The Real Winner of the 4G Hype Cycle

If you're an avid follower of technology, you can't open up another story these days without seeing some reference of next-generation data networks. Right now it's anything "4G" that has that "new technology smell" that people can't get enough of:

  • Verizon (NYSE: VZ  ) has made a lot of noise about its roll-out of next-generation LTE networks in 38 cities by the end of the year.
  • Sprint (NYSE: S  ) actively uses its WiMAX network as a selling point, touting "The Nation's First 4G Network" across its advertising.
  • AT&T (NYSE: T  ) is also furiously working to get its LTE network off the ground, though it's not expected to launch service until the middle of next year.

And it's not just the big boys of wireless who have caught the excitement. CenturyLink (NYSE: CTL  ) has actively promoted its assistance in building out Verizon's LTE network in Las Vegas. MetroPCS has touted launching the nation's first LTE service despite only having initial service in one city and only one clunky phone from Samsung that can connect to LTE.

The excitement isn't limited just to wireless carriers either. Chipmakers are getting the LTE bug as well. Broadcom (Nasdaq: BRCM  ) shelled out $316 million this week to purchase a WiMAX and LTE specialist "to accelerate the market availability" of offering 4G chipsets. Skyworks (Nasdaq: SWKS  ) scored wins in LTE devices from Samsung and has rolled out several components aimed at placing it at the front of its class in 4G.

However, all of this excitement around 4G technologies obscures a broadening trend: Carriers are still investing heavily in the older 3G technologies that power data networks today. Quietly, the carriers have all been making incremental investments in their 3G technologies to either speed them up or add new capabilities. Consider some of the recent moves carriers have made with their existing 3G networks:

  • T-Mobile has upgraded its 3G network so much that it now promotes it as having 4G speeds.
  • Verizon recently announced it was upgrading its network to allow simultaneous use of data and voice. The inability of Verizon's network to handle voice and data had long been a selling point for AT&T, but with the iPhone likely coming to its network, Verizon is investing in an upgrade to solve the issue once and for all.
  • AT&T continues to roll out "HSPA 7.2" updates across the country. The company hopes the upgrade, which promises to double download speeds, will help solve some of the network bottlenecks AT&T has seen recently.

The important point in all these cases is that carriers are making a significant investment in existing technologies. If they didn't plan on continuing 3G as part of their data networks for a long time, these investments wouldn't make sense. That presents a fantastic opportunity for one company in particular: Qualcomm (Nasdaq: QCOM  ) . While Qualcomm owns a strong portfolio of patents in LTE that will continue bringing in large royalty checks, the company's grip on 3G patents is stronger. The longer 3G remains in the game as a complement to faster 4G technologies, the stronger Qualcomm's ability to continue generating high royalty cash flows.

It's not that LTE isn't the future -- it is -- it's just that hype around the new technology is getting ahead of the ability to roll out the technology and create phones that really effectively use this network. In the middle of all the 4G noise, it might be 3G stalwart Qualcomm that's been benefiting the most from recent events.

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Eric Bleeker owns shares of no companies listed above. Sprint Nextel is a Motley Fool Inside Value pick. The Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

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  • Report this Comment On October 15, 2010, at 8:01 PM, conradsands wrote:

    From ABC News …

    Verizon Wireless to Pay Back Customers for Accidental Data Fees

    More than a year ago, Teresa Dixon Murray says she started to feel something wasn't right about her family's Verizon Wireless cell phone bill.

    "I was getting $1.99 charges on usually two out of my three accounts," said Murray, a reporter with the Cleveland Plain Dealer and the mother of two teenagers with cell phones.

    She said that her family was being charged for Internet use but no one was using the Internet. The mystery charge even appeared, she said, when one of her sons' phones was locked away after he'd lost phone privileges.

    "I knew absolutely, positively for sure. No accidents. No excuses, that this was wrong," she said. "And I was absolutely livid.”

    After months of complaining to Verizon, Murray wrote a newspaper column. After that, she got the company's red carpet treatment and her money back. Her situation was settled -- but thousands wrote to her saying that they'd had the same problem.

    Now thanks to a Federal Communications Commission investigation into Verizon Wireless, some of those customers could see credits of $2 to $6 on their October or November bills.

    Last year, the FCC questioned Verizon Wireless about a $1.99-a-megabyte data access fee that had appeared on the bills of customers who didn't have data plans but who had accidentally initiated data or Web access by pressing a button on their phones.

    Verizon Wireless said that it had stopped charging such fees when a customer started using a data service and then shut it off quickly. It blamed the continued overcharging on a software glitch and has agreed to pay up to $90 million in refunds to affected consumers.

    The FCC said Sunday that it had been examining the charges after consumers' complaints.

    "We're gratified to see Verizon agree to finally repay its customers," FCC Enforcement Bureau Chief Michele Ellison said in a statement.

    "The carriers have 50 [million], 60 [million] or 90 million customers and they charge everybody every month a few extra bucks," said Ed Finegold, Validas' chief analytics officer. "That adds up to billions in profits for them, so they have every incentive in the world to do it."

  • Report this Comment On October 15, 2010, at 8:01 PM, conradsands wrote:

    In a poll that asked 4,040 smartphone users in March how many dropped calls they had experienced in the past three months, AT&T — the exclusive U.S. carrier of Apple's iPhone and iPad mobile devices — came in dead last among the country's four largest carriers.

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