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3G: Timing is Everything

Despite economic conditions that have forced the wireless industry to focus on the bottom line, this remains an industry in motion.

by phil carson
July/August 2001

It’s a delicate balancing act, pressing current business cases while talking up third-generation technologies.
That’s nothing new for an industry that spins trial results into capabilities like a feverish weaver. But analysts and vendors alike suggest that many 3G assumptions remain open to question. Those questions include the viability of unproven technologies, whether 2.5G rollouts will be predictive of 3G acceptance and the perennial issue of when–when will the business case for advanced services justify massive, next-gen infrastructure investments?

Questions on W-CDMA

There’s no lack of pressing issues on 3G, but for Ira Brodsky, president of Datacomm Research, assumptions about operators’ technology choices top the list. Does the GSM world’s intent to pursue W-CDMA makes that choice the proverbial slam-dunk?

“The business press gives the impression that simply because GSM is the dominant wireless technology today, the GSM world’s choice of W-CDMA for 3G makes it the automatic winner,” Brodsky says. “I have serious questions about W-CDMA because the people who today are the biggest advocates of it come to it with no field experience with CDMA technology. Right now, CDMA2000 is working in the field and W-CDMA isn’t. You’ve got to wonder, ‘Have they really developed the chipsets yet?’” Brodsky points to the long lead time in designing, fabricating, testing and attaining quality and reliability in production. “They’re delivering this torrent of news about all the people who’ve selected W-CDMA,” he adds, “but at the end of the day you have to get the technology to work and be cost-effective.”

W-CDMA’s untested nature, as well as consumer interest in applications that run on it, certainly explains the worldwide interest in NTT DoCoMo’s trials taking place in Japan. Keiji Tachikawa, president and chief executive of the financially robust Japanese carrier, has an equally robust outlook for the company’s 3G business plans. He expects 3G service to cover his nation in one year and reach profitability in four years. The world is all eyes and ears: Many observers consider NTT DoCoMo’s 3G trials the bellwether by which others may justify the massive capital investments necessary to launch 3G networks.

Meanwhile, the limited W-CDMA launch NTT DoCoMo set for May – the first in the world–has been delayed until October. NTT itself rejects the term “delay.” “Since this will be the world’s first commercial launch of IMT-2000 services, we have decided that the ‘introductory phase’ is warranted to ensure reliable operation,” says Pat Kuwahata, spokesman for NTT’s international public relations office. Asked whether cell-to-cell handoffs posed a problem, as rumored – or to state the reasons for the altered schedule – Kuwahata demurred, saying only that handoffs were not a factor.

Qualcomm’s qualms

Brodsky is not alone in his doubts about W-CDMA. Qualcomm itself, with intellectual property rights in both W-CDMA and CDMA2000, has pushed its preference that operators and vendors pick the latter path to 3G. “Historically, companies steeped in GSM technology developed their knowledge in that TDMA technology and may not have spent as much time in CDMA-related research and development,” says Anil Kripalani, Qualcomm’s senior vice president for global technology marketing. “As a consequence, they may not have the wealth of experience on how this technology works and how to tweak it.”

Kripalani says that one area of concern is Qualcomm’s recommendation that W-CDMA operators adopt synchronous base stations–that every 24 hours base stations synch up according to a common time element. “We have always said that you must have synchronous operations for best performance,” he says. “We said you’ll have trouble with soft handoffs if base stations are not synchronized. What did NTT DoCoMo come out and say this spring when it delayed its introduction of 3G? They said there were difficulties with handoffs.”

Asked if NTT’s W-CDMA network relied on synchronous or asynchronous base stations, Kuwahata says only, “Soft hand-off is one of the conditions that has to be satisfied with 3G. It has nothing to do with the delay.”

Kripalani concedes that Qualcomm’s position is based on self-interest: With CDMA2000 being the more established technology, he says, it represents a more certain revenue stream through the company’s IPR. “We support both flavors, but especially CDMA2000, based on when we think it will be commercially ready,” he says. “Given how much needs to be done jointly with other companies, W-CDMA will take longer. It’s a complex standard with new aspects that still need to be proven out. We think that will take longer than other companies have represented it. It’s not ready for prime time. I think 2004 is more like it.”

The other reason Qualcomm wishes the world would adopt its favored standard? “Our chairman [Irwin Jacobs] has been quoted as saying he lies awake at night, worrying about how this will be seen,” Kripalani says. “W-CDMA will be made to work, it just will take longer–not the timeframe that’s been bandied about. That’s the concern–that you over-hype it and then there’s a letdown across Europe. This is Europe’s introduction to CDMA technology, albeit one flavor. We want to be sure it’s a good experience.”

