3G, or Not to Be?; Wireless Technologies Forge Ahead Despite Uncertainties

BYLINE: Yuki Noguchi, Washington Post Staff Writer

BODY:


Enamored of a new generation of wireless technology, U.S. telecommunications companies are spending up to $ 30 billion to upgrade their networks for high-speed data communications, even though they're still uncertain who will pay to use it.

"Third-generation" or 3G wireless technology already has proven to be an economic nightmare for European telephone carriers, which have spent about $ 200 billion on spectrum licenses and now have no money left to actually build their networks. The phones needed to use the technology are more expensive than the cell phones commonly used in the United States now, there's no agreement on whether users will accept the fees the industry wants to charge, and there are no guarantees that newer, potentially better technologies won't outpace 3G technology before it even reaches the mainstream business user.

"I'll be honest: I don't know what the market demand will be for the products and services offered with 3G," said Bill Stone, executive director of network strategy for Verizon Communications Inc., the largest cell-phone service provider in the United States.

John Stanton, chairman of VoiceStream Wireless, said he has no doubt that consumers will eventually want and need high-speed Internet access on their wireless devices. Eventually.


"When people get addicted to and used to the convenience wireless provides . . . demand will take care of itself," Stanton said. Meanwhile, the challenge for all cell-phone service providers is to keep the increasing volume of calls from straining their networks, which can carry only so many calls on thinner and thinner slices of spectrum, he said.
Executives at the major wireless companies now recognize that the real benefit of 3G is not that it will speed up data transfers, but that it allows more phone calls to be made over the same network.

An average Sprint PCS customer spends 550 minutes a month on her cell phone -- a figure that continues to grow every month, said Charles Levine, president of Sprint PCS, the fourth-largest wireless-service provider in the country. The real payoff from the $ 1.5 billion the company has invested in network upgrades is that the number of phone calls it can carry on the network at one time has doubled, he said.

"It depends on who you are. . . . Some people are never going to use data," he said.

The number of e-mail and short messages sent over cell phones has doubled over each of the past three years. Now nearly 20 percent of subscribers use their mobile phones to send and receive data.

But cell-phone companies say only 1 percent to 5 percent of their revenue comes from data traffic.

"Data revenue is going to remain a fairly small percentage, because voice is continuing to grow," said Mark Feidler, chief operating officer of Cingular Wireless. The people who will use wireless data access will use it for business, he said. "They are not nearly as price sensitive" as consumers, he said.



There is growing skepticism among some industry observers over whether it makes good business sense to spend money on services that enable people to e-mail photos from cell phones, or to design business presentations on a laptop in a moving vehicle.

"People aren't going to spend the money" for such services, so it makes no sense for carriers to build their much-touted networks, said Frank Dzubeck, president of Communications Network Architects, a consulting firm in Washington.

"The dirty little secret is that 3G deployment is going to be localized [within major cities], and it's going to be because of economics. . . . It's basic business logic," he said.

Yet all the major U.S. carriers seem to be defying that logic. They are planning to invest $ 26 billion to $ 30 billion to upgrade their networks nationwide, according to the Yankee Group, a market-research firm in Boston. That estimate does not include the cost of spectrum licenses, which proved to be the Achilles heel of the European telecom firms. In the United States, spectrum licenses are expected to cost the industry almost $ 16 billion.

Already, a cast of supporting sub-industries has mobilized around making 3G networks the next virtual reality. At the Cellular Telecommunications & Internet Association's annual convention last month in Orlando, makers of handsets showed off big-screen cell phones with built-in cameras and sound systems. Network-equipment makers Lucent Technologies Inc., Nortel Networks Corp. and Alcatel SA talked about reorganizing their businesses to focus on selling 3G-related equipment to the wireless industry. Other companies promoted complicated billing software to keep track of every minute spent talking and every byte of data transmitted.


All these players in the 3G industry promise that wireless Internet access -- whether made through a phone, a laptop computer or a palm-size device -- will revolutionize the convenience of commerce and communication. Using that technology, insurance agents may be able to assess accident damage through images sent over a cell phone, and consumers could stand in front of a vending machine and charge the cost of a soft drink with a few pushes of a button.

But how much are people willing to pay for that?

"It's a big question," said David Berndt, a director at the Yankee Group. Whether companies will be able to charge consumers enough to recover the billions they're spending is still very unclear, he said. Corporate executives and field technicians might be interested in being able to e-mail photos of houses or PowerPoint presentations from wireless devices, but "the whiz-bang stuff isn't going to be there, in most cases," he said.

It's not just the services that are expensive; the new phones would also cost a pretty penny.

"People aren't going to go dish out $ 700 for a new phone, unless it's really compelling, and the only thing that would be that compelling for a business, for example, is if it [could substitute] the phone for a laptop or something," Berndt said.



Moreover, if wireless carriers start offering monthly flat fees for high-speed Internet access like their satellite, digital subscriber line (DSL) or cable-modem counterparts, "it would be a disaster," Berndt said, because demand for the service could be unlimited while the reward would be extremely limited.

That disaster struck European telephone carriers in 2000, and the companies now carry huge debts from the out-of-control spectrum licensing costs. Japan and Korea -- held up as 3G model communities -- don't provide a good comparison to the United States because many people there don't own personal computers, so cell phones play a different role. Japanese and Korean consumers are also already accustomed to paying by the minute or by the byte for phone calls, e-mails and Web downloads.

In addition, U.S. carriers already have financial difficulties. They are unable to raise additional capital in the current economy, and they are struggling to handle network maintenance. Customers are complaining more and more about dropped calls, busy networks and spotty coverage.

To make matters even more complicated, there are newer, potentially better technologies that might eventually undermine 3G altogether, according to some analysts.

Third-generation technology "never lived up to its expectations," Dzubeck said. People who need data at high speeds need it at a greater speed than 3G can offer, which is why technologists are looking beyond 3G, to technologies called ultra-wideband and orthogonal frequency division multiplexing (OFDM), which use a different type of signal altogether, he said.

Nevertheless, carriers are forging ahead with 3G.

Verizon, for example, bid more than $ 8 billion for spectrum licenses last year -- airwave assets that are now tied up in a case before the Supreme Court. Meanwhile, the company upgraded its old network to make it possible to send files faster. This month, it will begin testing new technology in Washington that the company says will offer wireless connections at speeds comparable to those of DSL and cable modem.

Some analysts question whether there's demand for even basic data services.

"There's a 'build-it-and-they-will-come' mentality,' " but the industry hasn't designed a use for all that speed in the first place, said Eddie Hold, an analyst with Current Analysis Inc., a research firm based in Sterling. Faster speeds are becoming available now, but people are still using it for very basic things like e-mail and games, he said.

So even if greater speeds are available at cheaper prices, he said, "you run into the same problem: Well, what am I going to use it for?"

More stories in TELECOM online at Washtech.com.

 

Really wayne, really,really, you all might be the first, but not the last.

 

Yeah Verizon ,might be the forst to bring it to some cities first than the other carrier, but Sprint will be the first to offer service in every market.

 

Well, didn't Verizon say all their market will be converted over to 1x at hte end of the year, while Sprint stated that sometime in the summer they will be 1x in every market.