GSM Mobile Devolution in Europe
Europe's wireless carriers have run themselves aground. Once perceived the best engine for future growth, poor judgment and mounting debt are ruining corporations, destroying wealth and undermining the foundations for the greater economy. Companies appear unwilling to accept conditions, and some may not survive. Titan Vodafone recently declined to devalue its substantial mobile stake when reporting its May 2002 record-breaking loss, while admitting that any associated revenues for the foreseeable future will not come close to justifying its original stake. Continued delays in addressing these issues will assure greater pain.
Europe dominated second generation (2G) GSM mobile wireless technology. In a gamble to maintain its commanding position with next-generation (3G) data services, carriers collaborated with the European Telecommunications Standards Institute (ETSI) and the 3rd Generation Partnership Project (3GPP) to develop and control a new technology standard, UMTS wCDMA. They included an interim 2.5 generation GSM data upgrade called GPRS to ease the transition to the entirely new 3G technology. In their euphoria, carriers also paid billions for spectrum licenses. Most carriers are presently under pressure to take write-downs on the licenses, which aren't expected to generate significant revenues until 2007.
Europe's gambit has not paid off. 3G network schedules are in a state of perpetual delay, and proposed “commercial” announcements are thinly disguised trials. The 3G standard - designed in a futile effort to circumvent North American intellectual property - is hampered by chronic problems that, even if circumvented, may render it financially and politically impractical. Data services are slow to evolve, and GPRS networks - beset with unexpected technical and performance limitations - are empty. According to EMC Market Data, there are approximately 2 million global users of GPRS services at the end of May 2002 - 0.3% of GSM subscribers. How did mobile carriers arrive at this unfortunate condition? What options are available for correcting or changing course? Can carriers generate revenues from 3G investments sooner with alternate technologies? Do all EU member states share identical interests?
2.5G GPRS was billed as "the bridge to 3G". Venders promoted GPRS as the perfect panacea - it would be a simple, inexpensive upgrade to existing networks. It would provide 172kbs peak data speeds. It would squeeze unused capacity from constricted voice networks by using timeslots not needed for voice services. It would, in effect, provide "free" capacity for data services.
To date, GPRS has proven an unstable bridge and a technical disappointment. EMC Market Data has estimated average speeds on Europe’s networks at 17-27Kbps, and increased usage would further degrade performance. The promised "free" capacity for data will not materialize. Equipment vendors now openly admit that substantial investment in 2G GSM voice networks will be required to provide capacity for data services using GPRS - at a time when carriers are struggling under heavy debt burdens and pressure to construct 3G infrastructure. This vender-proposed expense on past-generation equipment represents de facto regression at a critical point in time. To date, carriers have not committed to this latest fig leaf for vendor failure. In response, they've protected voice capacity and delayed meaningful development of data services. In turn, venders are unable to interest customers in new generation handsets, and ironically blame carriers for a lack of data services.
Vendors are now marketing the virtues of an interim upgrade called EDGE to compensate for GPRS shortcomings. Once again exercising their gift for hyperbole, venders promote EDGE as providing nearly 500kbs peak data speeds and a tripling of capacity. Still unproven, once again touted as easy and inexpensive, and rumored to require substantially greater cell station density, EMC Market Data pegs likely performance at 50-80Kbps. Contrary to capacity claims, EDGE provides no additional voice capacity. The upgrade would only increase data capacity or throughput speed for the timeslot(s) not required for voice services at any given moment - rendering EDGE upgrades meaningless without 2G infrastructure investments of an even greater magnitude than those required for GPRS data capacity.
Europe has the advantage of benefiting from DoCoMo's 3G learning curve in Japan with wCDMA. DoCoMo's FOMA service is not popular, having attracted only 100,000+ subscribers after many months of service. Handsets are bulky with performance flaws and serious problems with power consumption, emissions and battery drain. The carrier has increased the density of cell stations in an unsuccessful effort to correct performance. DoCoMo handset manufacturer Matsushita warned in May 2002 that ongoing technical problems with wCDMA technology will continue to delay mass market 3G take-up, casting further doubt on the carrier’s dubious subscriber targets.
