4G Wireless: Years, Miles to Go

NEW YORK ( TheStreet) -- Fourth generation wireless networks -- also known simply as 4G -- will be one of the biggest tech building booms of the decade. We're talking one of those rare and sweeping industry transition points that promises to stimulate big spending, new product cycles and the remake of the Internet for an era of mobile computing.

For investors, the upgrade reeks of another Internet gold rush: 4G promises to take smartphones to desktop speeds, unleash a whole new crop of wireless devices and finally deliver the full potential of the mobile Internet.

But don't start picking your winners yet. Objects in the tech distortion window can appear deceptively close at hand -- the distance from here to 4G is farther than you might have guessed.

"These are still the early days," says Ericsson ( ERIC) CFO Jan Frykhammar. "I don't believe we will see significant revenue from 4G until 2012."
COO Jan Frykhammar.
Ericsson CFO Jan Frykhammar.

Blame Verizon ( VZ) for starting the clock a little too early on 4G. In Nov. 2007, jockeying for a leading edge in the wireless race against AT&T ( T) and Sprint ( S), Verizon announced that it was taking the long term evolution (LTE) path to 4G. Verizon has vowed to have LTE available in more than 25 cities this year. But high-priced chips and a lack of LTE gadgets all but guarantees that the true 4G action won't arrive for a few more years.

Following with its own LTE plan, AT&T announced its intentions in Feb. 2008. And as a backer of Clearwire's ( CLWR) WiMax flavor of 4G wireless technology, Sprint has said that it hasn't ruled out an LTE upgrade path.

As the world's largest wireless gearmaker and primary supplier to Verizon and AT&T's 4G network construction plans, Ericsson's Frykhammer has a prime view of 4G as it moves from vapor to the drawing board.

Rival vendors like Nokia ( NOK), Siemens ( SI) and Alcatel Lucent ( ALU) also have a big role in the 4G building boom, when that day arrives.

Until then, what's keeping the gearmakers busy?

The Boom at Hand

The foreseeable future lies in the switch from 2G to 3G. "We are involved with a big shift from voice networks to mobile broadband," says Frykhammar.

In short, 2G to 3G is a move from slow to faster data connection speeds. In tech terms, the upgrade to 3G means networks are switching standards (moving from EDGE to UMT and HSDPA, or high speed downlink packet access). And Verizon, which runs its network on a different standard, is switching from CDMA 1x to EV-DO (see "Decoding Wireless" for terminology).
Decoding Wireless

Surprisingly, although 3G has been available commercially for 10 years, its implementation is far from complete and users have only recently started to convert.

In a recent report from Morgan Stanley, analysts estimate there were about 500 million 3G users worldwide by the middle of last year. That represents a penetration rate of 11% of the total market. Looking ahead to 2013, 3G penetration will hit close to 44%, according to Morgan Stanley.

In the U.S., about 37% of mobile users are on 3G. With nearly two thirds of the market yet to convert to 3G, Morgan Stanley analyst Ehud Gelblum sees plenty of upside for smartphone shops like BlackBerry maker Research In Motion ( RIMM), and wireless chip maker Qualcomm ( QCOM).

The current 3G opportunity: Getting in on the problem-solving spending.

As AT&T has discovered, 3G phone users, particularly the vocal owners of Apple ( AAPL) iPhones, have a low tolerance for spotty service. The outcry has caused AT&T to drop some money to make network improvements.

One area were AT&T has been focusing its spending is backhaul. Heavy traffic areas like Manhattan and San Francisco suffer less from network coverage and more from congestion.

Having finally strung together nationwide 3G networks, telcos are switching their spending to help beef up the systems. To open the bottlenecks between the antennas and the core phone network, telcos have been spending on optical backhaul, installing fiber-optic connections to antenna base stations.

"Networks are built for a maximum load and it's easy to reach that load limit in areas like Manhattan," says Telecom Pragmatics analyst Sam Greenholtz.

Some of the big players in optical backhaul that benefit from anti-congestion spending are specialists like Adtran ( ADTN), Ciena ( CIEN) and China networking giant Huawei.

Catching a Breather

But don't expect big gobs of cash to get thrown around. Outside AT&T's network improvement efforts and Verizon's ongoing plans, big wireless equipment spending may take a bit of a breather.

Comments last week by Vodafone ( VOD) executives indicate that networks, on a whole, are running at about one-third capacity during the heaviest traffic periods. If true, that would mean telcos aren't under intense pressure to spend more than their modest budgets allow.

It also means, as you might suspect, that the race to 4G is off to a much slower-than-expected start.

-- Written by Scott Moritz in New York

RELATED STORIES



Follow our tech coverage on Twitter and become a fan of TheStreet.com on Facebook.

More from Technology

PayPal Wants to Consolidate the World of Rewards Points

PayPal Wants to Consolidate the World of Rewards Points

Tesla Just Hit a Pair of Big Milestones for the Model 3

Tesla Just Hit a Pair of Big Milestones for the Model 3

Is Apple Botching Its Autonomous Driving Opportunity?

Is Apple Botching Its Autonomous Driving Opportunity?

Apple Teams With Volkswagen for Autonomous Driving Gig

Apple Teams With Volkswagen for Autonomous Driving Gig

60 Seconds: What the Heck is GDPR?

60 Seconds: What the Heck is GDPR?