CDMA Tidbits from Lehman Brothers 2002 Global Wireless Conference May 20-21, 2002
I listened to 12 to 15 of the presentations at this conference, primarily to see what various suppliers, affiliates and competitors were saying about CDMA. I never did find a Lehman Brothers list of the companies that presented. What follows are excerpts from my notes, which were not transcriptions although I listened two or three times when I quoted the speaker. I hope others find this of interest.
Qualcomm – Dr. Irwin Mark Jacobs 64.23.60.237
“1xEV-DV standard has progressed quite fast.”
GSM1x does the same thing as WCDMA – it uses off-the-shelf 1x base stations, etc. but it accepts the GSM network equipment. Some operators in existing spectrum may find this attractive. Depending on the timing of WCDMA, others may find it attractive in new bandwidth [i.e. the European Guild?].
Do you need DO if 1x speed is OK because you are close to the base station?
Most applications do not require high speed. What you want is a low cost of delivery. High speed allows you to reduce the costs of data significantly. Excluding CapX, depreciation and operating costs, the DO cost is 2.3 cents per MB; the cost of 1x is somewhat higher. As data becomes more used, and Dr. Jacobs believes it will become a fundamental part of all of our lives, more operators will want to reduce the cost of delivering data. That was the case in Korea and indeed they are going to it earlier. You can support video downloads and streaming on 1x but the cost is less with DO.
Korean crackdown on subsidies?
This time the impact of the crackdown will be less since the amount of the subsidy is lower (10-20%) and the crackdown is occurring at the time of a transition to new technology (people are moving to higher-end phones and are not quite as sensitive to price); going forward, there is some impact but not a major impact. Color, position location and other features will drive purchases and make up for lack of subsidies.
Dual mode chipsets?
Vodafone has a significant investment in Verizon and is pushing for phones that have dual capability. Unicom in China also wants the dual mode.
GSM1x chip?
There is a significant interest in GSM1x in Asia where there may be 800 or 900 megahertz spectrum. In Europe, there are regulators who say you cannot use 3G technologies in 2G spectrum. Dr. Jacobs suspects that over time, there might be some weakening in that position. Some operators only have 2G spectrum; possibly, a regulatory change that allowed them to offer data would occur.
QChat?
Exclusivity applies where Nextel is currently operating. Many operators will want to have the capability. VOIP allows use internationally. There were good financial reasons for the exclusivity with Nextel.
Wireless CDMA Operators
Verizon Wireless – CEO
64.23.60.237
By the end of the year, all offered handsets will be 1x and 30% will be BREW handsets.
Verizon is working with Vodafone to shape the user experience – the experience should be the same wherever you are – in U.S. or around the world. They plan to introduce the WorldPhone, GSM/CDMA, mid-year next year. In the meantime, you can have a GSM phone in the UK ring when your US [CDMA] number is dialed.
Why did you choose BREW when Sprint did not? Will BREW be less profitable?
Verizon’s relationship with Qualcomm has been excellent – it is a strong financial partnership. I am very satisfied with the revenue sharing opportunities. BREW is a lot less expensive way than what other carriers are doing, in terms of being early to market and in revenue and cost sharing.
Speeds?
Currently, Verizon is seeing speeds of 40 to 60 kbps which are significantly better [than GPRS?] and it is seeing bursts over 100 kbps. Network capability is excellent and a bit better than 2.5G in Europe.
Consolidation in the industry?
Some consolidation has to occur. He believes it will occur in the next 18 to 24 months. You cannot continue with 6 nationwide carriers and in some markets 2 regional carriers. We cannot continue to invest the capital and acquisition costs and expect all players to survive. He does not think GSM or CDMA is a gating factor. You will see combinations that will surprise you. [By the time any such merger of big players gained antitrust and FCC clearances, Qualcomm’s dual-mode GSM/CDMA phones should be on the market].
New York?
Verizon has done some things in terms of customized engineering and more cell sites that are more expensive than buying new spectrum. Within the next 24 months - 36 months at the longest - you will see problems in NY and LA. Verizon does need more spectrum.
Sprint PCS – President Chuck Levine
64.23.60.237
In its 30 MHz of spectrum, PCS can use 15 carriers. Its busiest area is JFK and it is only using 6 carriers. PCS is still planning to spend $3.4 billion in 2002 to improve network coverage. Coverage is still the #1 reason for customers to leave Sprint.
