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Sprint, Verizon Outpace Cingular With Mobile Data Bet (Update1)

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Nov. 23 (Bloomberg) -- Usama Houlila pesters Sprint Corp. every week to begin its faster wireless-data service for the 1,000 attorneys of Chicago law firm McDermott, Will & Emery, where he is a technology manager.

Sprint, the third-largest U.S. mobile carrier, is winning a $1 billion bet that impatient customers such as Houlila will pay for speedier data service. So is Verizon Wireless, the No. 2 carrier. Together, they'll spend $2 billion by 2006 to build high- speed mobile networks for data, the fastest-growing part of the $100 billion U.S. cellular market.

``In every meeting, we bring it up,'' says Houlila, 36. McDermott's lawyers next year will be able to download 30-page files by laptops from outside the office in less than two minutes using Sprint's new technology -- 10 times faster than now.

Sprint and Verizon Wireless are now at least a year ahead of competitors -- including Cingular Wireless LLC, the largest carrier -- in developing so-called third generation or 3G mobile networks, says Mark Hesse-Withbroe, who helps choose $125 billion of investments at U.S. Bancorp Asset Management in Minneapolis.

``Having that head start will certainly give them a better opportunity to make these investments profitable,'' says Hesse- Withbroe, 34. U.S. Bancorp's holdings as of the end of September included 6.6 million shares of Verizon Communications Inc., parent of Bedminster, New Jersey-based Verizon Wireless, and 728,000 shares of Overland Park, Kansas-based Sprint.

Cingular Cuts Jobs

Atlanta-based Cingular inherited a high-speed network in six markets from its Oct. 27 acquisition of AT&T Wireless Services Inc. It moved today to create cost savings from the $41 billion purchase, saying it will cut 7,000 jobs, or about 10 percent of its workforce. The reductions will begin after this year, spokesman Mark Siegel said in an interview.

Sometime next year, Cingular will begin adding to the markets it received in the AT&T Wireless acquisition to build a national network, says spokesman Clay Owen.

``We'll have that built out in a time that's competitive with the other major players in the U.S.,'' says Owen, declining to be more specific. Cingular hasn't said when it will complete the upgrade.

The 3G networks will help turn mobile phones and laptops equipped with wireless cards into devices with quick Internet access. Users will be able to transmit documents, music files, photos and video clips almost as quickly as they can now with cable modems and high-speed phone lines.

$32 Billion Market

That will bring a 10-fold increase in the U.S. data market, to $32 billion by the end of 2008, according to the research company TeleCompetition Inc. of San Ramon, California. Meanwhile, with almost two-thirds of the U.S. population now using mobile phones, overall growth in wireless subscribers is slowing, according to the Cellular Telecommunications & Internet Association, a wireless trade group.

``The opportunity for non-voice services absolutely dwarfs the revenue opportunity that we've seen so far in the mobile voice market,'' says Albert Lin, a telecom analyst at American Technology Research in San Francisco. ``These new services are what's going to keep the revenue for these companies growing,'' says Lin, 37. He has a ``buy'' rating on Verizon Communications shares and doesn't own any.

``For the first time in almost a decade, we see a significant difference that will be material to the fortunes of the various carriers,'' says Lin.

Push-to-Talk

The last comparable event was in 1996, Lin says, when Nextel Communications Inc. began selling its nationwide ``push-to-talk'' service, which enables callers to use the phone as a walkie- talkie. That has given Reston, Virginia-based Nextel average monthly customer revenue of $69, the highest in the industry.

Push-to-talk helped propel Nextel's shares to a fourfold gain in less than eight years, to $28.42 from $6.53 on Dec. 31, 1996. The Standard and Poor's 500 Telecommunication Services Index fell 5.9 percent over the same period.

Nextel, the fifth-largest carrier, has said it expects to have a next-generation network in place by early 2007.

Executives of both Sprint and Verizon Wireless say they expect to complete their national 3G networks by early 2006.

At Verizon Wireless, mobile data sales will more than double to $1 billion this year from $400 million in 2003, says John Stratton, 43, chief marketing officer. The company hopes to triple the proportion of revenue from data by 2010, to 15 percent from 4.7 percent in this year's third quarter, says Chief Executive Dennis Strigl, 58.

The shares of the company's two owners have risen this year. Stock of New York-based Verizon Communications has soared 17 percent, to $40.99. Vodafone Group Plc of the U.K. has increased 4.3 percent to 144.50 pence in London.

Wireless Sales Double

At Sprint, wireless-data sales more than doubled to $255 million in the third quarter from a year earlier, accounting for 6.8 percent of total mobile-phone revenue. The company hasn't provided a full-year data forecast. The average amount that Sprint's customers spend on data each month could double by 2008 to $10, says President Len Lauer, 47.