Kripalani adds that in the 3G harmonization process his company developed a standard for GSM networks to migrate to CDMA2000, called IS-833, but without interest from a critical mass of operators it will languish.

Naturally, a large contingent– including the GSM Association, its members and many infrastructure vendors–are optimistic that W-CDMA will be made to work. Motorola, for one, is working on products in both the W-CDMA and the CDMA2000 areas. Mike Malone, Motorola’s vice president and general manager for global telecom solutions, says W-CDMA will prove out in a competitive timeframe and that the economics will justify GSM operators’ gamble. “When you look at where the world is heading, wideband CDMA is probably going to be the underlying technology for somewhere in the neighborhood of 75 or 80 percent of all the high speed data services five years from now–virtually all of Europe, a big chunk of Asia and portions of North and South America. There’s a lot to be said for picking the technology that’s going to provide economies of scale.”

As for NTT DoCoMo’s W-CDMA trials, Malone says: “The purpose of these trials right now is to prove the technology. These are tremendously complex systems–millions of lines of code go into the handsets and infrastructure. NTT did delay its launch from May to October, but given the magnitude of what they’re trying to do, that’s really not much of a slip at all.”

Beyond technology

A number of observers believe that, given the timeframe for 3G deployments–in Europe a several-year window opens before spectrum licenses require buildouts and in the United States, a 3G-specific spectrum auction timeline is uncertain–a number of other factors are far more relevant than “religious” wars over technology choices.

According to Martin Dunsby, who leads Deloitte Consulting’s global wireless initiative, “every system is having hand-off problems. This obviously is a nascent technology and the winner hasn’t really been determined yet. It’ll be a combination of technology issues, business issues, with technology issues being the minor factor.”

“We’ve been more focused on the timing of 3G in general, be it CDMA2000 or W-CDMA,” Dunsby continues. “And the extent to which operators have deployed advanced services on GPRS, and use that to gauge demand. The move to 3G will be driven more by capacity needs in segments of their user base rather than a desire to implement technology for technology’s sake. The business drivers of consolidation and, possibly, [3G] licensing costs and vendor options are going to be more important than the actual technology itself.”

Dunsby points out that from the end-user’s point of view, GPRS–now rolling out in European countries–will introduce many of the benefits of next-generation networks, assuming that operators deploy advanced applications. The real question on the timing of 3G rollouts, to his mind, is: How soon will operators feel the need to deploy 3G networks? If 2.5G services via GPRS technology find a ready market, the main advantage of 3G networks to the operators will be cost-effective capacity and the ability to segment services.

According to Malone, it’s too soon to tell how GPRS will play. Though he says Motorola was first to market with GPRS handsets, a diverse handset supply chain probably needs to precede a big push by operators to get subscribers onboard. “The word in the industry is that the uptake on GPRS has been slower than we might have hoped,” he says. “Part of that stems from the desire of operators to have multiple handset suppliers. They like to have Nokia phones too, since they are the market share leader today. Nokia hasn’t had GPRS handsets available yet. So the availability of handsets from multiple suppliers has been an element in the operators’ readiness to go out and push 2.5G services hard.”

On the services end, Malone believes that some data applications offered now, or soon, over GPRS or CDMA2000 will take off. “We’re all going to learn here in terms of how applications will be used and what services customers are looking for,” he says. “So until you have the system turned on and get some experience, you never really know. On the wired Internet side, it surprised some how instant messaging and chat rooms turned out to be a hot commodity. Something like that is going to show itself in the wireless Internet. We’ll learn that as it comes about.”

The question of when

What will trigger operators to begin building their 3G systems? Dunsby notes that in Europe, spectrum license provisions require each holder to provide a certain level of coverage by a certain date. British Telecom’s license, won at auction last year for its mobile unit, for a staggering $6 billion, requires that the carrier cover at least 80 percent of the United Kingdom’s population by the end of 2007. In Germany, Deutsche Telekom’s mobile subsidiary, which won its 3G licenses for $8 billion, is required to cover 50 percent of its population in 2005. Dunsby suggests that, with those deadlines at their back, the Continent’s two telecom giants may opt to delay spending on 3G networks as long as possible. Meanwhile, the two have announced their intent to share 3G network infrastructure. According to the two parties, sharing could reduce network “spend”  by 24 percent to 30 percent. They could also meet their coverage requirements in some joint fashion such as roaming agreements. The two operators said recently they expect 3G services to start up in 2003.

