3G: Fact or Fiction

A WirelessLedger.com Exclusive Report

Updated May 18, 2006

3G Is Coming Like a Herd of Elephants

Reading some media reports in the summer of 2002 might have caused the casual reader to conclude that the cell phone service providers around the world, after spending an astronomical sum for necessary licenses, had decided that next generation wireless 3G (g) simply wouldn't fly. Reporters filed stories during the summer of 2002 suggesting that 3G was a goner, before it had even arrived.

As has always been the case, a portion of the media thrives on sensationalism. Media outlets that breathlessly predicted 3G as the answer to almost all of the world's economic problems four years ago, then headed in the opposite and equally misguided direction. In 2005, some reversiedcourse again and have been going positive on 3G, in tune with significant gains in the share values of wireless communications firms.

The truth is, 3G (the so-called "next generation wireless") is coming. In fact it is HERE, in may parts of the world, especially Asia and Europe. It is as unstoppable as a herd of elephants.

Several years ago, 3G, loaded with "killer applications," was anticipated in Europe as the economic answer to the U.S. - dominated Internet. Observers today believe the so-called "killer applications" will not produce substantial revenue for operators (service providers) before 2008. (But that does not mean that other parts of the wireless industry will not be making profits from 3G as early as this year.)

If some service providers will not be making money on it for several years, why is 3G being built? Governments have mandated the build out of 3G systems as part of the frequency licensing terms agreed upon four or five years ago. But primarily, 3G is being built by operators because they know there will soon be a need for a major upgrade to their extremely successful 2G (g) networks. The success of cell phones has been so phenomenal that networks are running out of frequency spectrum in urban areas around the world. Even without growth from new "killer applications," normal growth in usage will require the efficiencies of 3G technology.

The 3G cell phones and other wireless devices are extremely complex because they will not only have to communicate flawlessly with each other, but also with the current 2G and 2.5G (g) devices that many subscribers will still be using for years to come. There is no question, however, that 3G technology does work. That has already been well established. But a period of beta testing is always required to work the bugs out of systems. Software refinements are inevitable, just as they were with far simpler breakthroughs like Microsoft Windows and the 2G digital cell phones of the 1990's.

The industry has known and planned for inevitable delays. The remarkable thing is not the inevitable delays necessary for working out the glitches and building consumer demand, but rather that the monumental feat that is 3G has moved as expeditiously as it has.

Because of the immense cost of copper wires strung across great distances (and the propensity for easy theft right off the poles), wired telephone service has never been economically viable in much of the less developed world. But villages in the heart of Kenya and towns snuggled in the mountains of China and South America, where people may have never previously had access to telephones or faxes or Internet connections of any kind, will be connected, invisibly, via radio waves, locally and with New York, London, Moscow, Bejing or Bogota. High-speed Internet connections will be possible in the most remote parts of the world thanks to 3G technology. The long envisioned "global village" will be a reality.

And applications like real time streaming video from one cell phone to another in the most developed parts of the world will be, for the first time, both possible and affordable.

Before 1G (g) analog (g) cell phones became commonplace in the 1980s, naysayers asked, "Why would anyone buy a mobile phone? There are plenty of pay phones throughout the country."

I suppose they spoke of the original telephones the same way. "It's easy enough to write a letter. What would we say, anyway?"

2G cell phones were greeted with great skepticism in the 1990s. "We've got good cell phones already. Why do we need those more expensive digital things?" It took awhile to realize that communication was much improved thanks to digital. And without digital, the 1G analog systems would have become hopelessly overcrowded years ago. City after city would have become frequency gridlocked.

With the ever increasing usage of 2G digital cell phones, that same frequency gridlock problem will also occur without the extraordinary efficiencies of 3G. As is always the case, more and more users will arrive, some not envisioned at all today, to tap into the capabilities of data rich 3G. We don't know what the "killer applications" of 2010 will be. They will likely vary from region to region. We do know that access to the Internet is becoming an essential part of day-to-day existence for more and more people. And just as we got fed up with tethered remote controls for our televisions and VCRs in the 1960's, so we will demand that we have wireless high-speed access available for Internet connections and other purposes

When Will 3G Become a Reality?

