This column was originally published on RealMoney on Aug. 8 at 2:51 p.m. EDT. It's being republished as a bonus for readers.

The telecom sector has speculated on


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next technology step for at least two years. Now

The Wall Street Journal

reports that Sprint is about to splurge on a $1 billion to $4 billion WiMax upgrade.

Sprint has to make a big bet on something new to gain an edge in the U.S. mobile market. But this doesn't mean Sprint investors should take heart from the company's latest gambit. Its high-risk WiMax play faces some serious product development challenges based on the fact that most of the global market is opting for different platforms. The mass of users behind those other standards will engender economies that Sprint will lack. It may even face a hard time getting handset makers to devote resources to developing equipment for it.


The American mobile market is weird, and only getting more so. A couple of years ago, several major markets were patchworks of rival standards, but over the past years, there has been a decisive streamlining process taking place globally. Russia is now over 90% GSM (global system for mobile communications) and Latin America is rapidly becoming a more or less unified GSM market. W-CDMA (wide-band code division multiple access) is the third-generation technology that all of the GSM vendors are migrating toward -- faster in Europe and some parts of Asia, slower in China and Latin America.

But in the U.S., the market is getting only more fractured as the years go by. There are two GSM operators,




, and two CDMA operators,


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and Sprint.

Furthermore, the GSM frequencies used by the American operators are different from the rest of the world, and the W-CDMA frequencies coming into use are different as well. Verizon and Sprint are using slightly different versions of CDMA, meaning you can't use the same phones in their networks. Both are migrating toward various CDMA2000 mobile data upgrade technologies.

Meanwhile, notable CDMA operators in countries like Brazil, India, Australia and Argentina are apparently laying the groundwork toward upgrading from GSM to W-CDMA. It seems now that Verizon and Sprint may be among the few operators in the world that are doing a pure CDMA upgrade pathway within the framework designed by


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. Many of their foreign peers are bolting and opting for W-CDMA upgrades.

There are 2 billion GSM subscribers globally and most of them are expected to migrate toward W-CDMA pathways sometime over the next decade. CDMA operators around the world are getting anxious about the pricing advantage the GSM/W-CDMA market is likely to enjoy at the end of this decade.

Meanwhile the U.S. market is splintering even more. There is already the division between the two GSM operators and the two CDMA operators. With Sprint apparently opting for an aggressive WiMax investment program, the CDMA market in America could be split in two: Verizon with its CDMA2000 upgrade and Sprint with its unique CDMA2000/iDEN/WiMax pathway. This is what Qualcomm has been desperately trying to prevent, but it seems to be happening.

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Economies of Scale

The fragmentation of the American market used to be a factor slowing down the penetration of mobile content. Recently, the technology issues have faded in the background as operators have agreed on things like text-messaging across their networks, but the impact of the market's patchwork nature can be seen elsewhere.

In most of the world,


Chocolate was the hot phone last winter and spring. Symbian phones dominate smartphone sales, three-megapixel camera phones are a big theme this August and


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E61 is the leading challenger of BlackBerry email phones.

But America has an alternate timeline. Over here, LG Chocolate is arriving in the third quarter,



Q is the key BlackBerry challenger and the launch date of the Nokia E61 has not been announced. Three-megapixel camera phones haven't arrived yet in meaningful quantities and few people have even heard of Symbian.

Despite expectations to the contrary, the U.S. phone market has arguably drifted farther apart from the rest of the world. Motorola's big success over the past two years has masked how the rest of the major brands have de-emphasized the U.S. market -- they have found bigger volumes in the unified GSM market of Europe, Asia, Africa and Latin America. Motorola still gives some of its most interesting phones first to Verizon or Cingular.

The rest of the phone makers are clearly prioritizing the rest of the world. This can be seen in the recent change of heart of LG and Samsung. They used to have Verizon and Sprint as key customers; now they launch their most promising new models in Europe and Asia.

The U.S. phone market has always been tricky to address, but now that India, Brazil, Russia and China are all on GSM growth rampages, the U.S. is on the verge of becoming a second-tier market. This is highly unusual -- in most consumer electronics sectors, North America is the ultimate jackpot, but its share of global sales has been declining for years and may fall below 15% by the end of decade.

Sprint's WiMax adventure likely means that it will need a new lineup of mobile handsets supporting CDMA, several CDMA upgrade standards and WiMax. And the new multimode handsets would need to be cost competitive with the GSM/GPRS (general packet radio service)/EDGE (enhanced-data GSM environment)/W-CDMA/(WiFi or WiMax) combo devices that will dominate global high-end sales in two to three years.

These GSM track phones will tap into a subscriber base that is 2 billion people strong and will support a healthy high-end segment. The production volumes are so massive they will push the prices of even highly advanced models rapidly lower.

The combined subscriber base of all sorts of Sprint and Nextel affiliates and mobile virtual-network operators is about 51 million. This is a substantial number, but for a putative new global standard, it's minuscule. And the CDMA/EVDO (evolution-data optimized)/WiMax combo devices would be a very tricky breed indeed -- the power consumption and miniaturization challenges would be formidable.

For most handset vendors, the Sprint-Nextel base is not going to justify a major new R&D initiative. Of course, if other major CDMA operators begin investing heavily in WiMax, there could be global momentum. But at the moment, there is scant evidence of that -- most major CDMA operators outside of America are funneling money toward branching out into W-CDMA, not WiMax.

So in a sense, Sprint's fate may rest on the willingness of other major CDMA vendors to join its CDMA-WiMax combo quest. The signs are not good -- not only are the other major CDMA operators already embarking on pretty hefty new capital expenditure programs of their own, the global capex environment is chilling rapidly due to signs of a coming consumer recession.

The timing of trying to launch a major new mobile-telecom initiative could hardly be more awkward. Yet if Sprint tarries for one to two more years, it may fall so far behind Verizon and Cingular, it will be hard to recover the lost ground. This is as close to a no-win situation as I have seen in recent years.

At the time of publication, Kuittinen held none of the issues mentioned, although holdings can change at any time.

Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;

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