While the window created by spectrum license requirements provides European operators with time, for instance, to prove W-CDMA technology, it is not a big window, according to Dunsby. “Actually, I think those timeframes are aggressive, given the amount of work that needs to be done,” he says. “The network buildout itself is difficult, complicated and expensive. As is building the applications necessary to drive non-voice revenue. They’re parallel efforts. So there are lots of moving parts necessary to get this whole thing going.”

Whether European carriers’ spectrum license debt load will push them to build out 3G networks–the conventional wisdom in some quarters–Dunsby is doubtful. To his mind, the amount of time preceding 3G rollouts also offers an opportunity for consolidation among operators–with better prospects for the 3G business case for survivors. “Certainly there’s general concern about the cost of the licenses and the implications that’ll have,” he says. “In the long term, there will be tremendous value created by wireless. It remains to be seen, on a very specific market-by-market, license-by-license basis, who actually ends up with that return. They have to move out of being just a commodity transport provider. It’s up to the carrier to claim a broader swath of the value chain. They’ll have to move into portals, personalized information services, enterprise applications like CRM and field service that will allow them to charge higher rates as they provide better value. In fact, those efforts are under way.”

The 3G business case

Dunsby points out that, from Deloitte Consulting’s viewpoint, 2.5G technology effectively ushers in an era of “next-gen” services–making 2.5 and 3G designations moot, to end-users.

For that reason, his firm is focused on 2.5G deployments to measure the speed of uptake in services and, therefore, answer when operators will move to 3G. “They’ll have to be successful with 2.5G to drive usage of the network and financial results,” he says. “That’ll help the transition to 3G deployments. I have full confidence the technology will come along. This [transition to 3G] is not a technology thing. It’s driven by the business case.”

As for that business case, Brodsky suggests 3G services will have to offer something dramatic to generate substantial interest and justify the hype about next-gen technology. “We feel that these carriers cannot just offer higher data speeds and more voice capacity. They have to do something that really differentiates 3G, so it becomes a business of its own, in a sense. We concluded that they’ll have to do streaming media. By that we mean that they really have to get into providing reliable, robust, affordable streaming audio and video services. Sure, people may use 3G for other things, but we think that streaming content will really make 3G go. Ultimately, what matters is: ‘What can you do with it?’ ‘Why should people buy it?’ And: ‘How much will they spend on it?’”

Brodsky remains adamant that carriers opting for W-CDMA will have a lot of catching up to do, with CDMA2000 being deployed this year in the United States by Sprint PCS and Verizon. Although numerous W-CDMA tests are underway in Europe, the earliest intended deployments remains years away. In the United States, AT&T Wireless has launched the first GPRS network atop its new GSM network, first in Seattle, and announced its intention to reach the 3G world with W-CDMA. Other carriers that have announced moving from GSM to GPRS–including Cingular Wireless–have not stated for certain whether they’ll move to W-CDMA.

“My point is that, if operators can get W-CDMA to work in 6 to 12 months, and it’s ready for full commercial deployment in that time period, then my concerns were ill-founded,” he says. “Everyone gets a little time to iron out bugs. That kind of delay wouldn’t put them that far behind. But if it turns out it’s going to take them 2-3 years, by that time CDMA2000, which already works, will already be enhanced.”

Meanwhile, Motorola’s Malone points out, potentially disruptive wireless LAN technologies may upset the apple cart. “Over the past 60 days, wireless LANs–802.11–and their threat to, or complement to, traditional cellular systems–whether 2G or 3G–has become a story of much interest,” he says. Malone points to W-LANs ability to provide data at 2 Mbps within a couple hundred feet, making professional campus applications attractive today. As 3G’s implementation gets stretched out a bit, operators are looking at the potential of wireless LANs for hot spots, he says. With base stations relatively inexpensive and small, they provide an alternative to traditional cellular base stations. “We’re definitely taking a harder look at wireless LANs,” Malone concludes. “So, if the question is, ‘How does 2.5G play out?’ and ‘When does 3G appear?’ wireless LANs are worthy of notice.”

With the uncertainties surrounding 3G technologies, the unquantified state of 2.5G uptake and the advent of potentially disruptive technologies such as Bluetooth and 802.11, there’s plenty of time–and, ironically, given the pressing need for advanced applications in current generation technology, no time at all–to judge the timing for 3G.

Of course, the uncertainties are nothing new to the wireless industry. After all, knowledge, experience and plain luck always been hallmarks of great timing.