  LG's CU320 and Samsung's ZX10 

So, when will 3G become a reality? Read on!

QUALCOMM (QCOM) has already been successfully rolling out its narrowband (g) version of 3G, CDMA2000 (g). And it has been well received. CDMA 2000 is an easy evolutionary step from its 2G version, cdmaOne (g). This evolution is relatively inexpensive and trouble-free.

However, over 80% percent of the cell phones worldwide, are not QUALCOMM’s narrowband cdmaOne (g), but rather the family of TDMA (g) based technologies called GSM (g), TDMA (g), PHS (g) and GPRS (g).

The evolutionary path for these market leading 2G devices leads to 3G WCDMA (g) (which in Europe is called UMTS (g)) and a variation of WCDMA which the Chinese government favors for that country, TD-SCDMA (g). The evolutionary path to WCDMA (and TD-SCDMA (g)) is clear, but this move from 2G to 3G will be complex and expensive (but much less expensive than a path from GSM to QUALCOMM’s CDMA 2000 would be. In spite of cost and complexity, however, it will happen because it is by far the most efficient progression.

The European Community believes that the 3G UMTS (g) (WCDMA) is a superior technology to the narrowband 3G technology CDMA 2000 championed by QUALCOMM. Europeans claim that 3G means high data capability and that wideband beats narrowband when the snazzy, very demanding applications are here. Investors should note that the WCDMA standard includes within it two complementary wireless technologies, FDD (g) (frequency division duplexing), and TDD (g) (time division duplexing). WCDMA with FDD will be introduced first. But as the demand for moving massive amounts of data grows and that data moves mostly in one direction (e.g. a connection to the Internet), then HSDPA and TDD (g) will be added to WCDMA. HSDPA in 2006-2007 and TDD probably later this decade. Each will enable substantial additional capability. Spectrum has already been allocated for TDD in most parts of the world and international standards for TDD are almost completed.

The Chinese claim that their "home grown" version of 3G, TD-SCDMA (g), is even more efficient than WCDMA because of its even stronger reliance on TDD (g) technology, known for its ability to move massive amounts of data efficiently. Although the Chinese claim TD-SCDMA, it relies heavily on patented technology developed by the German firm Siemens (NYSE:SI) and the American firm InterDigital Communications Corp. (NASDAQ:IDCC). Siemens and InterDigital partnered in the development of a predecessor technology BCDMA (g) in the 1990’s. (As a new member of the World Trade Organization, the Chinese are expected to pay substantial royalties to both Siemens and InterDigital. Siemens has said that TD-SCDMA does not require the use of QUALCOMM’s patented technology. Whether or not that is a bargaining ploy remains to be seen.) Qualcomm firmly insists that its patented technology is essential to TDSCDMA, just as it is to UMTS-WCDMA.  See the WirelessLedger.com exclusive report on the investment potential for InterDigital, WirelessLedger's FOCUS STOCK for 2006.

In Europe alone, operators will spend $300 billion for 3G, counting licensing frequencies, building infrastructure and marketing. They have to spend the money or they will be overrun by competing service providers who do upgrade to 3G.

The communications industry realizes that what has been an immensely profitable wireless revolution will suffocate without the added capacity and efficiency of 3G.

3G infrastructure (g) is being rapidly deployed, beginning in Asia, where 2G systems are almost near grid lock because of the number of wireless subscribers, Asia requires 3G technology now simply to keep mobile communications functioning.

Widespread 3G service have been spreading from Asia to Europe since 2004. Business Week reported in 2002 that in Spain, Telefonica Moviles as had already installed 750 Ericsson 3G base stations in 24 urban areas in preparation for an initiation of service in 2003. Test networks, Commercial 3G service was successfully launched in 2005 in Britain, Finland and Italy.

The U.S. and other countries of the world lag behind Asia and Europe because there have been competing 2G standards and slow-moving government and regulatory agencies. But the United States will see widespread 3G service beginning in 2006-227. In fact QUALCOMM's CDMA technology, which is theoretically 3G, even if some considerate it to be 2.5G, emerged strongly in 2004.

What might delay 3G? 2.5G GPRS (g) provides some elements of 3G service at less cost to operators and consumers. Some operators (service providers) may milk it for all its worth.

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