While the world continues to debate the mechanics of third-generation technology, many industry watchers wonder what business case, if any, this new technology will have for carriers.
The International Telecommunications Union, a part of the United Nations that has put itself in charge of setting worldwide standards for future networks, has required standards bodies in Europe, the United States and Japan to submit a third-generation proposal by June. The IMT has laid out specifications for this new technology that allows global roaming and includes portable high-speed data rates of 384 kilobits per second designed to drive the introduction of sophisticated multimedia services such as high-speed Internet access and full-motion video.
Most of the world’s standards bodies will choose some form of wideband Code Division Multiple Access technology. The European Telecommunications Standards Institute already has chosen W-CDMA for use with wide-area applications. Vendors, carriers and interest groups are working to figure out the parameters of the new technology, and political situations are emerging as some groups push for a convergence with W-cdmaOne, a technology based on Interim Standard-95 technology.
The entire third-generation process, say many involved, consists of vendors jockeying for position-especially Japanese vendors that have been limited in the past in providing infrastructure to the world’s carriers since Japan’s carriers use a digital technology different from those used anywhere else in the world.
“We are totally baffled at what the business case is for a separate third-generation technology,” said Herschel Shosteck, president and chief executive officer of Herschel Shosteck Associates Ltd. in Wheaton, Md. “I can understand the political drive and the psychology. I cannot comprehend where there is a business case.”
Third-generation technology is not expected to be deployed until after 2000. Japan’s carriers most likely will deploy the new technology faster than other countries for capacity reasons. NTT DoCoMo, Japan’s largest cellular operator, is working with Nokia Oy, L.M. Ericsson and other vendors on a W-CDMA system it plans to operate around 2000. European countries have allocated third-generation frequencies, but have yet to start the process to grant them to carriers. The United States is not allocating new frequency to 3G services. Instead it auctioned 1.9 GHz spectrum to carriers that are in the process of building out their networks.
A plethora of issues relating to the business case for third-generation technology exists, ranging from how these new services will be priced to developing proper network architecture that can handle data service. Shosteck argues that “the trend already is clear in RF that the handsets are going to be multimodes and multifrequency” in the second-generation allowing for global roaming anyway, and manufacturers currently are developing base stations that will support the three major digital technologies used in the world.
But one of the larger questions centers on whether a need will even exist for these systems.
Many argue that by the time 3G technology is ready for commercial use, many of the world’s second-generation systems already will have most of the capabilities third-generation networks plan to offer. All three major digital technologies in use in the world today-Global System for Mobile communications, Time Division Multiple Access and cdmaOne-have evolution paths that will allow higher data rates and other enhanced features by around 1999. Therefore, new third-generation technology may only provide incremental improvements.
Moreover, will end users want or need the advanced data rates third-generation networks will provide? If the mobile data industry’s growth is any indication, the answer is probably no.
A recent report from Herschel Shosteck, The Fiscal Dangers of Third-Generation RF Technology, indicates the demand for data services has proven elusive and is one of the key issues in determining the commercial viability of third-generation services. Data amounts to 2 percent to 3 percent of the traffic on U.S. mobile systems, and Japan’s NTT DoCoMo, which arguably is the world leader in delivering wireless data services, claims only 4 percent data traffic, said Shosteck’s report. The Yankee Group predicts mobile data subscribers in the United States will reach 9 million by 2001.
“If you look at mobile data today, carriers are still trying to figure out the right product and distribution mix. That’s the first stage and one of the key drivers of usage. There’s a huge amount of development that will take place on the carrier and network side,” said Crispin Vicars, program director with The Yankee Group in Boston. “No one will start spending dollars until they have a good business case, especially in the U.S.”
Rebecca Diercks, program director for wireless research with Business Research Group in Newton, Mass., is even less optimistic. “There’s not a whole lot of demand for second-generation applications … If you look at the networks of today, people just want to make a phone call. Who cares about next-generation features?”
Others, however, point out that demand for third-generation technology will come down to creating a market for services and products that customers will not be able to live without.
“We’re talking about 2-megabit files and doing video and video conferencing. This is a much more expensive proposition,” said Peter Nighswander, senior consultant with The Strategis Group in Washington, D.C. “It comes down to creating a market for this-something you really could use and can’t be without.
“In 2002, there will be something like 600 million to 700 million wireless users out there that have a second- or third-generation handset. Why would they be compelled to buy a new handset? The operators have to look at this to make a significant investment and find how they will get the payback,” said Peter MacLaren, vice president of business development with Northern Telecom Inc. “Looking at a consumer business example, digital video disks are the best thing since sliced bread, better than VHS tapes and cheaper to manufacture. Has it taken off like a rocket? Absolutely not. People are still happy with VHS. The key is, what is the compelling thing that will make it go? We still have to find that out.”
In the initial stages, many suspect carriers will begin deploying third-generation technology by building pockets of coverage in metropolitan areas and targeting mobile professionals like health-care workers and field insurance agents.
“What we’re really talking about is the untethered worker,” said Nighswander. “Think of it like the computer legacy system, moving from the mainframe to the laptop to the palmtop, to have fully integrated services and a virtual office on the go that allows the user to send and receive images.”
Nighswander and others believe the Internet, in the long-run, will be the primary vehicle to fuel third-generation growth.
“In terms of how it’s proliferated, there are more users than ever before. Those that were slow to adopt computers are using the Internet now. Taking that all together, that’s where your market will begin to move,” he said.
