UTStarcom Weighs Sale of Cellphone Distribution Business
IPTV will play a bigger role in a restructured UTStarcom as it seeks to sell or spin off the personal communications division that handles U.S. sales of cellphones to Verizon, T- Mobile, Sprint and others, Chief Operating Officer Peter Blackmore told the company’s analyst day investor conference in New York Wednesday.
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The current IPTV market is small, Blackmore said. Only about 850,000 subscribers worldwide are using UTStarcom’s RollingStream platform, he said. But UTStarcom thinks the business will grow 19 percent a year through 2012, Blackmore said. Overall, UTStarcom has over 3 million subscribers under contract through several service providers, including China Netcom and China Telecom.
China Telecom has about 400,000 subscribers, and China Netcom about half that many, Brian Caskey, vice president of worldwide marketing, told us. Most of the 600,000 are in the Shanghai area, he said. UTStarcom supplies IPTV hardware and software to Softbank in Japan and to MTNL in India, he said. Taiwan cable operator Markwell also has a small number of IPTV subscribers that use RollingStream, while Italy’s Tiscali is considering introducing a service, Caskey said.
IPTV’s ramp-up has been “slower than any of us expected,” but the potential is great, Caskey said. The fate of IPTV will largely rest on its ability to provide interactive services and other features not found in cable or satellite TV systems, Caskey said. Among these could be IPTV-based digital signage, distance learning and surveillance, the latter of which is being tested in China, company officials said. The standard IPTV system in China typically carries a $5 monthly fee, but operators generate $7 to $15 in revenue per user based on video-on-demand and other services. UTStarcom makes SD and HD IPTV PVR set-tops in China using Sigma Designs processors, the company said. “We will lead with IPTV,” Blackmore said. “It will require a lot more investment because it is still a nascent technology, but it has huge potential.”
IPTV is part of a package of services and software that UTStarcom sells to telcos and cable operators, the company said. Among the other products is software-based mSwitch, which serves as a voice/data bridge between IP networks and public switched telephone networks (PSTN) and public land mobile networks (PLMN). Jersey Telecom is implementing mSwitch in the U.K. India’s UTL is adding UTStarcom’s multi- service access network (MSAN) along with IPTV, company officials said.
As UTStarcom sharpens its focus on IP-based products, it is weighing a possible sale or spinoff of its Korea-based personal communications division, which manufacturers phones sold in the U.S. for Verizon, T-Mobile, Sprint and other brands, Blackmore said. Sales to Verizon accounted for 25 percent of UTStarcom’s Q1 revenue of $585.9 million, up from 15 percent a year earlier, the company said in an SEC filing. UTStarcom moved three years ago to increase internal production and now makes about 50 percent of its phones, Caskey said. HTC also supplies cellphones to UTStarcom. UTStarcom purchased Audiovox’s cellphone business in 2004, but no longer uses the CE company’s brand, Caskey said. UTStarcom’s Q1 personal communications device sales rose to $430.7 million from $288.3 million a year earlier due partly to an increase in average selling price. UTStarcom will look at the personal communications device “both ways,” Blackmore said. “I see distribution as a low margin business that’s very different from an R&D business, but we will continue to operate it profitably.”