The Wireless Roadmap: A Fork In The Road
October 2000
There are strong rumors that AT&T Wireless is about to make an announcement
that will impact all wireless service operators in the U.S., and many in the rest of
the world. If these rumors are true—we are hearing them from many sources—the
anticipated announcement will be made in a matter of days if not weeks.
Setting the Stage
AT&T Wireless is one of two U.S. TDMA or D-AMPS wireless service operators in
the U.S. TDMA, GSM, and Nextel’s iDEN are based on time-slot technologies with
which a radio channel is divided into time slots. Each slot is capable of one voice
call and the number of calls that can be handled on a channel is dependant upon the
number of time slots that are available.
When AT&T decided on TDMA as its digital technology, CDMA was yet unproven,
and no one made GSM equipment in the 800-MHz band. TDMA is based on the same
technology as GSM, but it is sufficiently different that the two are not compatible.
AT&T began deploying TDMA, as did SBC, BellSouth, and a number of wireless
service operators in South America. This resulted in TDMA emerging as a third
“standard” for digital wireless systems. GSM is the most prevalent worldwide.
CDMA is used by Verizon, Sprint PCS, and a number of wireless service operators in
South America and Asia.
From a technology perspective, the U.S. wireless service market looks like this:
Carrier Ranking
Technology
Verizon
CDMA
Cingular Wireless
(SBC/BellSouth)
TDMA/GSM
AT&T Wireless
TDMA
Sprint PCS
CDMA
Nextel
iDEN
US Cellular
CDMA
VoiceStream
GSM
TDMA is ahead of CDMA by a few million users in the U.S., but this is about to
change!
The Rumor
AT&T Wireless has been struggling with two issues. The first is its stock value,
which has been far below the IPO price and stagnant. The second is its migration
path to high-speed data. AT&T has been backing a technology called EDGE, which
may, in fact, turn out to be a technology that looks good in the lab but doesn’t
work in the real world. If AT&T’s stock is depressed, and its technology is at risk,
is there something it can do that would fix both problems? Yes! It is rumored that
AT&T is about to change technologies.
Changing Technologies
Our sources indicate that since EDGE won’t be available for a long time, if ever,
AT&T has been agonizing over how it might move to a different technology for
higher-speed data and voice usage. There are many issues to be considered, the
most important of which concern customers. AT&T will have to maintain its current
level of service, replace customers’ handsets with handsets for the new
technology, and keep customers happy while changing out cell sites to convert the
network.
AT&T wouldn’t be the first to face these issues, but it would be the first to face
them in its entire coverage area. SBC/BellSouth purchased some of Ameritech’s
wireless system and is replacing the CDMA technology with TDMA, but only in
specific markets. AT&T would have to replace TDMA over its entire coverage
area—a task that is daunting to say the least.
AT&T’s choices are to switch to CDMA, which has an easy migration path to
high-speed data, or to move to GSM, a sister technology to TDMA. GSM offers
several advantages in that it would enable AT&T to deploy GPRS packet-data
services at speeds of between 9.6 and 38.8 Kbps. It would also mean that AT&T
would use the same technology used by all of Europe and most of Asia. This would
facilitate a deal between BT and AT&T Wireless.
If AT&T Wireless were to announce a switch to CDMA, it would indicate that AT&T
had made the “wrong” technology choice in the beginning. A decision to move to
GSM could be couched in more appealing terms for Wall Street and investors. It
would also bring AT&T in line with BT.
We believe that AT&T Wireless will announce a move to GSM for its U.S. network
in the near future. While it doesn’t make as much sense for future systems
growth, it does satisfy AT&T’s objective of getting data services into the market,
and there are many GSM handset vendors, which is an important consideration.
At the same time, we expect AT&T to announce 3G plans to move to WCDMA, the
technology that will be used in Japan starting next year. However, in order to build
out a WCDMA system, AT&T would need to win additional spectrum at one of the
upcoming auctions. It would be almost impossible to overlay WCDMA on top of
TDMA or GSM services within its existing pool of cellular spectrum. While possible
in its PCS coverage areas, AT&T will most likely follow the model being used in
Europe where they add GPRS packet data to existing GSM systems and go to the
auctions for “new” spectrum for 3G systems.
