WSJ reports growing tensions between VZW and Vodaphone

Why Verizon won't go GSM:

1. Expensive to change network ansi core to map core, two systems running simulataneously, etc.
2. Changing network will cause problems like AT&T and Cingular now (you really want that)
3. Customers will be pissed off they will have to change handsets - which VZW would have to subsidize if they don't want to further alienate customers
4. GSM has less capacity then CDMA so more busies, etc.
5. All these expenses will hurt profitability - may cause America's most profitable mobile operation to go into the red - stock prices will fall - management bonuses may fall
6. Corporate entities shouldn't make decisions that lose money, they should make ones that make money
7. Some big I-bank (can't remember which one) said that int'l roaming revenues aren't enough to offset all the expenses of changing over

 

1. Expensive to change network ansi core to map core, two systems running simulataneously, etc.

This isn't a great cost in the conversion. Yes it costs a lot to roll out a new technology on a network, but this isn't the one that will break the bank.

2. Changing network will cause problems like AT&T and Cingular now (you really want that)

It takes a while to make everything work right when you are rolling out a new technology. Digital performed quite poorly for a long time. ATT's network in Mass is now perfectly fine with zero problems. Of course, they've had 9mo to tune it. This is a short term concern.

3. Customers will be pissed off they will have to change handsets - which VZW would have to subsidize if they don't want to further alienate customers

Verizon could run GSM and CDMA together indefinitely. No need for CDMA customers to upgrade. Further, GSM handsets are significantly cheaper which means that Verizon would have to subsidise their costs less.

4. GSM has less capacity then CDMA so more busies, etc.

Well, GSM doesn't have less capacity. No increase in system busys. Wireless capacity ranges depending on a lot of variables and GSM can go from being less thanhalf as efficient to well over twice as efficient. This is not a valid argument.

5. All these expenses will hurt profitability - may cause America's most profitable mobile operation to go into the red - stock prices will fall - management bonuses may fall

Your best argument, but you have to remember that Vodafone pulling out would cost them a lot of money (possibly more than they have) and that means that they might have to find another partner. Bye, bye bonuses until they are able to make back the money.

6. Corporate entities shouldn't make decisions that lose money, they should make ones that make money

But if Vodafone pulls out will they have to sell more than 45% of the company to get the money they need since the economy is so poor right now?

7. Some big I-bank (can't remember which one) said that int'l roaming revenues aren't enough to offset all the expenses of changing over

Banks often promote their own interests and while international roaming wouldn't be a draw for Verizon to switch, Vodafone's pullout is.

Vodafone, while a minority holder, weilds a lot of power since Verizon really can't afford to loose their investment especially since the value of VZW has gone down and Voda has the oppertunity to get out at the price they bought in at. Verizon won't switch over because they want to. If they switch over, it will be because they have to to keep Vodafone's dollars.

 

You know, I just had a flash for the minds at Verizon, take those 10mhz pcs licenses they got from Northcoast and use that for GSM, how is that for an idea?

One more thing I just realzed, even if Verizon were to change over to GSM, people in Europe would still need a different phones, since I dont think they make a quad band phone, 800/900/1800/1900. Or do they?

 

If Verizon was going to do GSM they would have done it by now; by pulling out Vodafone cannot have any presence in the US for THREE years as part of the non-compete clause. Sure, there might be some sweet opportunity in three years, but there might be nothing at all.

Running GSM on top of CDMA will result in spectrum sharing and both parts of the system will suffer as a result. I think it's unlikely they will switch horses in the middle of the race to gain roaming revenue which is a small part of the overall picture.

Changing that large a network is not "insignficant" - could be $1bn+.

Besides if Vodafone really wants out Verizon can swap the Italian bird or simply leverage more funds. Verizon would love to have more of Verizon wireless - it's America's largest and most profitable mobile enterprise.

 

Take a look at this map to see how many licenses Verizon owns in the 1900 bands


Verizon PCS license map

The licenses they got from Northcoast is only a small part of what they allready own.

