In Reply To:
Hutch Finally Launches 3G!?

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By BRational
March 5, 2003

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Give Hutchison a break! It is cute to release a 3G service called 3 (THREE) on 03/03/03! So what if you have to wait three weeks to three months before handsets become available?

Seriously, two years of bragging "I told you so" is more than enough. Dr. J. and his team must feel totally vindicated for seeing the success of the CDMA 1X upgrades to date, in contrast with the delays and embarrassment of UMTS WCDMA. But for the shareholders to receive their anticipated return for the technological prowess, we need WCDMA, and we need it sooner rather than later.

Dr. J. fully recognizes this, as do Schrock and Thornley and Keitel, etc.. In every presentation over the past year, and increasingly at Cannes' GSM show-and-tell, they've been screaming loud and clear that Qualcomm has the chips needed to populate the UMTS networks with handsets. Even if Hutch's 3 had been "successful" on day one, they would still need a full year before the service is properly fine tuned and the kinks in the network and handset software fully worked out, especially as the number of calls in the system increases. That's another year of maturing EV-DO deployment and usage ahead of significant UMTS pick-up.

But we need WCDMA. As Rex and others have repeatedly pointed out, the growth on the CDMA 1X side is limited. It is still robust for the coming year, with the developing markets picking up momentum, but that growth rate does not have much more than a couple of years before it maxes out. The WCDMA stream needs to start kicking in, and contributing to the bottom line. Recall that over 90% of every royalty dollar goes directly to the bottom line. And a small fraction of the chipset market for WCDMA would rapidly equal and overtake QCT's current chipset revenues�now converting to profit at near 35%.

A WCDMA handset sold does not mean any fewer CDMA 1X handsets sold. The areas of direct competition are few, and 1X already has a head start�if only in services. But every WCDMA handset sold is an EDGE handset not sold. With carriers under so much pressure to cut costs, staying on the EDGE seems like an increasingly attractive option: it is "almost" 3G, costs less, and can be justified as transition to build demand for 3G services before taking the big plunge. Let's face it: European carriers will not do GSM1X, nor will they convert all to CDMA. They will stay with EDGE if they must; it is both cheaper and less embarrassing than doing 1X.

Qualcomm WCDMA chipsets also mean that BREW might have a chance at getting out of its niche status. It means Q-chat and the opportunity to reach the world at large. There was a time when successful deployment of WCDMA might have stunted the growth of CDMA1X. However, this is not longer the case; CDMA 1X has come through with flying colors.

We have reached the point where the news of yet another operator delaying 3G WCDMA simply means that Qualcomm's revenue stream has been pushed back further into the future, and, more seriously, that the risk of not seeing this stream at all has increased.

It's time to stop snickering and to start looking at the bottom line.


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