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Cingular's High-Risk Bet on High-Speed Data
By Matthew Maier, December 07, 2004

http://www.business2.com/b2/web/articles/0,17863,927522,00.html

Trying to surf the Web with most cell phones available to Americans is reminiscent of the early days of dial-up Internet service, a decade and a half ago. Until cell-phone users get speeds at least as fast as the cable or DSL connections used in homes, the phone companies can't roll out moneymaking but bandwidth-hungry data services such as digital television broadcast to handsets, online multiplayer games, and wireless broadband service for corporate road warriors. Whoever gets it right will have a tremendous market advantage.

Last week the new and improved Cingular said it will be one of those companies. It detailed plans to bring its 46 million customers screaming into the 21st century with high-speed data services. In so doing, Cingular, now the nation's largest wireless operator, set up a showdown with the recently unseated champion, Verizon Wireless. Each of these companies has bet on a different wireless technology.


Cingular is staking its future on a technology called high-speed downlink packet access. Essentially an upgrade to an existing cellular data technology known as UMTS, HSDPA will give Cingular's third-generation (3G) phone customers data speeds of several hundred kilobits per second -- which makes it about as fast as cable or DSL. Verizon Wireless -- arguably the best-run carrier in North America -- has already rolled out its 3G service, BroadbandAccess, in 16 cities, including San Diego and Washington. Based on a rival technology developed by Qualcomm (QCOM) called CDMA 1x EV-DO, Verizon's service is proving popular with customers -- especially corporate customers, who use it to get broadband data access on their laptops while traveling. Cingular needs to get its data network in place or risk losing out on this valuable segment of mobile users. "Verizon is the one that is already really out in front," says John Yunker of Byte Level Research. "It's left Cingular and the other carriers scrambling."


Underscoring that point, Sprint is scrambling to get its own 3G network in place. Earlier this week the nation's third-largest carrier announced a $3 billion agreement with Lucent Technologies (LU), Motorola (MOT), and Nortel Networks (NT) to purchase the base stations and radio hardware needed to get its EV-DO network up and running as soon as possible. The upgraded network, which will be roughly 10 times faster than Sprint's popular CDMA 1xRTT network, has been fast-tracked by Sprint executives who fear being left behind by their two larger competitors.


From a technology perspective, HSDPA would let Cingular leapfrog EV-DO-based networks. Cingular's new network would conceivably allow customers to have simultaneous voice and data sessions. For instance, a Cingular subscriber could use a handset to make a call while checking e-mail or browsing the Internet at high speeds. HSDPA's maximum speed of 14 megabits per second, which is really only likely in a lab environment, also gives Cingular the ability to offer higher data speeds than those available on existing EV-DO networks. Companies like Alcatel (ALA), Lucent, and Siemens are already busy developing HSDPA equipment, so Cingular will have the luxury of working with several vendors to get the best prices and latest technology.


Still, Cingular will have to play catch-up while it is busy swallowing its purchase of AT&T Wireless. It will be at least another 18 months before Cingular can get this HSDPA network up and running. Consumer equipment will take time as well -- the technology will likely appear first in PC cards, and only later in cell phones, since it's easier to design a new technology for devices that don't use batteries. In the meantime Verizon will be rolling out EV-DO in more cities and is expected to drop the price of its BroadbandAccess service from its current $80 a month, which will speed up its adoption.


Make no mistake about it: This is a big bet. If Cingular doesn't get its data network in place quickly, it risks losing the all-important lead it just spent $47 billion to obtain.