Industry revenues of $75 billion will grow 15% this year. The penetration rate is approaching 50% but Levine does not think that is a limit. Will you only have a wireless phone a year from now? Levine thinks many could have 4 devices (car, phone, PDA and laptop PC card).
3G will be launched in the summer of 2002. Average data speeds will be 60 to 70 kbps. Why is PCS’ figure higher than others [Verizon generally says 40 to 60 kbps]? It has to do with how you design your network for data. PCS will get as much as double voice capacity – spectrum is much more dear than it used to be. Thus, PCS’ investment of $1+ billion in 1x replicates what the capacity provided by the spectrum for which it paid $10 billion. EV-DV standards were recently agreed upon.
BREW?
There are a ton of Java developers and Levine thinks PCS will have more applications than anyone on both the consumer and business side. Levine did not like the original BREW economics although Qualcomm is being more reasonable now. It is not at all impossible that PCS would use BREW for some applications.
EV-DO?
PCS’ plan to skip EV-DO is not an irreversible position. The problem with EV-DO is that you have to dedicate a channel to data. In much of the country, Sprint only needs a single carrier. In the outer ring of a coverage area (sub-suburban area), you only need a single carrier. A carrier costs $100,000 which is expensive if have to add a second carrier to offer data to a small group of users. Levine thinks that is not acceptable to only offer DO in larger population areas. Levine thinks DV can come sooner than 2005 – pushing forward a year or so. PCS continues to work with Qualcomm.
Will Verizon get the heavy data users with its new plan and no PCS service yet?
Probably. Levine himself downloaded 15 MB in lobby today on his slow connection. He travels 70% of the time and could be doing 250 MBs a month. Thus, $99 sounds like a good deal. But those users will also be the most demanding users – the network better work consistently in Chicago, Minneapolis, Cincinnati, LA, etc. This will not cause Sprint to change its timing.
Unlimited wireless data?
On the wireline side, there is a tremendous amount of fiber at relatively no cost. That is not true on the wireless side – you have to add more carriers and more cell sites. If PCS were using very little of its capacity, he could make an argument for unlimited data but “I don’t think so.” [I could not hear the question and Levine’s response was a bit cryptic. I assume he was saying that Sprint would not offer an all-you-can-eat data package to compete with Verizon’s $99 plan. I hope I have misinterpreted this.]
Alamosa PCS – CFO 64.23.60.237
APS, a Sprint affiliate in the Western U.S. has territory bordering Mexico. It had 551,000 subs at the end of March. With 1x, it expects a 60-70% lift in voice capacity. Data speeds realistically at about 70 kbps, which is a multiple of dial-up wireless access.
The CFO thinks the Nextel deal with Qualcomm was brilliant. Sprint is testing a push to talk feature later in 2002 but it probably will not be available until next year.
High-end handsets, 3G voice/2G data, leave store as soon as they come in - $299 or $399 - will probably not have subsidy in the future. The low-end phones may have a small subsidy.
Less than 10% of the cell sites have more than one channel card. Alamosa could add 2nd, 3rd, 4th and 5th channel cards. But the 1x capacity increase will probably delay the need for this. Alamosa expects to spend $4 in CapX per covered pop per year - $50 million. The incremental cost of adding customers and minutes is very small.
AirGate PCS – CEO Thomas Dougherty
64.23.60.237
APCS is a Sprint Affiliate with 500,000 subs and 11.6 million covered pops – it started in the SE. AirGate’s territory surrounds Chicago, Detroit, Atlanta and Charlotte. AirGate made an acquisition which closed in November 2001. The acquired company had rights to 30 MHz of spectrum in 70% of its areas. In contrast, in the SE AirGate has 10 MHz in most of its areas – that will be enough for 8 to 10 years. It expects that some of the 30 MHz spectrum in the Midwest will be exchange for more spectrum in the SE.
“We are blessed with Sprint having made a great decision regarding CDMA” which makes for an easy migration. We have completed our deployment of 1x, subject to a few base stations being installed in Midwest. In Greenville, N.C., at 3AM, Dougherty, as CEO, personally installed a 1x card in 2 minutes; 18 minutes later the base station was up and operating. It was that simple. 1x offers 50% longer battery life.
