3G Too Slow? Try Verizon's New Network!

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It feels like we're just getting used to 3G speeds on our mobile networks. Apple's (Nasdaq: AAPL  ) 3G iPhone is only a few months old, and the high-speed networks it navigates not much older than that. But Verizon (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) joint venture Verizon Wireless already thinks that 3G is too slow; it plans to launch 4G service next year.

That's great news for Verizon's subscribers and high-speed 'net addicts, of course. But it's even better for shareholders of LM Ericsson (Nasdaq: ERIC  ) and Alcatel-Lucent (NYSE: ALU  ) , who got the nod to build that tasty new network in a very big deal.

The nitty-gritty
Verizon CTO Dick Lynch told Swedish tech magazine Ny Teknik that Ericsson and Alcatel beat out competitors like Nortel Networks (NYSE: NT  ) and Nokia Siemens with better pricing, readiness to get into gear quickly, and the ability to integrate with Verizon's existing networks.

Helena Nordman-Knutson, an analyst at Swedish investment firm Ohman, estimates that Alcatel and Ericsson will each get about $570 million in Verizon orders this year. Verizon's aggressive deployment schedule points to another $2 billion to split between the two vendors in 2010.

Too bad for Nortel; that hardware vendor is fighting to stay alive, and it could have used this order. Both Ericsson and Alcatel booked revenue north of $20 billion last year, so this is less of a lifeline for them.

Nonetheless, it's still magnificent news. 4G technology is an entirely new revenue stream for every hardware vendor, and it's important to get a leg up on the competition with a few high-profile deals early in the game. This gig for Verizon certainly qualifies.

But wait -- there's more!
A wireless network is much more than the sum of its base stations, which is all that Nordman-Knutson based its revenue figures on. Core networks and supporting infrastructure need upgrades, too, which could double the size of the order. Verizon expects to simply spend less on 3G and more on 4G to finance this sea change, so its capital expense budget won't change too much.

Then there's the domino effect. Show off your mad 4G skills in Verizon's new network, and AT&T (NYSE: T  ) should drop by next for a cup of tea and a big contract. There's big money at stake here.

It's a brave new world -- and a fast one, too. Ericsson will remain the worldwide leader in wireless infrastructure, and Alcatel just cemented its third-place position behind Nokia Siemens.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors. 

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  • Report this Comment On February 19, 2009, at 1:51 AM, fooledbigtime wrote:

    If you think 3G is slow, Verizon is not the place to go, unless slower is your aim. It took their techs seven months to 1 figure out that my Blackberry wasn't working properly, and, 2 how to get me a replacement--which was also broken. 110 hours later, still paying $58.00 for service on a broken phone. How much slower can 3G be then a year and a half without service I HAVE TO pay for?

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