Waiting For 3G

Third-generation (3G) wireless networks promised to be the panacea of the
telecom industry. 3G was billed as nothing short of a telecom revolution,
with everyone winning out: governments would get billions in their coffers
auctioning spectrum licenses; wireless carriers would have a lucrative new
source of revenue; and users would enjoy the rich content of the Internet
with the mobility and ubiquity of wireless devices.

So far, though, for the most part 3G has been a dud — at least outside of
Japan and Europe, where it’s seen some qualified success. For U.S.
customers, waiting for 3G has been somewhat akin to what Vladimir and
Estragon experience in “Waiting for Godot”: They’ve waited so long, they’ve
forgotten what they’re waiting for.

“The early hype was you’re going to get an experience similar to what you
have on your desktop, and that’s just not going to happen,” says Frost &
Sullivan analyst Brent Iadarola. “That’s not going to happen even five years
from now.”

Sprint’s Nationwide 3G Play
In October, Japan’s NTT DoCoMo rolled out FOMA, the world’s first commercial 3G network, boasting packet-based receiving
speeds reaching 385 Kbps.

In the United States, 3G has arrived fitfully and later than promised. A
landmark will be the rollout of Sprint PCS’ nationwide 3G network, which the
company promises will happen by the end of the summer. Sprint’s network will
finally give the United States a national data network with burst speeds of
up to 144 Kbps and average speeds from 50 to 70 Kbps.

While it will be far slower than the 2 Mbps speeds that the industry touted,
Sprint’s 3G network could heat up the market for wireless data services.

“What Sprint is going to be offering this summer is going to be close to
3G,” says David Chamberlain, an analyst with Probe Research. “Sprint covers
a lot of cities, if you’re going to have voice coverage you’re going to have
data coverage.”

Sprint’s network rollout is the slowest of the major U.S. wireless carriers,
but it will be the most complete. The other leading wireless carriers —
Verizon Wireless, VoiceStream, Cingular and AT&T Wireless – have chosen to
construct their 3G networks piecemeal, which Sprint points out has left
their networks a hodgepodge of connectivity.

“There’s the question of when nationwide is not nationwide,” says Sprint
spokesman Dan Wilinsky. “Some companies are claiming nationwide [service],
but they’re leaving out markets like Atlanta.”

Industry watchers agree that Sprint’s network reach is a huge selling point.
In a recent poll of enterprise wireless customers by Gartner Group, 73.5
percent ranked complete coverage as the most important factor in choosing a
wireless carrier.

“In the long run, one of the problems here is AT&T and Verizon are building
out incrementally,” says Giga Information Group analyst Lisa Pierce. “Until
a good percentage of your network is up, customers aren’t going to pay $100
for something they can use 30 percent of the time.”

Where’s the Demand?
Still, Chamberlain and other analysts remain skeptical about near-term
demand for the networks, particularly among the enterprise sector that’s
banked on to lead adoption.

“We were saying if you build it they will come since 1994, and nobody’s come
yet,” he says. “I don’t know if more speed or more bandwidth will change
this.”

Wilinsky disagrees, saying business customers have shown great interest in
Sprint’s 3G service. “We see less education needed on the business side,” he
says. “On the consumer side, one of the largest challenges is to educate
[consumers] about the advantages.”

Forecasts bear Wilinsky out, in the long term. According to Strategis Group,
the mobile data market will increase from 5 million subscribers last year to
172 million in 2007. In-Stat/MDR expects the number of business wireless
data users to grow from 6.6 million at the end of 2001, to more than 39
million in 2006.

Pricing 3G services is another nettlesome problem for the industry, analysts
say. Sprint won’t reveal its pricing plans, but Frost & Sullivan’s Iadarola
says carriers will have a tough time convincing consumers and businesses to
spend hundreds of dollars on new handsets, on top of hefty monthly service
fees.

In January, Verizon Wireless launched the first U.S. commercial 3G network,
called Express Network, in select areas like Silicon Valley and the
Northeast Corridor. The Express Network’s data plans run from $35 (for 150
minutes) to a hefty $100 per month (unlimited).

Sprint has yet to divulge its pricing plans, but it expects to experiment
with both bucket plans for a set amount of megabytes of data and unlimited
use.

“Your average consumer isn’t going to understand what he’s going to get with
one megabyte of data,” warns Iadarola. “I think the carriers need to define
what that gets you.”

But analysts still say price points needs to come down for widespread
adoption to take hold.

“There are very legitimate applications” for 3G, says Giga’s Pierce. “But
the idea the whole world is willing to pay $100 a month, nah.”

No Longer The Belle of the Ball
A further dash to the high hopes for 3G is the growing popularity of 802.11
wireless local area networks, which already offer wireless connectivity that
dwarfs 3G. With 802.11b, or Wi-Fi , users can expect data speeds of up to 11
Mbps, practically light speed compared to the 144 Kpbs top speeds promised
laptops and PDAs by Sprint’s 3G service.

Despite industry projections that are still robust in terms of future
growth, carriers are stuck with the huge costs of building out the networks
and paying for the spectrum. As subscriber growth stagnates, carriers are
left with the unhappy prospect of 3G services not filling the gap.

“The majority of carriers realize voice will make up a majority of
revenues,” says Gartner Group analyst Michael King. “They’re not looking for
this to be the dominant revenue source, but they’re looking for it to bump
up the RPU [revenue per user].”

“I don’t expect it to be quite the same as the years and years it took for
people to adopt wireless phones,” says Giga’s Pierce. “I do think it will
take some time, because, especially for business applications, you have to
integrate the wireless device with the server back in the office and a
wireless portal is necessary.”

Sprint’s Wilinsky says 3G will catch on quickly, since customers’
imaginations will be captured by functions most people never thought of
having, such as taking a digital photo with a phone and sending it to a
friend.

“There’s a real wow factor, and it’s not a temporary wow factor,” he says.
“When you go there, you don’t back.”

News Around the Web