=DJ 3G Retains Its Buzz, But Potential Is Still Unclear
By Roger Cheng Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--3G wireless technology was the buzz phrase for every major telecom company that's reported results so far this month.
While it remains unclear whether its implementation will ratchet up revenue significantly in 2006, it's pretty certain that this will be a prime reason telecom revenues will grow in the coming years.
For carriers, the technology creates new revenue opportunities and is a way to keep consumers' eyes and ears stuck on the cell phone via new features. U.S. data revenue is expected to grow 45% to $12.6 billion in 2006 from a year ago, according to research firm Ovum. In comparison, total wireless revenue is expected to grow 10% to $135.86 billion this year.
Third generation, or 3G, technology allows for transfer speeds comparable to a DSL connection. Carriers hope the faster download times will encourage consumers to buy into mobile video and music. As voice revenue continues to decline on more competitive pricing plans, carriers will be more dependent on data to pick up the slack.
"Wireless high-speed data is their one shot to stem the precipitous decline in voice (average revenue per user), which they need to make up with really compelling features," said Ovum analyst Roger Entner. Speed is key when it comes to winning over customers.
While the carriers may be optimistic, some experts express more caution. Phil Asmundson, a managing partner at Deloitte Consulting who focuses on the telecommunications industry, said 2006 may turn out to be a "frustrating" year for 3G.
The carriers have or will spend a fortune upgrading their networks, and many are eager to see their customers embrace the technology. But Asmundson said there remains issues such as spotty 3G coverage, as well as the lack of killer services and devices, that are impeding customer acceptance.
Carrier adoption in the U.S. itself has been spastic, as each player has waded into the technology at drastically different rates. It's due to the fact that the overarching term "3G" actually refers to several different technologies which had varied developmental histories.
Verizon Wireless was the first U.S. carrier to embrace 3G with its EV-DO, or evolution-data only, network. In October 2003, it started offering EV-DO cards that could provide broadband Internet service to laptops. Over the past two years, the carrier has spent $1 billion on network upgrades.
"It's certainly important that we were out there first with EV-DO," said Doreen Toben, chief financial officer of Verizon Communications Inc. (VZ), which jointly owns Verizon Wireless with Vodafone Group Plc (VOD).
While Verizon Wireless had a large head start with its network, it didn't launch its consumer product, VCast, until last February.
VCast still isn't a major contributor of Verizon Wireless revenue, but it has helped propel the explosive growth in average data revenue per user to $4.85 for the fourth quarter, up 74% from the $2.79 recorded a year ago. Toben noted, however, that much of that growth was coming from text messaging.
Shortly after VCast came out, Sprint Nextel Corp. (S), which runs 3G through a similar EV-DO network, launched its laptop card product in March. Sprint's consumer service offering, called Power Vision, was unveiled later in October. It was the first carrier to allow users to download songs directly to their cell phones, a feature later replicated by Verizon Wireless.
Cingular Wireless, the nation's largest wireless carrier, took more time to get into the game. In December, the carrier unveiled its network and said it would begin offering high-speed laptop cards with availability in 16 markets. A consumer-oriented service offering won't be available until later this year, but it has already signed exclusive content deals with the likes of Time Warner Inc.'s (TWX) HBO unit.
Cingular Chief Technology Officer Kris Rinne said that despite the delay, Cingular's 3G product will be competitive since it "leapfrogs" the existing technology with faster speeds.
The 3G alphabet soup gets even denser with Cingular. To power its network, the carrier uses UMTS, or Universal Mobile Telecommunications System, in conjunction with software called HSDPA, or High Speed Downlink Packet Access, which further accelerates the connection speeds. HSDPA, which wasn't finalized until last year, was the main reason why Cingular is behind.
One advantage it has, however, is the ability to simultaneously run voice and data transfers. Using that technology, a person can use their cell phone to make a call while using the device as a modem connection at the same time. As a result, the network can run more efficiently, allowing the company to reduce infrastructure costs by at least 40%, Rinne said.
"You don't have to plan separate networks for voice and data," she said.
Still, its 3G network is limited in availability. Rinne said it hopes to be in most of the major markets by the end of the year.
Cingular is jointly owned by AT&T Inc. (T) and BellSouth Corp. (BLS).
T-Mobile USA, owned by Deutsche Telekom AG (DT), has also made noise of an upgrade to 3G. Since it runs on the same wireless technology as Cingular, it'll likely take the same development route.
Despite his concerns, Deloittte's Asmundson said that data revenue is nearing the point where consumers will start to demand higher speeds and new services.
"It's not that 3G won't be successful, it's just that it'll likely take longer than the carriers expected," he said, adding that significant revenue contribution will likely come within the next five years.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(END) Dow Jones Newswires
01-27-06 1048ET
Copyright (c) 2006 Dow Jones & Company, Inc.
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