Global Insight Perspective | |
Significance | GSM is gaining the upper hand in its battle with CDMA |
Implications | A potential ”bandwagon effect” could see more operators ditching CDMA for GSM. |
Outlook | Given that W-CDMA, the GSM 3G upgrade, is based on CDMA, the latter technology and its promoters will remain a force in the mobile communications industry in the near future. |
Recent Events
The battle of the mobile standards has come under the spotlight again, only this time GSM is the obvious aggressor. GSM's chief ambassador, Nokia, has pulled the plug on its CDMA business, quitting the market and walking out of a handset manufacturing agreement with Sanyo. Qualcomm, the company behind much of the intellectual property rights for CDMA-based technologies, has been equally prominent in the news as its un-ending legal tussle with Nokia over mobile technology patents continues (see World: 22 June 2006: Nokia Ditches CDMA Pact with Sanyo, Goes it Alone, 26 May 2006: Nokia, Qualcomm Patent Wars Rumble On and 8 November 2005: Qualcomm Sues Nokia over Alleged Patent Infringement).
Last Friday (30 June), the Global mobile Suppliers Association (GSA), an industry body representing GSM/3G suppliers, added its voice to the debate, releasing a report that suggests GSM is getting the upper hand over CDMA. Aptly titled CDMA to GSM/W-CDMA Migration, the report confirmed that CDMA operators are either overlaying their networks with GSM or completely abandoning CDMA in favour of GSM: "We confirm that a number of CDMA operators are facing falling market share and are responding by switching to the GSM family" (see World: 3 July 2006:GSA Report Confirms Operators Ditching CDMA for GSM).
Outlook and Implications
The Status Quo: Although both GSM and CDMA have emerged as successful technologies for mobile communications, the incessant quibbles between proponents of either technology remains. CDMA has always offered a better technical product than GSM, leading to the use of a CDMA solution – W-CDMA – as the air interface for GSM's 3G upgrade. However, GSM has been marketed more convincingly than CDMA. The GSM Association, an industry group representing GSM and W-CDMA operators worldwide, reports that there are over 2 billion GSM/W-CDMA subscriptions globally, equivalent to about 82% of the global mobile market. In contrast, the CDMA Development Group (CDG) reports that the number of CDMA subscriptions has surpassed 318 million worldwide. While GSM operators are currently migrating to W-CDMA and, increasingly, HSDPA, the future of CDMA beyond the current CDMA 2000 1X EV-DO standard is less certain.
The Qualcomm Effect: Qualcomm is perhaps the company that has shaped mobile communications technology most in the last 10 years. Its CDMA technology has blazed a trail, offering superior capacity, coverage and call-handling prospects than GSM. In the run-up to the adoption of the IMT 2000 family of standards for mobile technology, CDMA's superior capacity offerings prompted the adoption of W-CDMA as the air interface of the 3G standard. Despite Qualcomm’s lofty technical achievements so far, its commercial interests remain at the centre of the storm over GSM and CDMA. Because of its pioneering status, the company receives royalties for every CDMA subscription; and, since the adoption of the W-CDMA air interface, it receives another royalty - albeit a lower one - for every 3G handset sold.
And here is where the battle begins. In October 2005, six companies – including Nokia and Ericsson – lodged a complaint with the European Union, accusing Qualcomm of anti-competitive behaviour in its use of 3G intellectual property rights. Unperturbed, Qualcomm countered with a lawsuit against Nokia in November for infringing 10 of its GSM patents. It launched another lawsuit in May 2006, accusing the latter of infringing two of its patents. A similar quarrel has also surfaced in the licensing for mobile broadband technologies, where the Qualcomm-backed IEEE 802.20 standard is pitched against the Intel/Motorola backed IEEE 802.16e (mobile WiMax) (see World: 20 June 2006:802.20 Review Put on Hold).
CDMA's Nightmare: The GSA report is indeed a confirmation of the state of desperation facing CDMA operators. Two major CDMA nightmares remain key: high costs and poor roaming opportunities.
GSM has achieved significant economies of scale in terms of network equipment and handsets costs; CDMA equipment costs are yet to fall as much. Nokia cited difficulties in making good margins from shipping CDMA handsets to emerging economies as a reason for pulling out of the CDMA market. Last month, India's leading operators, Reliance and Tata, sought government approval to migrate from CDMA to GSM, citing higher prices for CDMA handsets. Similarly, Australia's Telstra has ditched its CDMA-only approach and is vigorously pursuing a W-CDMA plan. Last week, Brazil's largest mobile operator, Vivo, joined the bandwagon and announced plans to roll-out GSM before the year-end (see Brazil: 3 July 2006: Vivo to Launch GSM Services Before Festive Season in Brazil, India: 12 June 2006: Reliance Seeks to Offer GSM Service in Mumbai, Delhiand Australia: 22 August 2005: Telstra Sets 3G Debut Date, Price Plans).
Meanwhile, the lack of opportunities to offer global roaming abilities continues to discourage operators from CDMA. Perhaps Vodafone best encapsulates the point. Despite having a 45% stake in US CDMA-based mobile giant Verizon Wireless, Vodafone is constrained to sign roaming agreements with Verizon's fierce rivals, Cingular Wireless and T-Mobile, because they use GSM. Considering that the entire Western European market is completely immune to CDMA, any visitor to Europe with a CDMA subscription would be compelled to sign up to GSM.