AT&T Wireless to Add the World's Most Popular Wireless Standard

The change will speed its move to third-generation wireless and expand customers' access worldwide.
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Urged on partly by

NTT DoCoMo's

agreement to take a 16% stake in the company,

AT&T Wireless

(AWE)

announced a technology shift Thursday, saying that it will incorporate a wireless standard used by much of the rest of the world on its way to an increasingly ubiquitous third-generation standard.

The nation's third-largest wireless carrier also reached agreements with a number of equipment vendors and handset makers to build networks using those standards.

AT&T Wireless, which boasts more than 15 million subscribers, will overlay its second-generation time division multiple access, or TDMA, standard with a GSM (global system for mobile communications)/GPRS (general packet radio service) platform, on the path to eventually implementing a third-generation wireless standard known as W-CDMA (wideband code division multiple access) or UMTS (universal mobile telecommunications system).

Translation: "AT&T Wireless is now conforming to the rest of the world," says Todd Bernier, a stock analyst at

Morningstar.com

. (Morningstar.com doesn't rate stocks or do underwriting.)

With few exceptions, carriers in Europe and Asia have chosen to operate on the GSM standard, with an eye towards upgrading to W-CDMA. It was already possible for AT&T Wireless to upgrade to W-CDMA from TDMA, but the decision to deploy GSM hastens that migration, allowing the company to offer faster speeds for the accessing of data.

Once the proper networks are in place, customers of AT&T Wireless will be able to use their handsets anywhere the GSM standard is used. GSM covers 80% of the world's population. In contrast, two other big U.S. players,

Verizon Wireless

(VZ) - Get Report

and

Sprint PCS

(PCS)

employ a second-generation standard that will naturally migrate to CDMA 2000, but which isn't widely used outside of the U.S.

So the move could make AT&T Wireless more attractive to consumers, which in turn could boost its revenue and earnings. Its stock was up 63 cents, or 3.5%, to $18.50 in an awfully harsh market.

Johan Carlstrom, an analyst with Swedish investment bank

Handelsbanken

, points out the cost advantages of AT&T Wireless' move. Cheaper handsets and infrastructure will be available. "Due to the size of GSM globally, it has a cost advantage from economies of scale," he says. "Much more than TDMA, GSM is a standardized system, with clean-cut interfaces, which opens the door for multiple suppliers in one geographical area." (He doesn't cover AT&T Wireless, and his firm has done no underwriting for the company.)

Carlstrom also calls this "a major victory for GSM, expanding its footprint and subscriber base considerably."

AT&T Wireless also announced contracts for infrastructure equipment with Finland's

Nokia

(NOK) - Get Report

, Canada's

Nortel Networks

(NT)

,

Lucent Technologies

(LU)

and Sweden's

Ericsson

(ERICY)

, as well as handset contracts with Nokia, Ericsson, Germany's

Siemens

(SMAWY)

and

Motorola

(MOT)

.

According to Carlstrom, Ericsson is already AT&T Wireless' largest supplier of mobile infrastructure (50% to 60%), followed by Lucent (25% to 30%) and Nortel (10% to 20%).

Exact financial terms were not disclosed.

Nokia will supply GPRS-ready base radio network systems and wireless phones, with the initial phase to be launched in the first half of 2001. A spokeswoman for Nokia says the deal is "financially significant," in the hundreds of millions. Nortel cited a similar figure for its contract to provide a new core network infrastructure, comprised of management systems that can distinguish between end users and ensure that high-priority traffic is delivered reliably. Lucent will design and install GSM base stations.

Ericsson will supply mobile phones for the GPRS network and base station systems in a contract worth more than $1 billion, according to an Ericsson spokeswoman. The contract will be implemented over the long term, during every stage of AT&T Wireless' upgrade.