Nokia will supply Verizon Mobile with CDMA handsets.
Nokia is currently finalizing a deal to supply Verizon, the largest US operator in terms of subscriber base, with second-generation CDMA phones. This technology, so far only used to a significant degree in the US and the Far East, differs from the GSM standard used predominantly in Europe. Most of Nokia’s current production is of GSM phones – although it markets CDMA phones in the US, they have not had the same success as phones based on Qualcomm chipsets. Operators such as Verizon have refused to supply them to subscribers in the past because Nokia hasn’t met their specification standards.
If the deal succeeds, it will be bad news for Qualcomm. The US chipset manufacturer invented the CDMA standard, and currently its chipsets are used in the majority of CDMA phones on the market, many of which are made under license by Far Eastern handset manufacturers such as Samsung. Nokia has instead developed its own chipset design to compete against Qualcomm. Although it will still have to pay licensing fees on Qualcomm’s patents, this will be substantially less than the cost of licensing their chipset.
The deal will benefit Nokia in two major ways. Both the largest US operators – Verizon and Sprint PCS – use CDMA technology, so producing a high-quality CDMA phone should strongly enhance Nokia’s presence in the US. The US mobile phone market has enormous potential as penetration rates are well below Europe. If Nokia can build its market share close to the 32% it has in Europe, the US will be a major source of revenue. The company has the design and marketing expertise to do this; building a phone to Verizon’s specification also shows it is prepared to design phones that meet operators’ specific needs. In addition, the 3G phones due to launch in Europe over the next few years will run on the new wCDMA standard, based on CDMA. If Nokia already has experience of designing a CDMA chipset from scratch and successfully ironing out difficulties, this will give it a technological advantage in designing reliable wCDMA devices in the near future.
The only cloud on the horizon is that it is not yet certain that Nokia’s new product will be technologically superior to its previous offerings. However, Verizon seems confident that this time the company will deliver – it is expected to place an initial order for a million units. If Nokia does have a viable technical solution, then it is poised to grab market share in the US, as well as cementing its dominance in Europe for the next generation.
