Wireless service providers are counting on high-speed 3G technologies to pay for expensive spectrum licenses and to entice new customers. NTT DoCoMo and Nextel shed some light on that move this week as the companies look to reduce strain on their networks. But the handset makers also stand to benefit because new services will demand new devices to run them.
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Yesterday, a Japanese newspaper reported that NTT DoCoMo (OTC: NTDMY), Japan's #1 wireless company, was busting at the seams with subscribers to its i-mode wireless data service -- so much so, in fact, that NTT will start selling a new dual-band cell phone in 2002 in order to handle the traffic. (Dual-band phones use different radio frequencies, while dual-mode phones use different wireless standards like CDMA, TDMA, or GSM.) That's the kind of news mobile phone makers like Nokia (NYSE: NOK), Motorola (NYSE: MOT), and Ericsson (Nasdaq: ERICY) want to hear. Why? Because they'll be building the phones and equipment required to run the new services. Apparently, Japan's 23.4 million i-mode users -- including throngs of teens who use it to send short text messages back and forth -- have pushed the system to the limit. In response, the new phone will switch, when needed, from 1.5 gigahertz to 800 megahertz radio frequency bands, providing more bandwidth to users. The article did not say which handset company will provide the dual-band handsets, but this is a perfect example of the "upgrade" cycle the wireless community is talking about when it mentions third-generation (3G) networks. (For an in-depth look at the 3G future, read our May Dueling Fools feature on the subject.) We've heard a lot about upgrading network infrastructure, but little about the new handset technology that might go with it. Global handset makers are banking on 3G to foster steady growth for the next several years. But without new, i-mode-like services to entice new customers and create new revenue streams for service providers, the highly anticipated 3G rollout could fall flatter than Geraldo's opening of Al Capone's vault. New services require new equipment, and so NTT DoCoMo's news may be just the beginning of upgrade announcements. Nextel Communications (Nasdaq: NXTL), meanwhile, is apparently also considering a big step as it upgrades its wireless network for 3G. Bloomberg reported that Nextel is testing a CDMA network that can carry more phone calls than its current system. According to management, no decisions have been made, but Nextel is asking suppliers for cost and quality estimates on new equipment. On top of that, Nextel wants the equipment to work in CDMA or iDEN -- the proprietary standard it currently uses -- which presumably will require new handsets and new infrastructure. This could be bad news for Motorola (NYSE: MOT), currently the sole provider of Nextel phones, but a positive for other phone makers. News like this lends credibility to the ramblings of wireless visionaries like Qualcomm's (Nasdaq: QCOM) Irwin Jacobs, who recognized CDMA's technological advantages: It is arguably the most efficient method of wireless data transfer. Sprint (NYSE: FON) and Sprint PCS (NYSE: PCS) management also deserve credit for building a network based on CDMA with high-speed wireless in mind. But investors would do well to pay close attention to the handset makers during the transition, as the opportunity arises to capitalize on the need for new equipment that can handle the cutting-edge services 3G will enable. Todd Lebor does not own shares in any of the companies mentioned above, but prays for wireless service as reliable as AT&T long distance. Todd's holdings can be found online, as can the Fool's complete disclosure policy.
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