Meet the Street: Talking 'Bout the Next Generation of Wireless

Investors have heard so much about third-generation (3G) wireless systems over the past few years that there's almost nothing left to hype. As 2001 winds down, TheStreet.com talked to Yankee Group Wireless Mobile Services program manager Roger Entner for a look at what we're really going to see in 2002, and it doesn't include a lot of 3G.

Roger Entner Wireless Program Manager Yankee Group

Recent Meet the Streets

Namebase/Medibrand's Jim Singer

PIMCO's William H. Gross

Federated Global Investment Management's Robert Kowit

Olmstead Properties' Samuel W. Rosenblatt

(For those rusty at their technology acronyms, here's some help: Current generation, or 2G, wireless network equipment technologies include Qualcomm(QCOM)-backed CDMA, European standard GSM and onetime North American favorite TDMA. The move to 2.5G is a half step up to support data on mobile phones involving an upgrade to GPRS for GSM operators, and to 1xRTT for CDMA operators. Finally, 3G technologies include CDMA-2000 for CDMA networks and W-CDMA for GSM networks.)

TheStreet.com: We're closing in on 2002 and we've seen limited GPRS service in the U.S. Europe's been waiting for Nokia's GPRS phones all year. As we close in on 2002, what should we expect to see next year? When is 3G coming, given that we're just beginning to see 2.5G?

Roger Entner: Overall, the carriers in the U.S. have been very good in balancing what's technically feasible with what's financially prudent. The carriers here have not jumped headlong into the 3G frenzy like their European partners. We don't expect 3G [here] before late 2003 or 2004, simply because the carriers are probably rolling out 2.5G solutions on a larger scale in the early part of 2002. So they first have to amortize and make all the profits to make the upgrade [to 3G] financially worthwhile.

TSC: Are carriers surprised that 2.5G took so long?

Entner: No, they knew this all along. If we take somebody like a VoiceStream, they've been publicly very mum about their GPRS solution. We believe that internally the network is already available. What holds somebody like a VoiceStream back in launching is that the handsets are not stable enough yet for their tastes; they do not want to have the same experience of some of their European partners. There, as GPRS handsets became available, they launched the network. The handsets did not live up to expectations, and all the investments in marketing the service have been wasted because subscribers were turned off by the service.

TSC: Which brings up a good point in that we already have some GPRS in the U.S. already. AT&T Wireless(AWE) has it in Seattle, and they're moving slowly across the country.

Entner: AT&T Wireless, Cingular and Verizon(VZ) are using that strategy of rolling out the service market by market. Verizon launched in New York, but only voice for 1xRTT, which didn't help consumers a lot but helped the carrier [handle more call traffic]. We believe Verizon will launch 1xRTT with data, which is the CDMA 2.5G solution, in the Northeast U.S. by the end of the year.

TSC: And Sprint PCS(PCS) has big plans for next year.

Entner: Sprint PCS will probably follow its traditional strategy of doing networkwide launches. That makes them a little bit more a follower than leader, but they will lead in terms of a nationwide deployment. Their big problem is that Motorola(MOT) [one of several Sprint PCS suppliers] as an equipment vendor is not as advanced in 1xRTT infrastructure equipment deployment as other vendors.

TSC: We hear a lot about 1xRTT, which is a CDMA-based technology, and the split between GSM vendors and CDMA fans. Can you explain the rivalry between CDMA 2000 (the CDMA 3G technology) and W-CDMA (GSM's 3G upgrade) and why it's so contentious?

Entner: Well, for CDMA carriers such as Sprint and Verizon, [3G] is a very easy incremental upgrade -- they just have to add a new interface card and make minimal changes with their other infrastructure. Also, they add automatic voice capacity when upgrading to 1xRTT to 1xEV, so you're getting double the bonus -- data and voice improvements.

In the TDMA or GSM camp, while it is very easy to upgrade to GPRS -- GPRS is a software upgrade from GSM -- you only add data capability. You add insignificant or no voice capacity. The TDMA guys have the additional problem that they have to do a GSM overlay before GPRS, so they have to basically build a whole new network.

Then they can go to [other technologies but] the transition path is not as elegant and easy with TDMA/GSM as it for the CDMA guys.

TSC: That's what we're going to see in Europe. These companies that have already paid so much for their licenses are undergoing heavy upgrades.

Entner: The difference between Europe and the U.S. is that the U.S. doesn't require you to have a certain technology [to purchase a license]. In Europe the licenses are technology-specific. In Europe when they issued the 2G licenses, everybody had to use GSM. The new licenses issued for 3G have to use wideband CDMA. They're forced to use that technology.

TSC: Even so, it's going to take some time for GPRS and all these data services to prove that 3G is worth the investment.

Entner: It's "show me the money." We've seen the hype but we have not seen them deliver on it.

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