 

But even if you take away Texas, Wisconsin, and Florida, look at how many other areas they own licenses. Actually I was kind of joking when I said to use those for GSM, but if you look at the licenses, and how much of them they are actually using, dont seem like that bad of an idea. I mean, they are not going to have coast to coast coverage, but take New York city for example, im sure there are alot of business travelers from Europe, use that 10mhz license for GSM, and look at how much roaming expense you can save?

And if they did do something like that, I wouldnt convert the PCS markets to GSM, just make it both, or at least in the big cities.

 

This might make sense if they could market it as another entity (subentity that is owned, cooperative on the backend, independent on the front end) so the average consumer doesn't know that it's related to Verizon (like many consumers don't know that the Gap and Banana Republic are owned by the same entity or how P&G has different brands of cereals and soaps out there) - that way they could get roaming revenue and sell a new product. They might canabalize some of Verizon Wireless' own growth but they would also steal customers from other carriers.

 

Maybe the new entity could just exist where they have extra "real estate" and where they don't they could roam? But this is probably unlikely anway, plus I'm not Arun.

 

Thats kind of what I was thinking, if you set up a GSM system in the big cities where they own the licenses to do so, then that will take care of a big percentage of the roaming, and then leave the rest to T-Mobile.

And if you were to do something like that, and make a company that is part of Verizon, but seperate, you could create a company something like a Cricket or Metro PCS and offer unlimited calling in a small area, so they will be able to make money from putting up a GSM system.

But who knows, I may be way off here.

 

The roaming revenues are 100 million USD/year. Even without growth, and over a fairly short time horizon (less than a decade), that still means the NPV of the roaming revenues ALONE is over 1 billion USD. And that's not taking into account the added brand value or the intrinsic value of the operation itself.

 

Yes, that's a big problem for Vodafone, but they knew what they got into didn't they? They knew VZ was in the QCOM camp the whole time, right? Sir Gent's biggest regret was...

Anyway, Verizon's own revenues are $64bn per annum. To put your 100mn in perspective (using my trusty HP 12C) that's about 0.15625% of Verizon's annual revenues. Of course this has nothing to do with Verizon. You discount Verizon's brand recognition but in the US it's quickly become a venerable name. Vodafone must be pissed that they have 0 brand recognition in the US.

It must be pretty humiliating for Vodafone to read in the paper some Verizon spokesperson idiot who says, oh, we don't care if Vodafone leaves or goes their own way. And I really doubt they would let Vodafone out of the 2 year noncompete clause. Lots of things could happen in 2 years - say, a Verizon takeover of Sprint, an AT&T and Cingular merger...

Maybe they will exit stage left, but could they really say no to all that money they're getting from a money generating venture--the venture with the largest market share of US customers and the most to gain after local number portability in 11/03? Verizon is arguably hte most expensive mobile to subscribe to in the US and yet the largest. Interesting.

But alas, only God knows what Arun will do, hopefully he'll do a better job than he did at Infospace. You aren't secretly Arun masquerading as a Swede, are you?

 

You are technically correct but remember that often they are the only CDMA game in town. If they converted to GSM they wouldn't garner that US$100M a year, because AT&T, Cingular, et al. would have beat them to the GSM punch.

 

OK, the network switch would cause no problems on the CDMA side. Only the new GSM would be shaky for a while.

UMTS is not the 3G GSM. UMTS is a term for any third generation wireless technology deployed on the 2.1GHz band (including Qualcomm's 1xEV-DV).

They are switching to a CDMA air interface because it provides them more capacity, but that doesn't mean that Qualcomm's CDMA offers more capacity. Anything in technology is completely dependant on the execution and not the abstract concept.

You don't get loans for billions like you get a home mortgage. These types of loans are investments and come with the same types of demands as Voda's. Granted a US company might not care about network technology, but they are sure as hell going to have a lot of sway in corporate decisions.

