While carriers publicly push ahead with their third-generation technology migration plans, behind the scenes, some may be evaluating technology conversions that could be more cost effective in the long run.
Sources close to AT&T Corp. say the nationwide telecommunications carrier is technically studying Code Division Multiple Access-based 1XRTT technology internally. It recently hired research firm The Strategis Group, Washington, D.C., to strategically study 1XRTT technology’s cost differentiation and supply market. AT&T and The Strategis Group declined to comment, but an AT&T spokesman said the company was testing all types of technology in the broadband, wireless and long-distance world.
AT&T Wireless said it is firmly committed to EDGE, and the corporation’s interest in CDMA-based technologies is purely for competitive intelligence. EDGE, or Enhanced Data rates for Global Evolution, is a network overlay solution for TDMA and Global System for Mobile Communications networks that will enable data rates of up to 384 kilobits per second. AT&T Wireless deploys TDMA technology in its networks today.
“We are committed to TDMA and EDGE as the technology of our evolution of current voice network,” said Umesh Amin, director of advanced technology with AT&T Wireless.
But parent company AT&T isn’t so sure, sources say.
“AT&T Wireless seems committed to its TDMA migration, but the parent is more skeptical,” said a person familiar with AT&T’s plans.
Many analysts are concerned with capacity problems within AT&T Wireless’ network, highlighted by capacity crunches AT&T Wireless felt this year in New York because of demand for its Digital One Rate plan. Minutes of use are growing at an exponential rate on the carrier’s network.
EDGE technology is a data-only solution and will not address voice capacity in the long-run, and AT&T Wireless must spend money in the interim to increase voice capacity until the technology is ready for deployment by early 2001.
1XRTT technology is compelling to many analysts because it offers voice capacity and higher-speed data services. CDMA operators Sprint PCS and Bell Atlantic Mobile plan to migrate to 1XRTT technology next year, offering data speeds of up to 144 kbps. The technology allows voice and data to run on the same voice channels. From there, CDMA operators can scale the channels from 1.25 megahertz up to 10 megahertz and higher as needed. 3XRTT technology aims to allow data speeds of 384 kbps in the future.
A complete 1XRTT overlay would be expensive for AT&T since it would have to replace a significant amount of equipment. However, the carrier has many 10-megahertz personal communications licenses left unbuilt today and migration to CDMA technology could be done channel by channel, say experts.
The solutions AT&T Wireless is contemplating to help its voice capacity before deploying EDGE technology don’t sound economically attractive to many analysts. AT&T gave its wireless company $2 billion in capital expenditures this year, the majority of which the carrier is using to increase network capacity. At the same time, AT&T is spending money on broadband technology and upgrading its newly acquired cable systems to offer local service.
“AT&T is caught between a rock and a hard place,” said Alex Cena, wireless equipment analyst with Solomon Smith Barney in New York. “Either strategy (EDGE or 1XRTT) they decide will be a costly one … The company has so many needs for capital that they have to make some tough choices.”
AT&T Wireless believes its migration plan makes economical sense.
“When we talk to vendors who know this stuff, they say the economics are there. At the end of the day, we have to press the vendors on this,” said Amin. “Before EDGE, there are several baby steps of the technology evolution that will give us better and better voice capacity, better than 1XRTT.”
Within two years, AT&T Wireless plans to optimize its network by incorporating technical solutions such as smart antennas, adaptive channel allocations, downlink power controls and possibly half-rate vocoders.
GSM operators are looking at these options as well as they migrate to data overlay solutions General Packet Radio Service, EDGE and eventually W-CDMA technology.
Deploying EDGE Compact prior to EDGE technology will allow AT&T Wireless to deploy data services using 1 megahertz of spectrum rather than 2.5 megahertz specified in the EDGE standard.
“EDGE works very well in the spectrum limitations we have and works very well for the voice enhancements we have planned,” said Amin. “It’s so promising that we don’t have to add a lot of new cell sites and increase capacity of existing cell sites by having more radios.”
