Verizon Wireless selects LTE for 4G network: Qualcomm ‘key loser’ as future of CDMA becomes hazy

Verizon Wireless announced it will use Long Term Evolution technology for its fourth generation network. The carrier said that it and parent company Vodafone Group plc will begin testing LTE technology next year with equipment suppliers Alcatel-Lucent, Ericsson, Motorola Inc., Nokia- Siemens, and Nortel Networks Ltd.
The move doesn’t come as a total surprise; executives from Verizon and Vodafone in September said they were considering LTE as the basis for a common 4G platform. However, today’s announcement confirms the plan, and stands as a major knock to CDMA pioneer Qualcomm Inc.
“We expect Verizon’s LTE network to be available only in 2010 or thereafter, yet the headline would impact vendors now. The decision reflects the global transition away from CDMA and to a common, global wireless standard,” wrote Ittai Kidron, an analyst with investment-banking firm CIBC World Markets. “Qualcomm is the key loser, we think, as the CDMA 4G migration path is abandoned.”
CIBC makes a market in Qualcomm securities.
Qualcomm’s stock was down around 1% in early trading to around $41 per share. Shares in Verizon Communications Inc., which shares Verizon Wireless parenting duties with Vodafone, remained relatively unchanged on the news, hovering around $42 per share.
Qualcomm executives took issue with Kidron’s assessment.
“I don’t look at us as the loser,” said Bill Davidson, senior VP of global marketing and investor relations for Qualcomm. “It’s some of the legacy of people thinking we favor one technology over another.”
Davidson said Qualcomm plays extensively in LTE, and explained that multiple technologies can co-exist.
Maynard Um with investment-banking firm UBS offered a similarly upbeat outlook.
“We do not expect any impact to Qualcomm through 2010/2011,” Um wrote. “Beyond that, we see LTE as incremental … and expect the CDMA network to run through 2015. Additionally, we believe Qualcomm will introduce LTE chipsets and though not likely to have 100% share, we believe the addressable market could be materially larger.”
LTE stands on the GSM evolution path. Companies including Nokia and Ericsson support GSM and its iterations. CDMA is a rival to GSM. Analysts generally agree that CDMA commands around 20% of the global market, while GSM holds the rest.
“The company’s move toward a 4G network is driven by our vision of pervasive wireless Internet connectivity and mobility,” said Richard Lynch, executive VP and CTO of Verizon Communications. “A number of factors are setting the stage for our 4G network migration; most importantly, our view of customers’ evolving appetite for more information, entertainment and functionality, combined with an increasing customer expectation for easy access, high speed, easy handling and seamless mobility. With a host of new devices and applications, and a particular focus on embedded wireless in virtually every piece of electronics you buy in any store, we believe LTE is the best technology with global scale to deliver on the promise.”
Verizon Wireless’ LTE announcement comes just a few days after the company said it will open up its network to a greater number of devices by the end of next year.
“Today’s 4G announcement, coupled with our open-development initiative announced earlier this week, present a major growth opportunity for Verizon Wireless,” said Doreen Toben, CFO of Verizon. “Fourth generation’s higher data speeds will usher in a new era of wireless applications and appliances, all of which can benefit from connecting to the nation’s premier wireless network.”
The long-term consequences of Verizon Wireless’ decision are unclear. It remains to be seen whether the carrier’s embrace of LTE will cause other CDMA carriers-including Sprint Nextel Corp.-to make the same move. Sprint Nextel has already announced plans to launch a next-generations network using WiMAX technology and a similar open-access business model.
The CDMA Development Group, a CDMA trade group, argued the technology will remain a viable offering in the worldwide wireless market.
“We are working with many leading service providers around the globe who are supporting more than one radio technology,” said Perry LaForge, executive director of the CDG, in a response to Verizon Wireless’ LTE announcement. “It has become clear that a ‘One Technology Fits All’ or ‘One Network Fits All’ strategy may no longer suffice in today’s competitive markets. However, CDMA2000 networks will continue to be a major source of their revenue and will be complemented by a number of various other air interface networks, including other advanced technologies such as 802.11n, LTE, WiMAX and Ultra Mobile Broadband.”
According to the CDG, the number of CDMA customers stands at 420 million worldwide. The Asia Pacific region accounts for 49% of those, with North America tallying 32% of the total, or about 136 million users. Verizon Wireless’ subscriber base was nearly 64 million customers at the end of the third quarter-or about 15% of the total number of CDMA subscribers worldwide.
Kelly Hill contributed to this report.