group, Anatel is being pressured, especially by mobile operators, to limit Vésper's actions on mobile telephony. Until now, the regulator was not acting firmly in this matter and Vésper was profiting from the situation. As an example, in its advertising Vésper never explicitly mentioned that its product would work outside houses, but many times presented outdoor situations, such as in a tennis court of a huge mansion.

In spite of the general protest, Vésper's new product was not successful enough even to slightly change the telephony landscape. As we anticipated, the product is too expensive for lower socio-economic strata (SES) households and is not very attractive to higher SES households (it does not allow Internet access or fax transmission for instance).

Recommendations/Conclusions

Back to Table of Contents

11. Japan Online: Accelerating Consolidation of Japan's ISP Market

Japan Market Strategies, Internet Strategies Asia-Pacific
by Koji Oki

Event Summary

On February 26, Japan's English daily, The Japan Times, reported that NEC has begun discussion with NTT Communications, KDDI, and Japan Telecom to form an alliance among their respective Internet service provider (ISP) businesses. The alliance would be called Japan Online (JOL), and if realized, would not merge or fully integrate the companies' ISP operations, but would be a broadly-based cooperative arrangement for content distribution, collaborative marketing, and user information exchange.

Market Impact

The news comes in response to the recent announcement by Sony that it was looking to acquire Fujitsu's ISP, Nifty, to merge with Sony's ISP So-net, creating a company with an estimated 7 million subscribers. By contrast, the Japan Online vendor-carrier alliance would have a combined total of around 10.8 million subscribers, making it more than a third larger than the Sony-Fujitsu merger.

Both groups are hoping that their proposed alliance or merger would realize operational synergies and economies of scale. Since most of the 6,500 registered ISPs in Japan are either operating at low profitability or have already ceased operations because of fierce competition in the market, there can be little doubt about what either or both of these alliances would mean for the broader ISP market—further consolidation, and sooner, rather than later.

Recommendations

Back to Table of Contents

12. Wintel Announcement Revisited

Wireless/Mobile Technologies
by Sarah Kim

Event Summary

Microsoft and Intel revealed their plans to develop reference designs for personal digital assistants (PDAs) and smart phones last week at the 3GSM World Congress 2002. While Microsoft concurrently announced an alliance with Texas Instruments (TI) for its OMAP processor and GPRS technology, its joint announcement with Intel generated by far the most excitement in the press because it alluded to the possibility of replicating in the wireless market Wintel's dominance in the PC industry.

Market Impact

It would be a mistake to label this a joint announcement. Beneath the surface of this initiative, the real focus is on Intel's strategic advances in the wireless space. By launching a reference design with Microsoft, Intel has effectively signaled to the industry that it will expand its existing role as a supplier of flash memory only to the more lucrative and pivotal role of a baseband technology provider. More specifically, Intel's move reignites the ongoing battle against its arch rival, Texas Instruments, the current leader in DSP-based baseband technology. While Intel is clearly taking the right steps, TI holds time-to-market lead as well as strong relationships with giants in the wireless industry such as Nokia.

Conclusion

Back to Table of Contents

Publications for the week of March 5, 2002

Door Remains Open in Rapidly Maturing Portal Market
aispv2n3, Report, February 2002, by Robert Perry, CFA

Electronic Billing: Onward and Upward n 2001
bpasv3n2, Report, February 2002, by Lisa Cebollero

Korean Residential Broadband Market
ccapv3n2, Report, February 2002, by James Walsh

Global Crossing Files Chapter 11 and Gains New Investors
ccapv3n3, Flash, February 2002, by Erica Eppinger, Camille Mendler, Sandra Palumbo, Mary Regan, and Christopher Slaughter

Global Crossing Files Chapter 11 and Gains New Investors
cclav3n3, Flash, February 2002, by Erica Eppinger, Camille Mendler, Sandra Palumbo, Mary Regan, and Christopher Slaughter

Global Crossing Files Chapter 11 and Gains New Investors
ccev2n4, Flash, February 2002, by Erica Eppinger, Camille Mendler, Sandra Palumbo, Mary Regan, and Christopher Slaughter

Electronic Officialdom: The Canadian Government Online
cmsv6n2, Report, February 2002, by Jeremy Depow

The Rise and Stall of Optical Standards in 2002
cniv1n6, Report, February 2002, by Marian Stasney

Digital Media Distribution: The New Face of Network Computing?
mesv6n2, Report, February 2002, by Steven Vonder Haar

Outsourcing: The People Issues
tmsv1n2, Report, February 2002, by Carrie Lewis

Finanical Institutions' Wireless Strategies
wmecv1n3, Report, February 2002, by Adam Zawel

Verizon Wireless's IXRTT Enterprise Push
wmecv1n4, Flash, February 2002, by Eugene Signorini

Back to Table of Contents


Audio Conferences

March 14, 2002

A Consumer Technologies & Services Audio Conference
Voice Going Silent? Residential Long-Distance Market Outlook

March 18, 2002

A Technology Management Strategies Audio Conference
Assessing IBM's Capabilities as an IT Service Provider

March 19, 2002

A Wireless/Mobile Europe Audio Conference
More information will be available shortly.

March 21, 2002

A Media & Entertainment Strategies Audio Conference
More information will be available shortly.

Please Check Our Web Page for the 2002 Audio Conference Schedule

Back to Table of Contents

Conferences

The Yankee Group's signature conferences provide a real-time opportunity to explore the technologies transforming the information technology, media, telecommunications, and wireless marketplaces. Our exclusive and interactive forums provide the ideal setting for Yankee Group analysts, together with industry leaders, to discuss and define the future of technology, business, and strategy.

Click here to view our upcoming Conference Schedule online

For questions or more information on upcoming events, please e-mail conference@yankeegroup.com, or call
(617) 956-5000 ext. 460.

Back to Table of Contents


About the Yankee Group


To learn more about the Yankee Group, please click here.

The Yankee Group believes the statements contained in this publication are based on accurate and reliable information. However, because our information is provided from various sources, including third parties, we cannot warrant that this publication is complete and error-free. The Yankee Group disclaims all implied warranties, including, without limitation, warranties of merchantability or fitness for a particular purpose. The Yankee Group shall have no liability for any direct, incidental, special or consequential damages or lost profits.

Yankee Group Research Notes was prepared by the analysts for use by its clients. These analyses supplement the research available through the Yankee Group Planning Services. For more information please call the Yankee Group. Phone: (617) 956-5000; Fax: (617) 956-5005; E-mail: info@yankeegroup.com

Copyright 2002, the Yankee Group. All rights reserved.

Back to Table of Contents