The Two Economist Articles regarding CDMA & W-CDMA
3G telecoms
Let Europe's operators free
Sep 26th 2002
From The Economist print edition
Far from extending their lead in wireless technology, over-regulation has
destroyed it
EUROPE'S troubled wireless operators have two big problems. One is the
familiar problem of debt, taken on to make pricey acquisitions during the
technology bubble and to pay (more than euro100 billion-$90 billion) for
licences to operate "third generation" (3G) networks. The second problem is
less familiar and more technical, but every bit as crippling.
Those expensive 3G licences require the operators to provide 3G coverage by
certain deadlines. They also require that they do this using a particular
technology, mandated by Europe's regulators at the behest of the European
Commission. The technology, called W-CDMA, has just one big hitch: it
doesn't work.
Sonera, Finland's national telecoms operator, switched on its fancy 3G
network on January 1st. But nobody can use it. Sonera was supposed to launch
its 3G services on September 26th via handsets provided by Nokia, the
world's largest handset maker and Finland's biggest employer. But the launch
was embarrassingly called off because the handsets do not work yet. In
Austria, Mobilkom, another 3G operator, launched its 3G network on September
25th, but with a very limited number of handsets. And in Britain, Hutchison
3G, another operator, will begin consumer trials of its 3G service next
week, with a mere 1,000 sets.
The difficulty is that the W-CDMA handsets and networks made by different
vendors do not yet work together properly. Most operators plan to use
network equipment and handsets from several suppliers. Making sure that they
all speak the same language looks likely to take another year or two. In the
meantime, it is hard to imagine why anyone in Europe would want to buy a 3G
phone.
The decision to impose a single technological standard on Europe's operators
was intended to reinforce the European lead in wireless technology. In
practice, it has had the opposite effect. A recent report from Morgan
Stanley concluded that Asia now leads in the adoption of 3G, followed by
America. Europe is last. And why have Asia and America pulled ahead? Because
they are using a different 3G technology, called CDMA2000, which actually
works. Alas, European operators' 3G licences forbid them to use it.
The consumer's best interest
This month the European Commission agreed that 3G operators should be
allowed to share sites for their base stations. The anti-competitive risks
from co-operation between operators were deemed to be less important than
the need to ensure a rapid roll-out of services. In other words, the
regulators acknowledged their duty to act in consumers' best interests.
Relaxing the technological straitjacket imposed on the operators would be
further acknowledgement of that duty.
Admittedly, most of Europe's 3G licences were sold at auction. So granting
refunds or relaxing the requirements could set a dangerous precedent for
future auctions. But the licences are going to have to be amended anyway if
operators cannot meet their deadlines to deliver 3G because they are forced
to use a non-working technology.
So operators should be given the option to provide 3G services using
technologies other than W-CDMA. Already, some of them are looking at
switching to CDMA2000. Most will probably stick with W-CDMA while the bugs
are ironed out. But they should at least have the freedom to choose.
Time for plan B
Sep 26th 2002
From The Economist print edition
A technological escape-hatch exists for Europe's troubled mobile operators.
But they are not allowed to use it
AT LAST, some good news for Europe's ailing wireless industry: Mobilkom, an
Austrian operator, this week launched its third-generation (3G) service. 3G
is faster than existing 2G technology, with the potential to offer whizzy
new services such as sending video by phone. Hutchison 3G will launch in
Britain next week. Is the 3G bandwagon finally starting to roll?
Well, not quite. In both cases, handsets are in very short supply. Sonera,
Finland's national operator, was due to stage its 3G launch on September
26th, but postponed it until next year due to handset shortages. How
embarrassing for Sonera, and for Nokia, the world's largest handset maker.
The fact that the two firms cannot get 3G to work in their wireless-crazy
Finnish homeland does not bode well.
Why the delay? European operators must, under the terms of their 3G licences
(for which they paid over euro100 billion, or $90 billion), provide 3G
service by particular deadlines, and do so using a technology known as
W-CDMA (never mind what the letters stand for). Alas, W-CDMA does not work
yet. Handsets made by one firm do not work properly with network equipment
made by another, says Björn Krylander of UbiNetics, an equipment-testing
company. Since operators prefer to use equipment from more than one
supplier, 3G can only take off when this problem is solved, which could take
a while. 3G seems unlikely to become widespread in Europe until 2004 at the
earliest-and it will be several years before it turns a profit.