In order to differentiate the wCDMA standard from competing variants, 3GPP integrated controversial, untested technology - including asynchronous handoff - that now presents problems that appear beyond the solutions of today’s science. Remarkably, over 100 3GPP members claim essential intellectual property, with the committee-based development process cultivating a culture where corporate interests trump best science. Much to the chagrin of 3GPP, Release 99 - the foundation UMTS wCDMA Standard - remains mired in an unending stream of corrections, month after month, years after its adoption. When will a technically and financially viable UMTS wCDMA standard exist? Also, the process of resolving intellectual property disputes between the 100+ companies has not even begun – increasing prospects that the legitimacy of the standard may be tangled in protracted litigation.
Providing contrast, an alternate, mature 3G cdma-based standard - cdma2000 - is proving a technical and business success with Korean carriers and KDDI in Japan. KDDI tripled competitor DoCoMo's FOMA subscribers in one month. KT Telecom in Korea has reported a 6x increase in data ARPU. Additional major cdma2000 networks will soon go commercial in the US with Verizon and Sprint, and in China with Unicom. Others are in process around the globe. The disparity is sobering - and competitors are not standing still. Korean carriers are presently upgrading to an "EV" evolution of cdma2000 that provides 2.4mbs peak rates and exceptionally cheap data, with Verizon and KDDI having planned upgrades for next year. There is a cdma2000 GSM1x evolution now available to GSM carriers as an option to Europe's UMTS wCDMA. GSM carriers - especially in Asia - are tracking Europe's failures as they weigh technology options.
What did carriers originally expect to gain from the European plan to dominate 3G? They listened to the once powerful venders. They were told that the new standard would be the world standard, and that carriers would participate in grand benefits of scale when purchasing handsets and infrastructure. They were told that the new standard would be the key to maintaining and expanding lucrative roaming services. Additionally, Europe’s vendors expected to increase their technical superiority and global dominance. As time has passed, what are the prospects for attaining these goals? Are old assumptions valid?
The costs of UMTS wCDMA now appear exceptionally high, and prospects for benefits of scale are unlikely for many years to come, if ever. On a comparative basis, wCDMA handsets are more than twice as expensive as cdma2000 counterparts - and infrastructure appears equally problematic. Asynchronous handoff requires that handsets and cell stations expend substantial energy and emit high levels of radiation while signaling handset locations and handing off to successive cell stations when mobile. An increased density of cell stations is one way to reduce the size of handset search windows and diminish power requirements. This equates to substantial, unexpected infrastructure costs. Also, at a time when cell site construction is a catalyst for civil unrest, requiring even more cell sites to improve system performance is a sobering prospect. In addition, China is considering a very low SAR (Specific Absorption Rate) radiation limit on handsets and cell sites that could eliminate Europe's 3G Standard from consideration.
The roaming rationale has lost relevance as well. Multi-standard "world phones" will come to market in early 2003 that will bridge standards and frequencies. Vodafone will offer GSM/GPRS/cdma2000 capable handsets for its customers to roam onto partner Verizon's 3G cdma2000 networks in the US. China will also be a customer. UMTS/GSM/GPRS/cdma2000 handsets will be available later in the year. It is no longer logical to determine network technology on the basis of roaming compatibility. Multi-mode handsets render the issue moot.
Are carriers and vendors on divergent paths? To date, carriers have followed vendors' leadership in technology selection - to their profound misfortune. After promising simplicity and economy of execution, vendors (and 3GPP) have failed to deliver functionally and financially viable technology. It appears likely that the proposed advantages of the European 3G plan may never materialize. It appears imminent that Asia, and perhaps the US, will evolve to dominate next generation technology. Carriers have little to lose - and perhaps their financial health to regain - in considering options to the original plan.
Are GSM vendors a primary roadblock to carrier flexibility? It is in vendors' vested interests for carriers to follow their council in technology selection - even in the face of failure - for there can be profit in carrier failure. One example is the unexpected 2G infrastructure construction that vendors now advocate as a solution for GPRS capacity deceptions. A second example is selling an additional EDGE network and handset upgrade to achieve performance that vendors originally promised with GPRS. Have vendors’ interests diverged from those of carriers? Given the necessity, and provided the opportunity, are GSM vendors damaging carriers in order to perpetuate their financial survival?
Telecom giants Nokia, Ericsson, Siemens, Alcatel and Philips provide an industrial base for a number of EU members, and no doubt these countries are motivated to maintain and strengthen their contributions. But the UK, for example, will not be a major manufacturer of telecom equipment under any conditions. How is vendor health in Finland or Germany a vital national priority for the UK? Is it rational for UK carriers to gamble their future in continued support of flagging foreign interests? |
