Rolling With 3G

Readers could be forgiven for overlooking last week’s third-generation
wireless news. After all, past coverage has fallen into three
categories: squabbles over standards; hand-wringing over Asia’s dizzying
adoption rate; and fantastic market projections for the very distant future.

But two recent announcements changed that. First, Cingular said
its 3G trials are ahead of schedule. And Verizon Wireless trumpeted
a 3G network expansion to 30 cities and a new video, audio and gaming service to run on top of it.

So, after years of promises and false starts, U.S. carriers appear to have
turned the corner. Which equipment vendors and handset makers have joined the carriers for an early lead?

Carriers

Cingular, Verizon Wireless and other players have spent billions upgrading
networks for 3G. Along the way, they’ve touted their particular
technology — Verizon is building on CDMA2000 1xEV-DO and Cingular has chosen
Universal Mobile Telecommunications System with High Speed
Downlink Packet Access (HSDPA) systems.

But experts say the specification won’t be a deciding factor. Few customers
will demand their voice, video and data flow over one network rather than
another. Speeds for both are in the low-end of what a PC broadband user
experiences.

“It’s all about coverage and customer care,” Bob Egan, founder of the
research firm Mobile Competency, told internetnews.com. “The PR
heads will continue to talk about speeds, but reliable convergence is key.”

Given last week’s announcements of a network expansion and a $15 per month
Vcast content service, Verizon has the edge over Cingular, said Neil
Strother, a senior analyst with In-Stat/MDR.

“But this isn’t a one-month or a one-year battle,” said Strother, who
expects a close horserace over the next two years. The carriers will work
to land new customers and up-sell existing users on premium high-speed
services.

In addition to Cingular and Verizon Wireless, the nation’s largest and
second-largest mobile companies with 46 million and 42 million customers,
respectively, other carriers are plotting 3G courses, albeit more
cautiously.

Sprint tapped
equipment maker Lucent to enhance its network for a 3G
rollout this year. Sprint’s proposed
merger
with Nextel will also increase its customer
base and network coverage.

Nextel boasts the highest average revenue per user figures in the business
and has experience selling premium services, such as push-to-talk, which
could prove valuable in marketing 3G.

Still, Sprint is not so far behind it can’t catch up, Strother said. Its
cautious approach may pay off by watching Verizon and avoiding some of the
same problems that inevitably accompany new service rollouts. He added that T-Mobile is
farthest behind, but has deep pockets of parent Deutsche Telekom to move quickly.

In a recent analysis note, Gartner analyst Tole J. Hart counseled Verizon
rivals to introduce video services on slightly slower networks “to minimize
Verizon’s first-mover advantage and take advantage of the market interest in
wireless video.”

Weston Henderek, senior analyst with Current Analysis, said Verizon has about
a six-month deployment lead over Sprint. However, he expects Sprint to
launch its 3G service mid-year with about 20 cities and handsets that can
immediately support multimedia services.

Telecom Equipment Makers

Catching up means upgrading networks. And the projects are a welcome windfall
for gear makers, especially after years of stagnant capital budgets. The
significance of long-awaited 3G rollouts in the United States is not lost on
equipment makers.

“It is a critical year from the standpoint of broadband access becoming
widely available,” said John Leonard, a Lucent vice president for mobility
strategy and offer management. “It will be a key enabler, and we’ll start to
see more attractive services for consumers.”

Earlier this year, Lucent signed a $5
billion deal with Verizon to supply 3G hardware, software and services.
Verizon will use Lucent’s Flexent Modular Cell 4.0 base stations, as it
continues expanding its high-speed data service nationwide.

Lucent competes with Nortel and others to provide a range of network
gear for advanced systems. Other well-known networking names, such as
Cisco, Ericsson, Motorola and Siemens also sell critical components of 3G networks.

“There’s a lot of players chasing an increasingly consolidated market,”
Mobile Competency’s Egan said.

That’s not to say Lucent or any other giant will be the only company to
succeed in the space. Lucent knows that full well.

“Large carriers like to have multiple vendors,” Leonard said. “That’s just the way it is.
It makes financial sense, and risk management sense.”

Given that requirement, gear makers have to be sure their equipment is based
on open standards and can be easily integrated with gear from competitors.

Handsets

As the 3G coverage map is filled in, carriers must offer a fleet of phones
specially designed for the audio, video and text data that will be flowing
to it.

LG VX8000

The LG VX8000 is about to make a splash in the 3G market. Source: LG

That means slightly larger screens with better resolution, higher-quality
speakers and internal hardware, such as digital signal processors that are
attuned to the carrier’s 3G standard of choice. Also look for additional
digital music capabilities and built-in cameras in new models.

Other factors will be crucial in determining 3G adoption in the United
States, including price. Verizon didn’t say how much 3G phones will cost
customers, but most industry-watchers expect a price tag of about $200.

In the U.S. market, the three phone partners announced by Verizon
Wireless — LG International, Samsung and UTStarcom — will be off to a
quick start. Although, Motorola, which seems to be getting back on track
under a reorganization, and Nokia can’t be counted out because of their
size and experience.

At the press and analyst event last week at the Consumer Electronics Show in
Las Vegas, Verizon used LG VX8000 phones for demonstrations, Strother said.
Verizon Wireless executives believe that by the end of the year, a large minority
or a small majority of the phones it offers will be 3G capable.

LG, which is based in South Korea, had a strong year in 2004 with a good
lineup of phones last year, Strother said. This move could only help it.
And both Samsung and UTStarcom are also based in South Korea, where 3G is commonplace,
although UTStarcom has a significantly larger
presence in China.

“Those vendors already get it right in markets that are running today,”
Strother said.

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