These technical problems, and the resulting delays, have far-reaching
consequences. A number of European operators are backing out of their 3G
commitments or trying to win concessions from regulators. In July, Sonera
abandoned a euro9 billion joint venture with Telefonica Moviles, a Spanish
operator, to launch 3G services in Germany. Orange, a multinational
operator, has asked Sweden's regulator to postpone the 3G-rollout deadline
until 2006. Tele2, a Swedish operator, is threatening to abandon its
operations in Norway unless the licence terms are eased. And Spanish
operators are lobbying for a refund of deposits paid for their 3G licences.
Alphabet soup
Back in the 1990s, the European Commission's decision to impose a single
technology standard for second-generation (2G) phones, called GSM, on
Europe's operators worked well. It allowed roaming from one country to
another, and Europe's wireless firms, notably Nokia and Ericsson, rose to
prominence as GSM became the dominant 2G standard worldwide.
Imposing W-CDMA as a single standard in 3G now looks like a big mistake. Far
from reinforcing Europe's leadership in wireless, it has done the opposite.
Morgan Stanley recently concluded that Asia now leads the world in the
adoption of 3G, followed by America. Europe is last.
That is because as Europe struggles with W-CDMA, a rival 3G technology
called CDMA2000 is working well elsewhere. Unlike W-CDMA, which is
controlled by a huge industry consortium, CDMA2000 is controlled by a single
American company, Qualcomm. Different vendors' equipment is compatible. Over
17m people in South Korea, Japan and America use a version of the standard
called CDMA2000-1X (again, never mind). The industry is fiercely divided by
a boring technical argument about whether CDMA2000-1X is really 3G or not.
But ultimately the argument is irrelevant. CDMA2000-1X can do everything
W-CDMA can; more, in fact, since it actually works. It is 3G in practice,
even if not everyone agrees that it is 3G in theory.
In Japan, CDMA2000-1X and W-CDMA are competing head to head, and the results
make grim reading for European operators. Japan's NTT DoCoMo launched the
world's first commercial W-CDMA network in October 2001. Since then, it has
signed up a mere 135,000 subscribers, far short of expectations.
Its rival KDDI, in contrast, launched a CDMA2000-1X service in April 2002,
and has already signed up 2.3m customers. Half of those subscribers have
camera-phones, which they use to zap pictures over the airwaves, spending an
average of $11 per month more than subscribers with ordinary phones.
DoCoMo's average monthly revenue from its 3G subscribers, meanwhile, is
falling, the battery life of its 3G handsets is poor, and subscribers have
to carry two phones if they want to stay in touch outside areas of 3G
coverage.
No wonder operators everywhere that had planned to adopt W-CDMA are thinking
again. The industry's consensus that W-CDMA will eventually grab 80% of the
world market for 3G, and CDMA2000 just 20%, is being re-evaluated.
In South America, operators have abandoned or frozen plans to adopt W-CDMA.
Telstra, in Australia, is leaning towards CDMA2000. Most important of all,
in China, the world's largest mobile market, executives from China Mobile
have given W-CDMA only a half-hearted endorsement. Adoption of the
technology depends on it working properly, the company says, so a switch to
CDMA2000 cannot be ruled out. "The question is, should you use the
technology that is running today, or wait for one that may or may not run
tomorrow?", asks David Chamberlain, an analyst at Probe Research.
European operators, however, have no choice. At least one operator has
established a task force to evaluate switching to CDMA2000, says Andrew Cole
of Adventis, a telecoms consultancy, and others are no doubt doing the same.
But as things stand, says Caroline Easter, a technology lawyer at Ashurst
Morris Crisp, Europe's 3G licences are technology-specific, and any firm
that adopted CDMA2000 would be in breach of the licence terms.
Even suggesting such a switch in public would have a dramatic effect on
European equipment makers, which have signed lucrative contracts to supply
operators with W-CDMA network equipment. Tellingly, however, a consortium of
eight equipment makers-including Ericsson, Lucent, Nortel and
Motorola-recently agreed to co-operate on building CDMA2000 equipment
suitable for the European market.
It is not just the imposition of a single technology standard that should be
reconsidered by regulators, argues Joe Nordgaard of Spectral Advantage, a
consultancy. European operators are also barred from buying and selling
their licences-they must simply give them back, with no refund, if they
choose to abandon 3G.
Operators also have to adopt 3G in a new frequency band, rather than phase
it in alongside existing 2G, as operators are doing with CDMA2000 elsewhere.
But these market distortions, says Mr Nordgaard, "can be alleviated to some
extent by allowing operators more freedom."
Even if operators wanted it, however, Europe's regulators are unlikely to
change the rules, even as they amend licence terms to extend 3G rollout
deadlines. Defending the original policy, it seems, matters more than
providing consumers and operators with a choice of technologies. Things
might have been very different had Europe's operators not been trussed up in
a technological straitjacket. |
