3G Force, Red Herring>
The 3G force
Broadband wireless services are
driving the development of a single
network.
By Blaise Zerega
Red Herring magazine
From the August 1999 issue
For the better part of this century, the business of
wireless communications was guided by the principle
that wireless voice calls are more expensive than
wire-line calls. But they aren't anymore.
As the number of mobile phones
increases, and as total wireless
minutes eclipse total wire-line
minutes, wireless carriers will
begin to cut prices for basic voice
services. Andrew Cole, a
principal at Renaissance
Worldwide, an IT consultancy,
predicts that by 2003 U.S. voice
calls will cost as little as 2 cents per minute. As a
result, carriers will increasingly rely on new, enhanced
data services to bolster their bottom lines.
The fall in wireless voice-call revenues mirrors trends
affecting the wire-line industry. Traditional telcos are
reinventing themselves as communications service
companies, or "commcos," capable of delivering
integrated voice and data communications services
from a single network and seeking additional revenue
from advanced data services (see "The Birth of the
Commco," May 1999). Wireless carriers are likewise
equipping themselves to provide data as well as voice
services from their networks, to compensate for the
expected decline in voice revenues. The development
of a new third-generation (3G) network standard is
making possible cheaper and more efficient delivery of
wireless broadband data services including Internet
access and two-way email.
Currently being debated by the
International Telecommunication
Union, 3G will be a digital call
signal interface that enables calls
to be passed from, say, a Cellular
One subscriber in San Francisco
to an Omnitel subscriber in Rome,
across wireless networks that
couldn't work together before.
More dramatically, 3G will usher
in a new era of broadband
content and applications like
videoconferencing, mobile
electronic commerce, and
"concierge" services that would,
for example, allow a driver to make a hotel
reservation, pick a restaurant, and obtain directions
from a dashboard-mounted computer.
CUTTING THE CORDS
By 2008 wireless will surpass wire line as the dominant
method of telecommunications worldwide, according
to the consulting firm Ernst & Young. In countries like
Finland, there are already more wireless handsets in
use than wire line and more wireless call minutes in any
given month. Creating a wireless infrastructure is
simply cheaper and faster than digging up streets to lay
copper or fiber; moreover, it promises to bypass the
problem of the typically narrowband "last mile" that has
so far delayed the delivery of broadband data into
people's homes. Improvements in digital signal
processing, including the development of efficient
packet-switching networks, will make it possible to
deliver data at 2 Mbps -- much faster than the
14.4-Kbps data rates over wire line that led to the
explosive growth of the Internet in the '90s.
Delivering on this promise are mobile wireless carriers
like the Vodafone Group (NYSE: VOD), which in
May won European Union approval to acquire the
largest U.S. cellular carrier, AirTouch
Communications. Though their networks will not be
compatible for several years, the combined company
will be the world's largest wireless carrier, covering 23
countries and 23 million customers. And through its
various partnerships, the new company will serve a
total of about 60 million customers, or roughly 1 in
every 6 wireless subscribers worldwide (see "London
Calling"). Like the wire-line commcos, it will rely as
much as possible on its own end-to-end network,
rather than leasing capacity or paying steep access
charges to other carriers when serving "roaming"
customers. "Ownership makes it possible for call
charges and roaming charges to continue coming down
-- there's no question about it," says Chris Gent,
Vodafone's CEO.
WHEN IN ROAM
Avoiding roaming charges is of particular importance
to consumers in the United States. Under AT&T's
(NYSE: T) popular Digital One Rate plan, for
example, subscribers pay a fixed monthly fee and
avoid roaming charges. But Mr. Cole estimates that
AT&T still pays other carriers between 30 and 35
cents per minute in access fees. Clearly, the
all-you-can-eat pricing plans have put further pressure
on carriers to develop high-margin data services and,
where possible, to own their own networks.
Ready to help deliver wireless broadband services are
startup companies like Saraïde.com, which is
developing content-based wireless applications and
services that are accessible from a mobile phone. The
company licenses its services to wireless carriers,
which in turn sell them as part of wireless services
packages to their subscribers.
Based in San Mateo, California, Saraïde.com is a joint
venture of Microcell Telecommunications (Nasdaq:
MICTF), Nortel Networks (NYSE: NT), Omnipoint
Communications, and GSM Capital. The company has
signed partnerships with content providers like
SportsTicker and Weathernews International from
which to build applications including wireless online
banking and stock trading, as well as a host of
concierge services. Saraïde.com plans to announce a
full suite of products in the fall. Part of this suite will be
a newly developed email and messaging system that
has already been licensed to the Canadian PCS
provider Microcell Solutions (a subsidiary of one of
Saraïde.com's founders), which is pitching it to
customers as a value-added service in its calling plans.
Aside from giving mobile wireless carriers the
possibility of additional revenues from data services,
Saraïde.com will help the carriers lock in subscribers
through applications like online address books and
schedulers and highly customized content applications,
like online banking, that can't easily be ported to a new
carrier. And within the realm of fixed wireless, there
are Local Multipoint Distribution Service (LMDS)
companies that might use Saraïde.com to help deliver
broadband data. "Users have the same data-services
requirements even when they're not on the road," says
Arif Janjua, vice president and general manager of
Saraïde.com. "Those needs don't go away when
they're at home."
AN LMDS TRIP
LMDS providers are counting on broadband data
services to lure customers from incumbent
local-exchange carriers (ILECs) like Bell Atlantic
(NYSE: BEL) and Ameritech (NYSE: AIT). In many
local markets, the ILECs have been slow to install the
fiber-optic cables necessary to deliver high-speed data
services. Most industry reports estimate that the
ILECs are failing to meet the data needs of 750,000
multitenant buildings in the United States -- needs that
could be quickly and inexpensively addressed with
broadband wireless services.
The most ambitious LMDS companies, however, plan
to provide wireless service internationally as well as in
the United States. "The need for broadband data
overseas is as great as it is in the United States, if not
greater," says Bill Rouhana, the CEO of WinStar
Communications (Nasdaq: WCII), an LMDS
provider. WinStar currently operates in 30 U.S. cities
and is pushing into 60 more domestic and 50
international markets.
As for wireless expansion outside the local loop, that
entails access fees for network connections. To avoid
these extra charges, WinStar, like its commco
counterparts, is focused on building and acquiring its
own domestic network. To do this, the company
purchased a long-haul fiber-optic network from
Williams Communications in December. And WinStar
is aggressively building a mix of wire-line and wireless
networks in major world markets like Tokyo and
Paris.
THE TWAIN SHALL MEET
Although the network infrastructure and standards of
mobile wireless and LMDS wireless are very different,
their service offerings have one thing in common: both
will provide cheap, fast access to broadband data.
This blurring of distinctions among wireless
technologies, coupled with the merging of wireless and
wire-line networks (for wire line is not going away),
will in turn create a new set of guiding principles for the
communications industry as a whole. These principles
will be based on the assumption that there is one
Universal Network -- part wire-line and part wireless.
How we will access this network remains to be seen.
Write to blaise@redherring.com.
Vodafone Group
AT&T
Saraïde.com
Links to WinStar Communications CEO's testimony
before Congress about competition between LMDS
carriers and the ILECs
InfoWorld story detailing Vodafone's acquisition of
AirTouch Communications
Abstract and order form for the Strategis Group's
report on World Wireless Broadband
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