UbiquiTel – CFO
64.23.60.237
UPCS, with properties in the NW and the CA Central Valley, is at the earliest stage of all of the Sprint affiliates. The majority of its network was launched in second and third quarters of 2001. It now has 7.2 million covered pops (out of a total of 11.1 million pops) and 202,000 customers at the end of March. UPCS’ network build was very efficient. The 1x upgrade cost $13 million or a bit under $2 per pop. All cell sites have new cards and all 5 switches are operational. It is ready for the 3Q launch with Sprint.
UPCS has 2X as much capacity as Verizon since Verizon is still using 1st and 2nd generation technology and 4X the capacity of the TDMA/GSM competitors. [Is this because VZ has to design its network inefficiently to accommodate analog calls? If so, I suspect that this UPCS advantage will be eliminated within 12 months as VZ migrates analog customers to 1x. Does the use of two bands of spectrum also create inefficiencies?]
Will more cells sites be needed for 1x?
No. Every cell site has the new 1x card in there. UPCS did not have to increase the density of its cell sites. The RF engineering was done with 1x in mind. UPCS is ready right now, merely waiting for additional handsets and the Sprint launch, although some testing apparently is ongoing.
Data speeds?
Data speeds are what you expect – 110 to 140 kbps as UPCS is going through the early stages of testing with an unloaded network.
Wireless Non-Customers
AWE – President of MMS
64.23.60.237
The sweet spot for the market for most business professionals is between 20 and 50 MBs per month. Why pay $99 for unlimited buckets? He does not think people will want long attachments on their wireless email [he focused on handsets, not on PDAs or laptops].
AWE will have full coverage in the U.S. of GSM/GPRS by the end of 2002. Data speeds are between 30 and 40 kbps. EDGE speeds will start at 80 kbps to 100 kbps….[and lots of dropped voice calls??] The benefit to the customer of GSM/GPRS is the global footprint – roaming solution on the voice and data side.
AWE will have access to more than two dozen devices by the end of 2002, with more and more color, JAVA. Currently AWE has the following handsets: 1 NOK, 2 MOT and 1 Sony Ericsson.
Wireless Equipment Manufacturers
Samsung – SVP, Sales and Marketing
64.23.60.237
All handsets shipped in Korea are 1x and color. Samsung’s strength is in the upgrade market. Samsung is the worldwide leader in CDMA handsets. Overall, 50% of everything Samsung sells will be color and color will spur growth. North America is about 20% of total handset business of Samsung. Samsung entered the GSM market, a fairly crowded field, in 1997; but GSM is the most rapidly growing segment, representing over 50% of sales. Samsung works with 4 CDMA carriers in NA and now is working with VoiceStream for GSM. Samsung is the #1 handset seller in Circuit City, BestBuy and Radio Shack.
Samsung is launching DO in Korea. It has already launched video-on-demand in Korea. It supports both BREW and Java. Samsung is the only company with e911 built into the handset and is working with Sprint and Verizon on e911.
Samsung has 60% of Korean handset market and does not think the crackdown on subsidies will have much impact due to 1x upgrades. The life cycle for a handset is 12-14 months in Korea versus 18-20 months in the U.S.
Nortel Networks – VP, Strategic Marketing
64.23.60.237
Circuit-switched and TDMA-based networks have increased costs with volume. Pricing pressures increase with network efficiencies. Slide 6 deals with “Commodity Voice TD Radio Access Circuit Core” and showed that in 2005 ARPU would only be 81% of 2001 ARPU; the TD operators margins are predicted to erode as OpEx increase substantially and SG&A increase somewhat. [For some reason, he liked to say TD for time division, rather than say TDMA and GSM.] Data can generate incremental revenue and offset the voice ARPU decline, based upon the experience with i-mode, Korea with 1x and Vodafone with SMS.
Technologies that most efficiently use spectrum are driving changes. Slide 8: spectral efficiency is needed to carry the growing traffic cost-effectively and to increase margins. Key factor is the efficient use of spectrum. 2G networks represent the lion’s share of spending today – a 65% market share for TD-based networks. In 2005, 62% of spending will be CDMA (Slide 9 seems to have well over 50% of the total CDMA spending being 1x).
Nortel has 85% component sharing between its UMTS and 1x products and base stations – one family of products.
Circuit switched TDMA network running simple voice will cost 37 cents (1999 estimate) versus 4 cents for packet data by 2003 on CDMA [I think it is UMTS number but he did not say].
