1. The network builders need it; with 2G systems essentially built out in most of the world, Nokia, Ericsson, Siemens, and Nortel need a major new infrastructure to build. We've already seen horrible carnage in the revenues and profits of the Ericssons of the world; it was fine was Ericsson was losing out to Nokia, but now the latter is seeing that the infrastructure game can be a big risky drag in a hypercompetitive environment. Without UMTS networks to roll out, there is only so much business in expanding and boosting the capacity of GSM networks before those become saturated; many have already added GPRS overlays (and those who haven't should know better not to do so by now). Of course, on the CDMA side, virtually all operators have either launched or are hard at work upgrading to 1X; it's the other, and much larger camp, that needs 3G. Become a Complete Fool
2. The operators need it to boost revenues, under pressure as fierce competition erodes voice ARPU (average revenue per user) all the while voice usage is increasing and filling up capacity.
3. The Government regulators need to see it happen; in Europe to avoid the fury of the operators for the exorbitant licensing fees extorted through the 3G spectrum auctions, and in other countries to justify the expected revenues from an auction or other licensing deals.
4. But what about the users?? Do customers really want it? This has been the subject of debate on this and other boards, in the financial press and popular media, and now university studies are weighing with seemingly educated pontifications. I have discussed this topic ad nauseum on this board, and if I go back to it yet again it is to add a few more thoughts, largely based on the recent experience with KDDI's 1X in Japan and the Korean operators. I think there are some very important lessons for operators around the world to learn and try to emulate as they depressingly watch the lack of progress in their own data services. What are these?
5. We have argued about the "if they build it they will come" syndrome several times here, and about the real "need" for 3G services. What is 3G? From a network technologist's standpoint, it is the ability to transmit data at "high" rates. From an operator's standpoint, the conventional perspective has been to view 3G as the ability to sell access to such a network� the same way cable companies have been selling broadband access to the Internet, or local phone companies have been selling DSL. From this perspective, the operators are correct to wonder whether such demand will materialize. Why will customers want to buy such access from the operators? To access what?
6. Content, of course, is the new element in the 3G equation. It's the killer app, the must-have service that we've all been debating. While I have generally advocated a position that untethered "anytime anywhere" access to the virtual world is in the sense of technological history to the same degree that we have adopted PC's, the Internet, and wireless voice, I still think that many operators and network vendors have yet to understand the consumer side of 3G adoption. Amazingly, Qualcomm seems to be one of the very few companies in the world that has. I used to think that Nokia is in prime position to get the customer right, while Qualcomm was the technology master. It has become increasingly apparent that Qualcomm has got the customer and the business side of wireless data figured out to a greater degree than most anybody else.
7. Let's start with a very basic notion, and get it out of the way: nobody (as in the consumer mass market) needs wireless high speed data, just as nobody really needed internet access, or PC's, or wireless phones for voice access (just ask Lok). We also do not need e-mail. By this luddite logic, we could have also continued to live in caves. Yet humanity has invented and adopted technologies over the ages, to save lives, time, produce more, increase convenience, pleasure, etc... I realize this is very basic, but is intended to lay to rest the usual "who needs it" argument. Wireless data, enabled by high speed wireless transmission, will enable greater convenience, and allow delivery of many services, such as location-based services for safety and way-finding, entertainment, and images in addition to sound, among many others, only a small fraction of which do we even an idea about.
8. What is it that Qualcomm, and its core alliance of CDMA operators and equipment suppliers, have figured out?
a. One system, same handset (or "subscriber unit"): where 1X has been deployed, there is no longer a 2G system alongside the 1X network. There is one upgraded network, on which the old phones still work, but all new phones are designed to take advantage of the enhanced 1X capabilities. Why does KDDI have 1 Million 1X subscribers and DoCoMo only 100,000 FOMA (w-cdma) subscribers with more than six months lead-time over KDDI? Virtually every new KDDI subscriber is a 1X subscriber�that is all what is offered now; it is not a separate or explicit choice. With FOMA, the user still needs to carry a handset for most voice usage, and even for regular i-mode access (arguably the most successful wireless data service on offer anywhere in the world). FOMA units are more expensive, apparently still bulky, and have simply failed to delight consumers�who already had high expectations since they needed to be better educated technologically to even know about the service and demand it. With 1X, in Korea, Japan and when deployed by Sprint in the US and fully deployed by Verizon, the only handsets being introduced are 1X handsets�at essentially the same prices as the older models. What are customers are buying them, if they are not aware of the 1X branding and/or capabilities? They are simply better phones, with a greater array of features�they're sleek-looking, most now color-screens, polyphonic sounds etc...and there is a new marketing buzz created by the enhanced network. This is boosting and accelerating the replacement cycle, yet without creating difficult choices (between phones with or without 1X capability). This has not happened even with GPRS, where most handsets being sold in GSM markets are still not GPRS-enabled, and where customers have to ask for GPRS phones and pay a premium for them (and for the longest time there were no GPRS-equipped Nokia phones in the mass market).
b. Give it to them, "for free", and build usage ("the addiction"). Sprint has been quite successful at this: adoption of their wireless web was promoted through free access on web-enabled phones. With most handsets web-enabled, and free trial periods for access, one eventually tries it, and possibly likes it. Same with ringtone downloads; I would have never rationally paid for that, yet when given the opportunity to try, I did (and have adopted...). This is why we know that not all 1X subscribers are actually using data services; many probably don't even know those exist. Same with location services�apparently a big success with KDDI customers; while initially not something one would pay a premium for, soon word of mouth and satisfied users promote wider demand for the service, which in turn brings more customers to KDDI and its new handsets.