Realistically, Verizon doesn't want to roll out GSM for very good reasons. It would cost them money for no gain (aside from keeping Voda). It would confuse customers when stores started offering GSM and CDMA phones. This is not a situation where one can say that GSM makes more cost sense. You are 'upgrading' from one technology to another that has no difference in network efficiency. The ONLY reason that Verizon should roll out GSM would be to keep Voda's money. This is a big deal though since their money won't be easy to replace and Verizon might have to sell off more of their company to accommodate it and end up loosing more control.

I expect that this entire spat with Voda is simply public manuvering to get Verizon to choose wCDMA as their 3G technology over 1xEV-DO/DV. This would satisfy Voda nearly completely and wouldn't cost Verizon much. Old CDMA phones wouldn't be able to take advantage of 1xEV-DO/DV's enhanced speed or capacity so there is no loss to old customers. wCDMA could be rolled out on Verizon's footprint and they could make roaming agreements with Cingualr, T-Mobile, ATT and others as necessary to make up for the loss of compatibility with Sprint, Alltel and others. Lack of analog compatibility is an issue with wCDMA, but Verizon doesn't seem to be offering new phones with analog anyway. Also, Qualcomm has announced a CDMA/wCDMA chipset that would allow them to upgrade thier network piecemeal if they were so inclined. This is the ideal situation. Voda can rest easy with an agreement that guarantees them future compatibility and Verizon doesn't have to spend much more upgrading their network and they get to keep Voda's money. Yes an upgrade to wCDMA would cost slightly more than an upgrade to 1xEV-DO/DV, but not by enough that Verizon would care if it would keep Voda.

Is it smart for Verizon to roll out GSM? No.
Is it smart for Verizon to loose Voda's $$$? No.
Now the question is: which is less smart? . . .and would Voda and Verizon be amenable to a wCDMA agreement?

 

You know Northform, I think that would be the answer, WCDMA, and you know Verizon is in a good position to convert to that because they have 25mhz in the cellular markets, and the PCS markets they have 30mhz. I know even T-Mobile here in Cleveland cant upgrade to WCDMA because they only have 10mhz, unless they buy the licenses from Nextave, which could happen. I think that may be the best thing that Verizon could do right now, everyone ( ok, maybe not everyone ) would be happy.

 

Don't be an a$$ by pointing out a typeo. It just shows that you've got a small peni$.

It makes no sense for Voda to stay with Verizon if they won't use a compatable network technology no matter what the consequences are.

Verizon is lilely to deal with Voda on 3G tech.

 

Of course, we need to realize that to convert CDMA2000 to WCDMA Verizon would need to NECESSARILY rollout the GSM core network because WCDMA runs on the GSM core. So I highly doubt Verizon is in any position (technical or strategical) to rollout WCDMA.

 

UMTS is NOT any 3rd gen wireless tech. UMTS is an EXACT set of standards, protocols, etc. Qualcomm's 1xEV-DV is NOT UMTS. Nothing could be further from the truth!!!


UMTS - what it is...

Definition
Universal Mobile Telecommunications System (UMTS) is envisioned as the successor to Global System for Mobile Communications (GSM). UMTS signals the move into the third generation (3G) of mobile networks. UMTS also addresses the growing demand of mobile and Internet applications for new capacity in the overcrowded mobile communications sky. The new network increases transmission speed to 2 Mbps per mobile user and establishes a global roaming standard.


Overview
UMTS, also referred to as wideband code division multiple access (W–CDMA), is one of the most significant advances in the evolution of telecommunications into 3G networks. UMTS allows many more applications to be introduced to a worldwide base of users and provides a vital link between today’s multiple GSM systems and the ultimate single worldwide standard for all mobile telecommunications, International Mobile Telecommunications–2000 (IMT–2000).

This tutorial explores the history of mobile communications leading to the proposal of UMTS. The tutorial then explains the architecture of UMTS and the protocols, interfaces, and technologies that go along with it. Finally, this tutorial looks at UMTS measurement and testing where tutorial participants will find real-world situations with practical suggestions for measurement approaches.

 

I don't see what an ad hominem attack from an MIT student is supposed to accomplish. Is that how they teach you to express yourselves at your great institution down the road from Harvard when there is such a variety of words to choose from? I too could use 4 letter words (or in your instance 3 and 5) to attack someone but it would show my inability to express myself with meaningful words.

