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Kirk Bangstad

Pantelis Monogioudis

3G is the third generation of mobile phone standards. 3G is best defined as the generation that enabled mobile broadband, or the ability to wirelessly use the Internet or work over an IP network without becoming ridiculously frustrated by how long it takes. Now that 3G has finally arrived among developed nations (although adoption is still underwhelming), the mobile broadband industry continues to race towards even faster speeds. Currently, most 3G networks offer speeds in the hundreds of Kbps range depending on the network load and the location of the user. It is worth noting that the peak data rates often quoted in the finance literature are essentially meaningless since the peak rates assume the maximum possible transmission rate to a single user when all resources are assigned to that user. What is far more realistic is the capability of the technology to provide an acceptable average per user data rate.

The industry has embraced two different 3G technologies: W-CDMA/CDMA and OFDMA. The time line is indicative of the technologies and the standards organizations involved.

DL = Download speed; UL = Upload speed; Mbps = Megabits per second; kbps = Kilobits per second

W-CDMA/CDMA

W-CDMA (Wideband Code Division Multiple Access) is a widely deployed 3G cellular technology, standardized by [[1]]. It is the technology employed in current UMTS networks deployed in most of Europe, Korea, Japan, and used by AT&T Mobility and T-Mobile (among other smaller carriers) in the US. W-CDMA technology is transitioning towards OFDMA the technology of choice in 3GPP for LTE (see below). CDMA is the technology standardized by [[2]] and is employed in CDMA2000/EV-DO networks deployed by Sprint Nextel (S) and Verizon Wireless in the U.S. Many analysts expect that all W-CDMA and CDMA-based carriers will eventually transition to OFDMA-based technologies. The question is which flavor of OFDMA technology these carriers will transition to. Many European and US carriers are actively pushing for Long Term Evolution (LTE), the 4G evolution of 3GPP W-CDMA technology in UMTS networks towards OFDMA. Examples of such carriers are Verizon Wireless, AT&T and T-Mobile. On the other hand, Sprint Nextel (S) seems to have selected to transition to OFDMA using the evolution path of WiMAX mobile networks via the joint venture with Clearwire.

WiMax

WiMAX, the Worldwide Interoperability for Microwave Access, is another telecommunications technology aimed at providing wireless data over long distances. Unlike W-CDMA, this technology didn't grow out of the mobile voice technology evolution, but rather the wireless data evolution that started with Wifi network--aka those hot spots you can tap into at coffee shops. Wimax has created a huge buzz because it theoretically can achieve wireless speeds up to 70 Mbps, although current achievable speeds in real life are very similar to competing 3G technologies like 1xEV-DO and HSDA.

Mobile WiMAX will connect 8% of the world’s 1.1 billion mobile broadband subscribers by 2012, accounting for nearly 88 million users worldwide.

Who benefits if W-CDMA Wins

• AT&T Mobility and Verizon Wireless , the two largest U.S. carriers, would like to see W-CDMA win. AT&T Mobility is uniquely positioned in the U.S. as the largest UMTS (based on W-CDMA) network, and Verizon Wireless is on a CDMA2000 network, whose broadband evolution is more likely to tap into WCDMA than WiMax. and as well as all other 3G wireless broadband providers, are deeply concerned about who wins the WiMax/W-CDMA battle. wants to see W-CDMA prevail and eventually move into the HSPA/LTE generation. Sprint Nextel (S), while running a CDMA2000/EV-DO network, has committed to offering a 4G WiMax Network in a partnership with Intel (INTC) Motorola (MOT), and Samsung. ^[3].

• Cable (e.g. Comcast (CMCSA) and Time Warner Cable, DSL (e.g. Qwest Communications International (Q), and Wireless Internet Service Providers (WISPs) who sell access to hot spots (e.g. EarthLink (ELNK) all stand to lose business with the success of WiMax, a clear technology substitue. However, this is similarly true with the success of W-CDMA, as long as wireless 3G carriers offer price competition to the "always-on broadband" currently offered by Cable and DSL providers. This is unlikely in the short run, however, because wireless carriers have made a mint in per-minute billing and won't move to flat-rate unless they have to. Thus, they'd prefer to see W-CDMA and voice-based technology win the race.

• Alcatel (ALU), Nokia (NOK), and Motorola (MOT) three large wireless equipment vendors that have all moved through the wireless evolution with carriers. They're better poised for W-CDMA to win, but have all agreed to offer WiMax functionality in future products. They are clearly hedging their bets here.

