Global Insight Perspective | |
Significance | Verizon has become a major defector from the CDMA camp, with the confirmation that it is to begin testing LTE solutions in 2006 and will aim to deploy LTE as the upgrade path for its core network, with systems beginning to be available in 2010-11. |
Implications | While the impact will not be felt for several years, this will be a blow to the CDMA standard and will have a knock-on effect on Qualcomm, which has a significant amount of intellectual property rights for CDMA. |
Outlook | With the upgrade path for CDMA looking curtailed, this will add weight to the network operators' choice of GSM-based technologies, which benefit from economies of scale including choice, lower prices and roaming opportunities. Vodafone will also have even less reason to sell up the lucrative stake in Verizon Wireless. |
Vodafone and Verizon's chief executive officers, Arun Sarin and Ivan Seidenberg, respectively, preliminarily discussed that the upgrade path for CDMA networks could—and was in fact desirable to—converge with the GSM-based Long Term Evolution (LTE) project two months ago (see World: 20 September 2007 Verizon and Vodafone Target Convergence in Evolution of CDMA and GSM Standards). The announcement that Verizon is planning to test and deploy an LTE network as its next-generation upgrade rather than the CDMA-centric Ultra Mobile Broadband (UMB) project is therefore not an immense revelation. Vodafone’s global chief technology officer, Steve Pusey, noted that, “We expect LTE to form a key part of Vodafone’s future technology strategy, and the prospect of moving towards a common platform with Verizon Wireless is an attractive long-term goal".
Verizon and Vodafone have a co-ordinated trial plan for LTE that begins in 2008. Trial suppliers for networking equipment include Alcatel-Lucent, Ericsson, Motorola, Nokia Siemens, and Nortel. Verizon notes that in addition to the traditional handset suppliers—including LG, Samsung, Motorola, Nokia and Sony Ericsson—the company is in discussions with consumer electronics companies in anticipation of embedding wireless connectivity into a range of devices. This mirrors the push by Sprint—backed up by PC chipmaker Intel—to embed WiMAX into a wide 'ecosystem' of connected devices, of which the EV-DO-coupled Kindle e-book recently launched by Amazon is a foretaste (see United States: 17 August 2007: Sprint Releases Plans and Targets for "Xohm" WiMAX and 27 November 2007: Kindle Sets New Model for Data-Connected Devices).
Richard Lynch, executive vice-president and chief technology officer of Verizon Communications, took particular note that LTE is likely to be the dominant global technology: "The company’s move toward a 4G network is driven by our vision of pervasive wireless Internet connectivity and mobility…Customers want to be truly untethered with advanced communication devices that provide functionality comparable to today’s wired network…LTE is the best technology with global scale to deliver on the promise”, he indicated.
Outlook and Implications
A Blow to CDMA and Questions on the Evolutionary Path
The upgrade moves announced here would be far from instantaneous—analogue networks that were superseded by digital technologies such as GSM over 15 years ago are only being retired in 2008. Verizon is likely to maintain the CDMA EV-DO network for many years to come, with the 2015 target noted by Sarin as one possible transition point; however, this does limit the longer-term future of the standard, in particular the UMB upgrade path. While elements of the GSM and CDMA standards have been converging, e.g., the 3G GSM UMTS standard uses W-CDMA in the air interface, and both UMB and LTE will use orthogonal frequency-division multiplexing (OFDM), it is unclear as to how exactly Verizon will ensure a smooth evolution—whether or not, for example, this will occur via the use of multimode handsets or modifying network equipment (see World: 25 September 2007: UMB Specification Lays Out CDMA Upgrade Path). However, the timetable roughly outlined by Sarin previously expects systems based on the LTE project to begin to be available in 2010-11, with complete compatibility between CDMA- and GSM-based networks by 2015. This is a major blow to the long-term future of the Qualcomm-backed CDMA standard; with AT&T and T-Mobile using GSM, such a move could leave Sprint stranded as the only major network carrier in the United States using CDMA technologies. In August 2007, the figures released by the GSM Association indicated that GSM had around 2.54 billion subscribers while CDMA had only 360 million(see World: 15 August 2007: GSA Releases Latest Figures on Global GSM Deployments and Subscriptions). The CDMA Development Group (CDG) claimed some 400 million customers in the same period but the loss of Verizon—with some 64 million high-value North American subscribers at the end of the third quarter of 2007—will make a significant dent in the CDMA and potential UMB subscriber base. This will create a pause for thought for other operators considering maintaining CDMA and upgrading to UMB networks, and will reduce the overall investment into these technologies with concomitant impact on manufacturing scale, equipment choice and costs and roaming potential.
Sprint in the Cold
The announcement will add just a little more weight to rising criticism over Sprint's decision to build out a WiMAX network as an early entry to provide 4G connectivity from 2008. Sprint needs to build out its 2.5-GHz spectrum and is using WiMAX as a ready-to-be-deployed path to deliver next-generation services, but it will miss out on the smooth upgrade path and the backwards compatibility that Verizon is possibly hoping to leverage. Additionally, while Sprint had broken off preliminary agreements with Clearwire—which Global Insight believes it is likely to re-forge—with its crumbling iDEN network, CDMA and WiMAX infrastructure, the operator will miss out on the largest national and global roaming opportunities unless it too moves to use LTE as the upgrade path for its CDMA network (see United States: 12 November 2007: Uncertainty Trails WiMAX as Sprint and Clearwire Terminate Partnership).
Concurrent Business Models and 700 MHz for LTE?
The announcement that Verizon is planning to open up access to its network to new devices and applications through 2008 ties in to the rules on a portion of the 700-MHz auction due to take place in January. While there are significant similarities between UMB and LTE, the standard would not, as it stands, guarantee backwards compatibility. Given that there could likely be problems concurrently running a CDMA network and an LTE network on the same spectrum, and that the timescales concur to a large degree, during a transition phase it would be possible for Verizon to build out a new long-range and highly penetrable network using LTE at 700 MHz, which would fit with the open access. This would allow them to maintain both the current heavily controlled business model and the progressive 'open access' model using the new technologies.
Vodafone Lose (One) Incentive to Sell Out
This will make it harder for Vodafone to find reasons to withdraw from Verizon. Barring the lack of a controlling stake, the lack of a common technology platform has been the only strategic reason for such a move.