The Impact
AT&T’s anticipated change from TDMA to GSM will have worldwide repercussions.
This one announcement will have an impact on the Deutsch Telecom acquisition of
VoiceStream, Cingular Wireless’s next moves, and handset and PDA product
development.
Let’s start with VoiceStream. Deutsch Telecom paid $20,000 per user for
VoiceStream ($50.7 billion). The rationale was that VoiceStream uses GSM
technology and it will give DT an entry point into the U.S. market. But
VoiceStream’s footprint is not nationwide, so the $50 billion buys only an entry
point. AT&T’s anticipated decision to jump ship and move to GSM would lower
VoiceStream’s value to DT. Since the VoiceStream acquisition is not yet a done
deal, we believe that DT would try to get out of this purchase. The immediate
effect would be to send VoiceStream stock downward.
Cingular Wireless
Cingular Wireless would also have to change technologies. It could not remain as
the only TDMA carrier in the U.S. Handset vendors wouldn’t be interested in
building new handsets for a single network, and Cingular would be the only U.S.
service operator without data capabilities. So where would Cingular go? This is an
unknown, although the following scenario would certainly work.
Cingular already has two of its coverage areas built out as GSM—all of California,
and the Carolinas. Cingular also has a coverage hole on the east coast. Cingular
could switch to GSM, and purchase VoiceStream if DT decides to dump the deal.
This would be an interesting move because Cingular and AT&T would have the
same technology once again, and it would provide service into the remainder of the
east coast areas. It would also give Cingular packet-data capability.
If these two players were to choose this approach, the wireless landscape would
look like this:
Carrier (Ranking)
Technology
Verizon
CDMA
Cingular
GSM
AT&T
GSM
Sprint PCS
CDMA
The number of GSM users would exceed the number of CDMA users by a few
million, and handset and PDA vendors would be more inclined to build GSM
capability into their next-generation handsets and PDA's since a single platform
could be used to provide devices in the U.S., all of Europe, and parts of Asia.
Qualcomm
Meanwhile, Wall Street would see all of these changes as having a negative impact
on Qualcomm’s business model and Qualcomm’s stock would take a hit. AT&T
would probably enjoy an upsurge in its stock price.
A better migration path would be for Cingular to move directly to CDMA instead of
GSM, but Cingular faces the same political issues as AT&T Wireless. A move to
CDMA would be seen as an admission that the technologists at SBC and BellSouth
had somehow made the wrong choice.
Even so, Cingular should move to CDMA for the following reasons:
• Cingular could move to higher-speed data using its existing spectrum and not
have to spend $billions at auction for new spectrum.
• This move would result in more CDMA users than GSM users in the U.S. Devices
would be developed for the GSM and CDMA platforms at the same time. If Cingular
were to move to GSM, GSM devices would come first, followed by CDMA devices.
• The CDMA community recently announced that it would be building handsets
with both cdmaOne and WCDMA capabilities. These handsets would permit almost
universal roaming on a worldwide basis as 3G systems are deployed.
• Cingular would be able to serve more customers on the same spectrum because
CDMA is more spectrum-efficient than GSM or TDMA.
The Fun Begins
It will be interesting to see how this all shakes out. The implications we have
presented above are significant. As always, the final decisions will not necessarily
be based on a technological assessment, but rather on internal politics and the
anticipated effects on stock prices. Technologists don’t want to be branded as
having made a mistake in their choice of technology, and they will try to minimize
this perception. Their management teams, also averse to admitting a mistake, will
most likely opt for the best political decision over the best technology decision.
Qualcomm’s stock would take a hit for a few months, but hopefully Wall Street
would come to understand that the 3G end game is CDMA. The folks at Qualcomm
will still be smiling. They might miss out on royalty revenue in the short term, but
Qualcomm will emerge a winner.
If AT&T and Cingular both opt for GSM, the good news for the consumer is that we
will have gone from four to three digital technologies being used in the U.S.
Handset prices would drop, as would voice service prices. All U.S. networks would
be capable of delivering data, and this would benefit all of the companies involved
in delivering the “Wireless Internet” to users. All in all, AT&T’s anticipated shift in
technologies would have a long-term positive impact on all of the wireless service
operators, device vendors, and information suppliers. End users would have more
products than ever before, at lower prices. |