Sprint stock has risen 17 percent, to $22.51 from $19.27 on April 23, when the company combined two separate classes of shares tracking its wireless and wire-line units.

Bellevue, Washington-based T-Mobile USA, the fourth-largest carrier, hasn't announced a timetable or said which technology it will use. The company has the largest wireless fidelity, or Wi-Fi, network in the U.S., says spokesman Bryan Zidar. Wi-Fi is an alternative to 3G technology. T-Mobile is owned by Bonn-based Deutsche Telekom AG, whose shares have risen 10 percent this year in Frankfurt to 16 euros.

`Awful Lot of Lifting'

Cingular will face challenges building a 3G network as it completes the AT&T Wireless merger, says U.S. Bancorp's Hesse- Withbroe.

``It's not that Cingular can't get there,'' he says. ``That's just an awful lot of lifting.''

That's one reason Hesse-Withbroe says he has been cautious about the shares of Cingular's parent companies, which have declined this year. SBC Communications Inc. shares have fallen 2.1 percent to $25.52 while BellSouth Corp. stock has dropped 3.3 percent to $27.36.

Cingular will be too busy with the merger to build a national 3G network before 2007, says Philip Marshall, the director of wireless-technology research at the Yankee Group, a Boston-based research and consulting firm.

Demand for 3G services is growing because company information officers are no longer satisfied with the speed of today's mobile data, says Stratton, Verizon Wireless's marketing chief.

`Hunger for Wireless'

``You've got a lot of people out there who have now got a bit of hunger for wireless connectivity on a broadband basis but have been frustrated by the limited availability,'' says Stratton.

Verizon Wireless and Sprint have staked their fortunes on a 3G technology different from the one adopted by most carriers worldwide, including Cingular. It is known as Evolution Data Optimized, or EVDO. Their standard allows average data speeds as fast as 500 kilobits per second.

That compares with 384 kilobits for Cingular's Universal Mobile Telecommunications System, or UMTS, the 3G technology for roughly 70 percent of phones globally that now operate on the wireless standard known as Global System for Mobile Communications, or GSM.

To be sure, profits from big investments in 3G have so far been elusive. European phone companies including Vodafone, the world's biggest wireless operator, Deutsche Telekom and Milan- based Telecom Italia Mobile SpA, Italy's largest mobile phone company, raised debt and spent about $100 billion in 2000 on licenses for fast-data services.

Wi-Fi and WiMax

When the Internet bubble burst, the burden of debt forced companies to sell units and write off the cost of the licenses.

The European carriers are only now beginning to offer 3G services. Newbury, England-based Vodafone introduced its version on Nov. 10 in 12 European countries and Japan.

Asia is a different story. In the past 18 months, 8.5 million South Koreans have signed up for 3G services including video-news clips from carriers such as SK Telecom Co., the country's biggest mobile operator. It uses the same EVDO technology as Verizon Wireless and Sprint. High-speed services have also begun to take hold in Japan, which has 1 million users, according to a Nov. 16 report from Credit Suisse First Boston analysts.

Even if U.S. demand for 3G services continues to build, Sprint and Verizon Wireless run the risk that their new wireless networks will be eclipsed by other technologies. One contender is WiMax, which makes high-speed Internet access available as far as 30 miles from base stations. Another is Wi-Fi, a short-range version of WiMax that has proliferated at coffee shops, libraries and shopping malls where access is provided at an hourly rate or at no charge.

`Mass-Market Acceptance'

Sprint and Verizon Wireless have Wi-Fi services and say they are studying WiMax. Their investments in those technologies are dwarfed by their spending on 3G networks. If the other technologies win out, the two companies could be forced to write off millions of dollars in the 3G investments.

Verizon Wireless has signed up 75,000 customers for high- speed data in 16 cities and plans to make it available to almost two-thirds of the U.S. by the end of 2005.

Sprint will begin testing its network in two Midwest markets before the end of the year and plans to have service in most U.S. cities by the end of 2005, spokesman Scott Stoffel says.

Sprint and Verizon Wireless are initially aiming to win corporate customers, whose employees will use laptops with wireless cards to tap into corporate computers while traveling or working outside the office.

Use of mobile-phone handsets by consumers, professionals and companies will eventually account for 90 percent of 3G sales, says Lauer, Sprint's president. Basic monthly service fees per device will range from about $15 for consumers to $80 for corporate users, he says.

The upgrade to 3G will enable doctors to view X-rays on palm- size mobile screens and allow consumers to shoot and e-mail full- motion videos with their phones, says Lauer, citing two examples.

``You've got to get the mass-market acceptance along with the business acceptance for it to pay,'' says Lauer.



To contact the reporter on this story:
Dana Cimilluca in New York at [e-mail].

To contact the editor responsible for this story:
Emma Moody at [e-mail].
Last Updated: November 23, 2004 16:00 EST