Nokia – VP, Business Applications
64.23.60.237
CDMA?
We’re active in the CDMA world. There are industry forces pushing in the CDMA world for open solutions. You don’t have to use the Qualcomm chipset. We don’t and we pay a certain price for that.
Video?
The question of when video comes is more a question of when someone wants to implement it. I’m not an expert on data speeds. For video, you will want 1x or maybe even faster, you’d want to have EDGE, before video becomes exciting. There is no technological secret in video - it is just a question of how many bits you want to burn up.
We are going to launch an EDGE phone this year, with the first phone deliveries early next year. EDGE is easy technically. It is cheap and it is good. We support it 100%.
The focus now is on getting the service traffic up. Putting in a 3G pipe when you are not even filling your GPRS pipe ... – so what’s the point? [The point is cost, dropped or blocked voice calls and laptop/PDA high data demands]. The first 3G service is MMS – this is what the operators are thinking now. As your traffic goes up, you put in your 3G capability. We are launching our 3G phone - dual band – this year - it’s a little bit bigger, a little bit more expensive. It’s what we have been doing for a decade – we will make it smaller and cheaper.
3G is a business decision, not a technology decision. He diminished the importance of data rates. What do you care about data rates – most of the traffic is background traffic. What we have is a standardization and interoperability challenge.
Ericsson – Manager Strategic Marketing
64.23.60.237
3G Percentage?
In its first quarter release, Ericsson expects 3G to be less than 10% of overall systems revenue this year. In 2003, it will ramp up but it has not given guidance as to how quickly it will do so.
CDMA market share?
Ericsson’s CDMA market share is about 5%. Its CDMA business is not profitable; having only a 5% share is not sustainable. On the May 14th EPS conference call, he said Ericsson indicated that in a year its CDMA market share will either be zero or significantly higher than 10%.
[No wonder the stock is a bit above $2!]
Airvana – CEO
64.23.60.237
Airvana is very focused on 1xEV-DO and IP and offers “All IP Infrastructure for Mobile Internet.” DO trials will go well into the latter part of the year, with major rollouts of commercial service in early 2003. Lucent is Airvana’s biggest competitor. In Korea, the biggest competitor is Samsung, which scares Airvana more than Lucent. It will be a while before Verizon buys directly from Airvana; but Airvana works with Verizon through Nortel.
1xEV-DO averages 600-700 kbps throughput but what is important is the uses of same cell sites and same spectrum – small incremental investment. Almost every successful data service has piggybacked on a prior service – DSL on copper phone lines; cable modems on the back of cable lines. Its DO subscriber chipsets are all multi-mode, backward and forward compatible – don’t have to roll out across whole region or even the whole town. Once user roams outside DO territory, it goes to 1x. You can cover particular targeted regions. From the user’s standpoint, whatever you do on the PC, you can do with DO. Verizon is particularly interested in the mobile business professionals who want to download emails during boring meeting or in hotel lobby, etc. Smaller operators are interested in DO as an alternative to home PC broadband services. Local exchange operators in small regions may have spectrum and cell sites and cannot cover some regions with DSL economically. They could put DO in, targeting those regions. Higher-end use would be business or consumer web-phone, with video on demand on phones, etc. Speed is important but capacity is more important.
Regarding WCDMA, the Airvana CEO noted that a speaker from a cell tower company the day before had said that you will need 3X the number of cell sites for WCDMA as you needed for 2.5G and that would drive his tower business. New spectrum, new cell sites. BT spent $9 billion on spectrum for the joys of spending billions more on cell sites and billions more on equipment.
Sierra Wireless – CEO
64.23.60.237
Sierra makes the AirCard – a PC card for a laptop, with an antenna. Its 1x AirCard was available for the Verizon launch and it is now shipping GPRS cards to Rogers in Canada in volume and has begun shipments to AWE.
Competitors with GPRS PC Cards?
The Sierra CEO thinks the Nokia and Ericsson announced PC cards are token entries. Sierra products have lower power consumption, higher GPRS service class – the only Class 12 on the market or announced (he thinks the Nokia product is Class 6 and Ericsson product is Class 10) and therefore data speed - and a smaller form factor; each of the other products have a substantial physical extension outside the PC slot. Sierra is getting very strong positive feedback from the market testing of its product. It intends to be #1 in GPRS PC cards at the end of this year. |
