Nortel's Wireless Strategy

By 2005, most Internet traffic is predicted to take place through wireless devices and applications. With this in mind, we talked to Nortel Networks about its wireless expansion plans. The company shared how its optical division is key to its wireless growth. As people demand more flexibility, and wireless access prepares to boom, investors should consider wireless leaders for long-term investments.

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By George Runkle (TMF Runkle)
August 3, 2000

In many of my previous columns, we've taken a look at companies that I call Pathfinders. These companies are utilizing and expanding the uses of the Internet -- making access to many things less and less dependent on our physical location. One of the more intriguing companies in this universe of Pathfinders is Nortel Networks (NYSE: NT). Phil Weiss (TMF Grape) has also covered this company, and wrote an excellent article on its optical networking business. In today's column, we explore Nortel's wireless strategy.

I was fortunate enough to speak to Nortel's spokesperson, David Chamberlin, and we covered the subject of wireless at length. First, let's look at wireless technology itself. From Nortel's website, we see that the industry is entering the third generation of wireless access. The first was 3 Khz voice transmission (which captures the range of most human speech -- a little bit of trivia). Currently, we are in the second generation, which is digital and 8-to-14.4 Kbps transmission based in part on TDMA (time division multiple access) and CDMA (code division multiple access). The upcoming generation will provide "IP (Internet protocol) and multimedia services" at 144 Kbps for full vehicular mobility, 384 Kbps for pedestrian traffic, and 2 Mbps within buildings.

The third generation of wireless emerges
With the next generation of wireless, Nortel proposes you could have "video conferencing on the move." Well, beyond more accidents on I-85 in Atlanta as traveling businesspeople try to video conference, eat, read, and drive, I do see a lot of applications for this type of technology.

The third generation of wireless will make us less reliant on being at any fixed location, whether we are in an office, on the road, or at home to do our work. Many occupations require a significant amount of time away from the office, including engineers, construction people, sales staff, and Fool writers (OK, kidding there, but...). Often, a lot of productive hours are lost due to the need to return to a fixed point to file paperwork, have meetings, or update figures. If this need to "return" to any fixed point can be reduced, productivity can rise.

From my viewpoint as an engineer, I've had to spend countless hours tied up at an office filing reports of site visits, conferencing with others about problems, and getting my schedule. The time is not only lost in the office, but the time traveling to and from the office and the job site is lost. Imagine if all of this waste was eliminated, and I could do everything on site. Not only would productivity rise, but my clients would get immediate answers to their problems.

Nortel will be leveraging its optical dominance into wireless access. Let me quote them directly: "By building the strongest possible optical and IP cores now, Nortel Networks' customers will be best-positioned to optimize their infrastructure to profit from delivering highly targeted and efficient solutions and service to customers."

Optical is critical to wireless
Mr. Chamberlin explained to me that the optical networks side of Nortel's business is critical to its wireless, since it will allow the company to increase the transmission rates and capacity that we all need for optimal Internet access and other applications. Quoting Nortel again, "IP Mobility extends the roaming paradigm of today's wireless networks to IP networks, and allows users to conduct multiple communications from one device." They also point out that "Nortel Networks' e-mobility Acceleration software provides high-speed mobile office and IP capabilities at speeds up to 25 times greater than other wireless data solutions currently in the market." Nortel is aiming for a 25% share of the wireless Internet market by 2003.

Wireless users will dominate 'Net use by 2005
Where will all of this bring us? Is there demand for such fast wireless access? Mr. Chamberlin sent me an article from Wireless Week written by Anil Khatod, president of Internet Business Solutions for Nortel. Here is what he wrote:

"Moore's Law says that computer processing power doubles every 18 months. Nortel's Law says that where technology is concerned, demand always will exceed capacity and always faster than anticipated. There's no doubt in my mind that demand for wireless data will exceed our wildest expectations. And, it will happen sooner than we can imagine. That's why it's critical that operators begin planning now for optically optimized wireless networks. We have a vision that more than 60% of all Web searches will be conducted from a wireless device by 2005, and that by 2010 more than 50% of all e-business transactions will travel across a wireless network."

Is this extreme? I don't think so. It's just difficult to visualize now how new technology will be applied. I remember in the early days of PCs, a friend of mine who worked in what was still called "data processing" told me that having graphics capability on a computer was "useless." Neither of us imagined the amount of graphics we'd use over the World Wide Web.

Why we'll need more wireless
Let's look at where we are today, and see if you agree with my prediction (for what it's worth). Communication throughout the world is getting cheaper. I called home from Korea a few weeks ago at 10 cents a minute (through a prepaid card for an IP telephone service). Business is getting more global, human-made boundaries mean less and less. However, travel is getting more congested. Just look at the interstates around the United States, or the highways in Korea and the United Arab Emirates for that matter. The pressure is on for connectivity -- meaning it should be less and less important where you are. Wireless provides you the greatest freedom from your physical location, so I feel that this is an area of growth that investors need to consider.

Continuing along this train of thought, I had interesting discussions with my friend Peter Psaras (TMF Mycroft) last month. He was bullish on Nokia (NYSE: NOK) because of its innovative handsets, so we'll take a look at them in the future. Also, we'll look deeper into IP technologies such as telephony, and what they will mean for us.

To close on a personal note, I was recently in Italy and, for a change, I was out of touch. I needed a vacation and, to be honest, Venice is much more enjoyable without the Internet! You were all in my thoughts as I sipped cappuccino, though. I hope that you are having a good summer, too. Do me a favor -- pull yourselves away from your cell phones and computers for a bit, if you haven't lately, and go out and enjoy the sunshine!

Suggested Links:
Motley Fool Research Internet Report on the Wireless Web

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8/3/2000 Closing Numbers
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JNJJOHNSON & JOHNSON1/20.52%$97.00
PEPPEPSICO INC-1/2-1.10%$45.13

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