Urgency Slows For 3G

A few years ago, even before the dot-com boom, cellphone providers had an enticing view of the future in which we'd all be carrying funky handheld devices hooked to the Internet wirelessly at very high speeds.

Commuters would spend their morning bus rides watching the news, getting a head start on the workday by sending out huge PowerPoint presentations or conducting live video conferences — all from the palms of their hands.

That vision hinged on the deployment of a third generation of wireless networks that offer high-speed data rates and an increased capacity for voice services.

But the introduction of 3G, shorthand for the third generation, hasn't gone according to plan. Technology glitches pushed back the timeline for the delivery of enabling gear, operators began pinching pennies after the entire telecommunications industry withered under immense financial pressure, and demand for services that could use the high-speed data networks failed to surface.

Now, while few of the giant wireless carriers will admit it, analysts say that behind closed doors some are putting 3G on hold, even considering scrapping it entirely.

That slowdown became more publicly apparent in late December when AT&T Wireless said it was pushing back its plans for delivering 3G. Instead of launching it in 13 cities by mid-2004, the Redmond company now intends to target just four cities by the end of 2004.

At the same time, other technologies are advancing quickly, prompting questions about 3G's future. In particular, Wi-Fi, the technology that lets laptop or handheld computer users wirelessly access the Internet at high speeds, has grown substantially, possibly making 3G less crucial.

"The pressure to get the high-data-rate networks is less because Wi-Fi might pick up," said Andrew Cole, global wireless practice leader for Adventis, a Boston consulting group. When it comes to high-speed networks, each carrier is in a different position, depending on the technology it uses and the amount of wireless spectrum — the electromagnetic frequencies that carry cellphone calls — it controls. Many have also confused the market about their progress by spinning the use of certain terms and exaggerating data-rate claims.

Among the six companies that control most of the nation's wireless infrastructure, Sprint PCS and Verizon Wireless appear to be in advantageous positions by virtue of their underlying technology, called CDMA, or code-division multiple access.

By contrast, AT&T Wireless, T-Mobile and Cingular use a competing technology based on the worldwide global system for mobile standard, or GSM. Nextel stands alone in its use of IDEN, for integrated digital enhanced network, a technology that enables its unique, walkie-talkielike service on top of conventional cellphone use.

Analysts agree that the introduction of CDMA 1X, an upgrade technology that offers customers high-speed access to retrieve e-mail and other online services on their cellphones, has been easier and smoother than those of similar services by competitors.

Stretching for speed

On the other hand, analysts think Sprint PCS and Verizon Wireless' claim that their services can offer data transmissions at speeds of up to 144 kilobits per second (Kbps) — almost three times faster than conventional dial-up connections — is a stretch.

"Whether we're talking about GSM or CDMA, right now speeds are available from 28 Kbps to sometimes, if you're really lucky, 65 or 70 Kbps," said Ray Jodoin, director of wireless research at the Newton, Mass., research company In-Stat/MDR. "I think if anybody saw 144 Kbps, they'd have a heart attack."

To further complicate the issue, Sprint PCS and Verizon Wireless refer to 1X as 3G, even though the original international plan defined 3G as having data rates of 384 Kbps.

"It's a war of words and not a helpful one," said Jane Zweig, CEO of The Shosteck Group, a Wheaton, Md., wireless consulting and research company. "Is 1X 3G or isn't it? The real issue is what are people doing with their devices."

The answer is: not much. "In the U.S., the 1X market hasn't really taken off," she said.

And therein lies another reason 3G is flagging. Low demand means data services aren't paying off for the carriers. "CDMA players are ahead of the others, generally," said Cole, the Adventis analyst. "But, that said, in terms of how that translates into market share or revenue, it's not that great. It's an advantage, but the implication is modest."

Rethinking the investment

Without a major demand for existing data services, the carriers are questioning the investment necessary to build 3G, given that its main benefit is higher speeds.

"No one in any country, with the exception of the Japanese and the Koreans, has been able to really profit from high-speed data," said In-Stat's Jodoin. "And that's what it's all about. If you can't make money, it's not worth it."

The carriers face technical challenges, too. In early December, Denny Strigle, president and CEO of Verizon Wireless, said that Verizon needs more spectrum to get to the next step in the network evolution, a high-speed technology called 1XEV-DO.

Because the company isn't willing to take spectrum away from its existing voice and data service for that next step, it will have to wait for the opportunity to obtain more spectrum. Strigle also said the company is waiting until the market is ready.

So it was not surprising to observers when AT&T Wireless, which has been developing 3G technology with Japan's NTT DoCoMo, said it was shrinking plans for its rollout of services.

"We agreed along with DoCoMo that the most effective plan would be to carefully pace our deployment of WCDMA to market demand," said David Caouette, spokesman for AT&T Wireless.

Zweig's translation: "They're waiting to see if it's worth doing."

But AT&T Wireless can't entirely shelve plans for WCDMA, its 3G technology, because of the $10 billion investment DoCoMo made in the U.S. company. If AT&T Wireless doesn't meet a deadline to roll out services by 2004, DoCoMo can sell its stake back to AT&T Wireless.

DoCoMo may be eager for AT&T Wireless to introduce WCDMA in hopes of showcasing a success for that technology, which has had technical problems and meager market acceptance in Japan. DoCoMo has attracted only 150,000 subscribers to the system, compared with the 3 million drawn by its rival, KDDI, which uses CDMA 1X technology.

Compared with Verizon Wireless and Sprint PCS, AT&T Wireless and Cingular face another difficulty stemming from a mishmash of technologies and spectrum that make up their networks. "I often wonder how they get anything done. It's a magician's feat," said Cole.

Faster and faster

Currently, AT&T Wireless, Cingular and T-Mobile (formerly Voicestream) all offer data services based on GPRS (or global packet radio service) technology, which moves bits at speeds that can reach conventional dial-up connections. Their next step is to introduce offerings based on the faster EDGE (for enhanced data rates for GSM evolution) technology. They expect to introduce EDGE in some markets in 2003.

EDGE is the end of the line for Cingular, which doesn't have enough spectrum to deploy WCDMA. Some say AT&T Wireless maybe should follow suit.

"When AT&T gets to EDGE, they will probably have all the speed that most reasonable people are willing to pay for," said Jodoin. "To take it to the next step, up to true 3G, does anybody really need it?"

The other nationwide operator, Nextel, is in a unique position because of the difference in its technology. It has very publicly taken a wait-and-see stance with regard to 3G.

Nextel has had a packet data offering for more than 3-½ years and, because it mainly attracts the business market, it boasts a high number of data customers — 20 percent of its users.

Nextel has implemented a data-compression technology that improves its 19.2 Kbps service to closer to 40 Kbps. Currently, it doesn't see that higher speeds are necessary.

"Should there come a time when it's cost-effective to get higher speeds and our customers are telling us, hey, we absolutely have to have video over cellphones, we'll do it," said Audrey Schaefer, a spokeswoman for Nextel. "Right now, they're not telling us that."