• AOL and other Internet service providers offering dial-up Internet connectivity have already seen their businesses decline, and the competition between W-CDMA and WiMax will further put downward pressure on broadband Internet access subscription fees, which will further drive people away from dial-up. WiMax, however, is more of a threat because those who use dial-up are more likely not to need mobile broadband access, and WiMax is gaining the most traction these days in fixed-broadband.

Who benefits if WiMax Wins

The WiMAX equipment market nearly quadrupled between 2005 and 2006, with worldwide revenue jumping 286% to $549.2 million, and is expected to increase more than 10-fold between 2006 and 2010, when it will reach almost $5.6 billion. Mobile WiMAX is forecast to grow to $3.7 billion in 2010, a 5-year CAGR of 201%.

• Alvarion (ALVR), Airspan Networks (AIRN), and Redline Communications all smaller, pureplay WiMax equipment vendors whose futures depend on the technology's success.

• Clearwire (CLWR), a pure play WISP that has placed all their marbles on WiMax technology, is clearly a company to watch while the battle is waged. Luckily for them, they have strong WiMax partners like Intel (INTC) and Motorola (MOT).

• Sprint Nextel (S), the third largest U.S. carrier, has bet heavily on WiMax. While currently running a CDMA2000/EV-DO network, they have committed to offering a 4G WiMax Network in a partnership with Intel (INTC) Motorola (MOT),and Samsung. ^[5]

• Intel (INTC), the largest manufacturer of microprocessors embedded in PCs, has bet heavily on the success of WiMax by integrating WiMax functionality in it Centrino Mobile line of chips. Qualcomm, a leading manufacturer of wireless chipsets, while mainly pushing W-CDMA technology, recently acquired the WiMax assets from TeleCIS to hedge their bets. All mobile chip makers, in creating future product roadmaps, have to consider the W-CDMA/WiMax race.

Drivers in W-CDMA/WiMax Battle

First Mover Advantage

Although the WiMax Forum ^[6] lists over 350 WiMax deployments/trials throughout the world, the only place where WiMax has taken off yet is in Russia, where "last mile" ^[7] broadband infrastructure was abysmal. In much of the developed world, mobile operators have invested enormously in legacy voice-centered networks that naturally evolve into W-CDMA and eventually HSPA. With this entrenched history has come an extensive value network of equipment manufacturers, handset makers, application and content vendors all optimized for the status quo wireless platforms. With these value networks and huge subscriber bases, W-CDMA operators will pose a formidable challenge to WiMax supporters.

Emerging Markets

In places like China, India, and Russia, its hard for most internet users to get broadband access because "last mile" broadband infrastructures are way behind more developed countries. WiMax technology offers a much less complicated/less expensive way to provide this broadband connectivity than physically installing wires/cables in cities. Thus in emerging markets without extensive broadband infrastures like DSL or cable, WiMax has a competitive advantage over W-CDMA as long as people are merely looking for inexpensive fixed broadband access as opposed to higher cost mobile wireless broadband.

Spectrum Policy

All mobile operators have to obtain spectrum licenses from governments before offering wireless services. Past spectrum policy has centered on licensing the radio spectrum used by voice-network operators, where precedent has been set allocating spectrum based on technology evolution (W-CDMA to HSPA). WiMax doesn't use the same spectrum, and because many countries spectrum policy is traditionally skewed towards W-CDMA, WiMax operators can often face hurdles in obtaining spectrum licenses. This factor is changing, however, and governments are moving more towards technically neutral spectrum policy. ^[8]

WiMax Terminal Adoption

A terminal is the wireless connectivity point utilized by an end-user. Terminals can be mobile phones, network cards, modems, etc. In order for WiMax to compete with mobile operators, terminal manufacturers will have to start installing WiMax chips into their devices. So far, Intel (INTC), Nokia (NOK) , and Motorola, among others, have all committed to offering WiMax-compatible chips/handsets, but terminals for W-CDMA-related wireless broadband functionality have been on the market for years. If consumers don't have a comparable amount of options for WiMax devices as they do for W-CDMA--as long as the data transmission speeds are similar-- they may not want to buy a WiMax-compatible device.

Notes

1. ↑ http://www.digit-life.com/articles2/mobile/wimax.html
2. ↑ www.wirelessbroadbandsystem.fi/bbstats.htm
3. ↑ http://www2.sprint.com/mr/news_dtl.do?id=12960
4. ↑ www.wirelessbroadbandsystem.fi/bbstats.htm
5. ↑ http://www2.sprint.com/mr/news_dtl.do?id=12960
6. ↑ http://www.wimaxforum.org/home/
7. ↑ http://en.wikipedia.org/wiki/Last_mile
8. ↑ http://www.netlab.tkk.fi/tutkimus/coin/publications/Smura_ITSEurope2006_v1.0.pdf