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Mobile giants join forces as 3G carriers feel the heat

Ericsson and Sony have teamed up to produce 3G handsets by the end of the year despite growing pessimism about the future of wireless services.

Ericsson and Sony have announced a joint initiative to combine their global mobile phone interests. The new, equally-owned company, named Sony Ericsson Mobile Communications, is touted for an October launch and will be based in London.

Kurt Hellstrom, Ericsson’s CEO, will be chairman of the board while Katsumi Ihahra, corporate vice president of Sony, has been named president.

Top of the agenda is 3G: the project aims to deliver a new brand, combining Sony’s consumer electronic know-how into 3G handsets. Early reports suggest 3,500 employees will run facilities in the UK, Sweden, Japan and North America.

But the proposal has met with mixed reactions. Pinning the new company’s hopes to next-generation technology is a bold move. European mobile carriers have already forked out $100 billion for 3G licenses and will need to spend another $200 billion on compatible networks.

Given the vast capital outlay required, coupled with the fact that shares in wireless companies have taken a tumble over recent months, some are predicting nothing but disappointment from 3G technology.

What is clear is that the bidding war for European 3G licenses left several carriers facing an uphill climb out of debt. Can these carriers even earn enough from 3G to recuperate their losses — and make the upgrade worthwhile in the first place?

Ericsson and Sony insiders say yes. Still bullish, they hope the new company will put additional pressure on Nokia and Motorola, currently ranked as the number one and two handset manufacturers in the world.

Hellstrom will be wishing for success more than most: Ericsson’s share price has dropped by over 75% in Sweden and the US from respective highs last year.

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