More on the GSM Cabal's sale of the Brooklyn Bridge;
wirelessweek.com
Pieces of the puzzle are coming together for carriers hot on the GPRS migration trail. But while news of network launches, devices and pricing plans is trickling out, carriers remain mostly mum about the revenue they expect 2.5-generation services to generate.
Rogers AT&T Wireless recently drew back the curtain slightly when it reported first-quarter data sales increased nearly 100 percent over the previous year, driven by a 119 percent rise in two-way messaging and data customers. In contrast, during the same period, the carrier saw a less than 12 percent increase in voice revenue and an 18 percent gain in voice customers.
Those scant pieces of information provide the only hint so far of what kind of uptake carriers are getting from the GSM/GPRS networks being launched throughout the continent. Five North American carriers are taking that migration path, which promises volume-related savings on handsets and infrastructure but still is more expensive than CDMA2000 1XRTT.
Rolling It Out
Of the five carriers, Canada's Microcell Telecommunications, a GSM carrier with 1.2 million customers, was the first to have a national GPRS network in place. However, due to a shortage of devices, it wasn't until September, six months later, that the carrier rolled out commercial GPRS service under its Fido brand name. Rogers AT&T Wireless, a Canadian TDMA carrier with 3.5 million customers, now has GSM/GPRS rolled out to 93 percent of its covered population.
In the United States, VoiceStream Wireless Corp., like Microcell, also had a distinct advantage, having had GSM already up and running in its national network. The Bellevue, Wash.-based carrier officially launched its national GPRS network in October, along with its iStream data service. AT&T Wireless was the first U.S. operator to roll out GPRS service, albeit only in the Seattle market, with its July launch. Cingular Wireless introduced GPRS in Seattle the following month.
Unlike the other three carriers, the much larger AT&T Wireless and Cingular are introducing GPRS service market by market along with converting their networks from TDMA to GSM. Cingular has launched GPRS in California, Nevada, Washington state, North Carolina, South Carolina, east Tennessee and coastal Georgia. The nation's second-largest carrier plans to have 11 other major markets, including New York and Philadelphia, under GPRS coverage by year's end. AT&T Wireless, the United States' third-largest carrier, has extended GPRS service to 60 percent of its covered POPs, with national coverage scheduled by year's end. Cingular doesn't anticipate full national GPRS coverage until the beginning of 2004.
It's too soon to predict the success of U.S. services, but the encouraging early response to Rogers' GPRS network services is significant, considering that few seem willing to wager a bet on what kind of returns GPRS will bring over the long-term or short-term.
Peter Friedland, an analyst with W.R. Hambrecht, isn't surprised by the lack of clarity. For one thing, the launch of any new service normally takes several quarters to generate meaningful revenue. Friedland doesn't foresee minimal data revenue flowing in until at least next year, driven by gradual customer adoption.
For another thing, carriers still might be stinging from the lesson of WAP and leery about making any grand predictions that may not come true. The protocol turned into a disappointment after wildly hyped expectations collided with the reality of poor adoption rates. "The market is increasingly skeptical about anything having to do with wireless data because of concerns about adoption," Friedland says. "The operators are being pretty guarded." [No shit, Jack, burn me once, shame on you; burn me twice, shame on me]
Slow Uptake?
Adam Guy, an analyst with the Strategis Group, has another theory. "My guess is that the uptake is low. I think we're talking maybe half-percent penetration, really slow uptake," he says.
That compares to WAP's 6 percent to 7 percent penetration rate. By Guy's estimation, Rogers already has achieved 2 percent data penetration, a strong showing after only one quarter. Microcell CFO Jacques Leduc, meanwhile, estimates 1 percent of Microcell's revenue will stem from wireless data this year, with the proportion growing to 15 percent by 2006.
Another possibility is that carriers are simply protecting their perceived competitive advantage or trying to shield Wall Street from news of discouraging uptake.
The carriers, with the exception of VoiceStream and Microcell, are spending billions to upgrade their networks. According to a recent Bear Stearns report, AT&T Wireless and Cingular are paying from $5 to $8 per POP on upgrading networks to EDGE, to be followed by a $50 to $70 per POP cost to upgrade to wideband-CDMA/UMTS. That compares with the $4 to $5 per POP that Sprint PCS and Verizon Wireless will spend for 1XRTT, which is technically 3G, and the $5 to $8 per POP cost to get to 1XEV. [Anybody sit those CTOs down and tell them that it doesn't grow on trees?]
Handsets, Apps And $
It might be a little too early to start turning over rocks, expecting to find significant revenue, since getting customers to pay for new services and applications is, of course, the last puzzle piece. Leduc points out that Microcell had its network up and running many months before devices were available. Device unavailability also was behind VoiceStream's less splashy launch of its GPRS network.
And even now, suitable applications are few and far between. That, some suggest, could be behind carriers' lack of aggression in marketing wireless data services. "The applications are not well developed yet. And that is something not under control of wireless service operators," Leduc says.
A recent Strategis survey determined customers are willing to pay in the double digits for high-speed wireless data. "We think if there are meaningful applications, there is the potential for legitimate incremental revenue from high-speed wireless data," Guy says.
Merrill Lynch analyst Glen Campbell says that despite Rogers' strong first-quarter showing, it's far too early to predict future GPRS revenue trends. "The data opportunity is going to unfold over time. Investors have to be realistic about what they can expect," he says.
[charts deleted, go to link if you want to see them] |