c. Consumers couldn't care less about high speed wireless data�for its own sake. With many handset-based services to date consisting of limited data content, the high speed transmission has not seemed like a particularly important capability. We don't have users and corporate bosses going around and pressuring the network operators to provide high speed wireless services (yet Wi-Fi networks are sprouting everywhere for local-area untethered access�building the desire and "need" for wide high speed access). It will be several years before any mass awareness of high speed wireless data transmission develops. What users care about is functionality, of course. CDMA non-advocates (sounds less antagonistic than opponents...) have argued, correctly, that users will not differentiate between GSM or CDMA (or TDMA or iDEN), W-CDMA or 1X or EDGE. One could also (correctly) argue that the new 1X subscribers are not aware that what they're buying is 1X. And this, in my opinion, is the ultimate success: when the users are not aware of the technology, but are happily using the functionality. This is about the only way for 3G to succeed: not with big fanfare but through progressive adoption of the services and functionality. What Qualcomm has figured out, that the competition has not, is a way to have handset replacement drive service adoption, rather than the other way around! Waiting for users to discover exciting services, be convinced that they need high speed transmission for them, and then buy a new expensive handset to have those services seems like a very slow way to drive adoption. Unfortunately, this is what Nokia appears to have staked its strategy on: wait for the services, and then provide the handsets (while still fine-tuning the network technology for UMTS...).
d. To create the demand for "high speed" data, one needs services. Rather than simple text transmission, which can be reasonably well handled at existing slow 2G rates, such services involve sound and image. The Korean and now Japanese experience in this regard has been extremely encouraging�to the extent where data-optimized service, the EV-DO rates offered in Korea, are attracting subscribers specifically because of the high data rates and the services they can support. However, these users had to be initially "trained" on the 1X network. This is where Qualcomm has shown superb understanding of both the consumer and the industry; simply stated, it's about BREW. We've had many discussions about BREW. We are now seeing though the initial signs of success of this brilliant business model that supports a community of independent developers serving customers through access provided the network operators. This addresses several thorny issues in one elegantly brilliant solution: (1) operators are not media companies, and have no experience nor expertise devising content; (2) creative content and applications require a large community of free-lancing entrepreneurial companies and individuals; (3) technically, the need for a standard platform for delivery of applications; and (4) a business model for charging, billing, and revenue sharing among all members of the value creation chain.
9. Can we generalize? To avoid turning moribund, the non-CDMA camp needs to accelerate its deployment of high speed data services. If there is a lesson to be learned from the 1X deployments, it is to go launch UMTS directly with multimode handsets, and only multimode handsets. To emulate the success of 1X, all new handsets (in the GSM/UMTS community) should work on both GSM and W-CDMA networks. If operators are going to wait for sufficient independent and specific demand to build for UMTS alone, or if huge premiums will be charged for handsets in the same market, then Europeans and the bulk of consumers in most markets will just balk and take a wait and see attitude. The likes of Nokia have already built considerable fashion-consciousness and gadgeteering associated with mobile phones. The logical way to capitalize on that would be for all new high-end phones to be 3G capable; so that those who simply want the cool phone to talk will also have the data capabilities. There would always be room at the bottom for the lower-end voice-only, no-color handsets, but those should be the older designs (just like the current Nokia models given away for free by most operators all over the world). With Vodafone undoubtedly watching its own CDMA Verizon's experience with 1X, and its KDDI competitor in Japan, one would expect them to heed the lesson and launch with UMTS-capable handsets only in their European markets. This might help explain their interest in multimode chips and close working relationship with Qualcomm.
The above would be quite promising for Qualcomm. Rather than projecting a slow adoption process for W-CDMA, the same replacement boost created by 1X would be expected, and the royalties from that side would be forthcoming at a much higher rate than factored in analyst projections (and market value). In addition, the need for multimode chips would increase the potential pool of chipset customers.
Of course, until UMTS/W-CDMA earns the trust of its potential operator-customers, and even its vendors, there still remains a window for operators to go with the tried and true model of 1X success. In this regard, it is interesting to note Samsung's recent push for GSM 1X in Asia. With the kind of financial pressure facing operators, going the 1X way would not only be less expensive, it would also be less risky.
Oh yes... I almost forgot. The stock price, the disgusting market, the bears, the hedgers, shorts....If they keep selling, then there must be someone still buying. And if they're selling what they don't have, eventually they'll have to buy it back.
BRational (still waiting for Luv's phone number...)
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1. The network builders need it; with 2G systems essentially built out in most of the world, Nokia, Ericsson, Siemens, and Nortel need a major new infrastructure to build. We've already seen horrible carnage in the revenues and profits of the Ericssons of the world; it was fine was Ericsson was losing out to Nokia, but now the latter is seeing that the infrastructure game can be a big risky drag in a hypercompetitive environment. Without UMTS networks to roll out, there is only so much business in expanding and boosting the capacity of GSM networks before those become saturated; many have already added GPRS overlays (and those who haven't should know better not to do so by now). Of course, on the CDMA side, virtually all operators have either launched or are hard at work upgrading to 1X; it's the other, and much larger camp, that needs 3G.
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