Verizon does not appear to be going the way of VF so far and they're very far down the road of not going the way of VF actually. It would be quite ridiculous to turn around right now, actually (but not outside the realm of possibility). VF's Japan purchase doesn't use a compatible technology not saying that they won't change J-Phone, but the fact is that Verizon Wireless is America's most profitable mobile enterpirse and for whatever reason they have chosen the direction they will go for this round of advancements. Plus, the 2-year noncompete period is a rather big risk should VF leave the venture. I wonder what Arun is thinking right now.

 

Can't remember if I answered this but sure, corporations can borrow money. Verizon is already in debt. How do you think levereged buyouts occur? Corporate bonds? Commercial paper? You get the idea. The only concern might be "too much debt" but I believe a Lehman analysis shows that Verizon can sustain the charge and not ruin its bond rating because of its cash position, VF Italy 22-23% ownership, and the ability to borrow. Lehman in March 2003 (if I recall correctly) estimated VF's share of VZ to be worth US$16bn, I think.

I think Verizon has been cunning, actually. They lost their bid for Airtouch to Vodafone and then they cuddle up with them to form the new VZW entity and now leave VF with a stay in the boat and share our great revenues or leave the US market entirely for TWO years. VF could try to take over VZ like they did the German company (or J-Phone parent) they dissected, but VZ's market cap is US$98bn which makes it probably for practical purposes a bit too large to swallow (it's about 1/3 the size of Microsoft by market cap). VF's market cap is about UK£78bn.

I think only AT&T has any plans to roll out wCDMA. T-Mobile, I believe, has no spectrum to roll out wCDMA onto at this juncture as I believe to run GSM and wCDMA at the same time is pretty spectrum demanding (correct me if I'm wrong but one needs a whole dedicated 10MHz band to run UMTS); hence the reason for the EU 2100 MHz band for UTMS. Their (T-Mo) NY market is already ridiculously spectrum strapped. Cingular in California has been investigated by that state's consumer authorities on "overcapacity" issues (I'm not exactly sure of the nature of it so please don't bash). I don't know definitively about non-Cali Cingular but I also believe they don't have plans to rollout wCDMA. Someone, please correct me if I'm wrong.

So if Verizon went from (and believe me, this requires a leap of faith, but is possible) CDMAOne to UMTS (utilizing a wCDMA air interface) rolling out the MAP core and all that good stuff (ie the protocols), those wCDMA Verizon people won't have anyone to roam with (on a wCDMA platform) except AT&T's select few (Seattle, SF, San Diego, and where else?) markets in the (somewhat distant) future.

I guess they could provide wCDMA/CDMA or wCDMA/GSM phones but...this whole thought experiment violates Ockham's razor way too much...

Unfortunately (or fortunately) not that many people in the US go overseas enough to make total compatability the burning issue of the day. Considering that many people I know don't even have a passport...

...and besides most mobile users in the US aren't sophisticated users in the Japanese sense. Many US people just want the "free" or 1c phone. Many US people just make calls. Many don't even know what text messaging is. There may just not be much demand for 3G services in the US (unlike Japan) as discouraging as that may be to many people on this board.

 

My god, I didn't realise they had so little spectrum. They wouldn't be able to launch 3G except in a handful of markets even if they had the money to.

 

That must be group revenues, not Verizon wireless (they have what? 30 million subs? ARPU of 50$?) Works out to 18 billion annually -- so the 100 million is somewhere around 1/2% of revenue.

 

That's what VODAFONE subs pay to tmo. Presumably (since 25% of subs worldwide are vodafone), the total roaming revenue to the 3 US GSM carriers is 400 million. Vodafone would presumably also offer some more attractive rate to their own subs to incentivise them to use the Vodafone network in the USA.

 

Verizon Wireless also has 800 MHz licenses not shown on the map - in most of the Northeast (Wash DC - Boston) and California. They depend on other providers (like Alltel) for coverage in those states in the middle of the country.