The cost factor
The wireless industry is uncertain to the detailed cost of upgrading to GPRS, EDGE and 1XRTT technologies. Analysts interviewed for this article, however, agreed 1XRTT technology’s economics are more favorable than GPRS and EDGE, primarily because of 1XRTT technology’s voice capacity advantage and because the data market still is unproven.
“The challenge is the capacity issue,” said Tim Luke, global wireless equipment analyst with Lehman Brothers. “The cost perspective and performance is positive for 1X and CDMA operators. That is why we are so bullish on CDMA.”
Jon Dorfman, consultant with The Strategis Group, plans to release a study next month that details the business case of all the proposed technologies.
“I’m a firm believer that CDMA makes a more viable business case going forward than GSM,” said Dorfman. “The primary reason is that CDMA gives you huge voice capacity as opposed to GSM EDGE … When CDMA carriers upgrade, they can do it just for voice reasons. They see it as getting data for free. On the GSM path, it’s much more of a commitment to data.”
Craig Ellingsworth, senior equipment analyst with the Yankee Group in Boston, also hopes to release a report soon detailing the capacity issues.
“1XRTT obviously is going to be in a better position and economically in terms of cost.” said Ellingsworth. “EDGE is an entirely new way of transmitting. You’re not going to get the additional capacity of voice.”
Lars Nilsson, manager of strategic marketing with Ericsson Inc., doesn’t believe GPRS and EDGE are at a disadvantage. Packetized voice in long run will take care of the capacity problem by 2003, Ericsson and the GSM community believe. And AT&T Wireless has said its vendors have assured it the economics are there.
“We don’t think there is a disadvantage for TDMA and GSM because they currently haven’t addressed voice,” said Nilsson. “There are a lot of things happening outside the standards to increase voice capacity.”
GPRS-a cheaper interim data solution that GSM operators are deploying before EDGE that could offer data speeds up to 155 kbps-will be the test for many GSM carriers to see what the demand for data services will be. Many large European operators are deploying the service today.
“The challenge for GPRS is whether GSM operators can make a compelling case for going toward EDGE,” said Lehman Brother’s Luke.
Another reason 1XRTT technology’s economics are so favorable to many analysts is the fact that new 1XRTT handsets will be backward compatible with existing Interim Standard-95 networks, though consumers wouldn’t have access to the high-speed data services. Likewise, IS-95 handsets will operate on 1XRTT networks. GPRS and EDGE technologies will not be backward compatible.
“Interoperability is huge because CDMA carriers like Sprint can roll it out and only upgrade,” said Dorfman. “That is a big issue for us in forecasting.”
Manufacturers’ general consensus is that migration to all 2.5G technologies will be about a 20-percent incremental capital cost, said Solomon’s Cena. The cost of migration hasn’t become a large issue yet, say analysts. Once a substantial amount of people us
e data services in the U.S. market, the real battle will begin, and companies like AT&T will have to make some tough decisions, said Cena.
“People are talking about it, but no one has run into conclusions,” Cena said of the cost issues. “No one is being forced to make decisions, whether it’s AT&T or the analyst community.”
First Union’s Roberts said he has received indications that many non-CDMA operators are nervous about the capital expenditures involved with the data market and are uncomfortable that CDMA carriers may have a large cost advantage. Europe is becoming uncomfortable, too, he said.
“In meeting with investors in Europe, it’s interesting to me that there is a growing fascination among investors with where the 3G debate heads,” said Roberts. “A lot of investors are aware that it’s not a foregone conclusion that the continued evolution to W-CDMA is going to be the correct way to go.”
Lehman Brother’s Luke said it may make sense for non-CDMA carriers to look at 1XRTT, but it’s too soon to tell whether they would consider this option. The technology holy wars remain heavily entrenched in the United States.
David Kerr, director of wireless programs with Strategy Analytics agrees.
“We’ve been working with some operators where they are looking at how to justify GPRS and what’s after that and where the applications are from,” said Kerr. “It’s split where you have half of the operators looking at voice issues and capacity and where that goes and the other half blissfully ignorant of any problems … Certainly the public persona you get is very different from the reality of discussions going on.”
The bigger question now, said Cena, is how carriers will offer enhanced services. If carriers can charge more for data services and reduce customer churn, they may not have to address the voice capacity issue, he said.
