Unfounded rumors of the death of EDGE

Telecommunications Americas, June, 2004 by Larry Swasey

Here we are in the summer of 2004, at a point that was supposed to be a new era in wireless as more and more robust technologies are placed into evolving wireless networks worldwide. GPRS (general packet radio service) has been implemented in most GSM and TDMA networks throughout the world, and the choice now remains what to do from here. Many operators are now looking at both WCDMA (Wideband CDMA) and EDGE (enhanced data GSM environment) as logical next steps. Visant has found vendors of both technologies have a window of ample opportunity.

Many had written off EDGE, both privately and publicly, but we always had faith the wireless market would be one of many choices and uses, simply due to the diversity of operators and their audiences and the different needs of each across the globe.

EDGE was originally anticipated to be a niche technology with GSM operators expected to deploy WCDMA shortly after deploying GPRS. But the timetable has changed, opening the door for EDGE. This does not mean WCDMA will not do well; EDGE has simply pushed the timetable back a bit. The uptake of GPRS services has been slower than expected, and WCDMA is proving more costly than expected, because it is in its early incarnations and a standard off-the-shelf base station or handset has not yet been built. For these reasons among others, EDGE has regained support from many carriers looking to provide data at a reasonable cost per subscriber.

The cost to deploy EDGE varies according to the type of GSM infrastructure. Within new systems, the cost to upgrade to EDGE is minimal--requiring only a software upgrade. Older GSM networks typically require a change to both the power amplifier and the line card, and operators of these networks will pay up to $500 per radio channel to upgrade to EDGE. Those carriers requiring only a line card upgrade will pay about $200 per radio channel.

With the exception of two markets, Japan and South Korea, data has failed to meet expectations. In Western Europe, revenues from data services ranged from 8 percent to 20 percent of total revenues last year. Messaging services accounted for 75 percent of total data revenues in Western Europe. The slower than expected uptake of data services has led carriers to focus on creating consumer mobile services with specialized content and applications that are optimized for low data speeds and small screens. It has also led many operators to question the need for WCDMA in the short term.

However, WCDMA will be needed in the long term. Over 80,000 WCDMA base stations were deployed as of Q1 2004. To date, almost all these deployments have occurred in Western Europe (particularly Sweden) and Japan, and the deployment rate for WCDMA base stations now runs at approximately 40,000 units per year. Sweden and Japan have close to 40,000 WCDMA base stations currently deployed and account for nearly half the world's total. At the start of Q2 2004, few carriers had more than 33 percent WCDMA coverage in any nation. There are exceptions, notably all 3G carriers in Sweden, DoCoMo in Japan, 3 UK in England, 3 Italy in Italy, and Vodafone in Japan.

Of all mobile wireless subscriber revenues in Western Europe today, monies paid for mobile Internet account for 25 percent of those data earnings, or 3 percent of total mobile wireless subscriber revenues. While the audience and revenues are not great for the wireless Internet, momentum is building. Subscribers to mobile Internet via GPRS in Europe have been appreciable to date, and in other markets, GPRS services have become commonplace.

[ILLUSTRATION OMITTED]

It may be too early to judge whether or not these early returns on GPRS are a fair barometer for how people will use WCDMA when it becomes available, but current trends and existing coverage deadlines suggest that WCDMA gradually will be brought into the mainstream European mobile market during a three- to five-year period, between 2005 and 2010. If the potential data audience does not appear, many European and even Asian-Pacific carriers in glutted markets will use the spectrum and the WCDMA network to court voice users.

Inexpensive and appealing WCDMA/GSM handsets that are comparable to those for GSM are the trigger that will enable operators to accelerate the adoption process, with these types of devices anticipated to be plentiful by the end of 2006. Under this scenario, operators are expected to migrate their existing subscriber base to the WCDMA network by selling dual-mode handsets between late 2006 and early 2009 with most subscribers not even realizing the switch is being made.

Larry Swasey is a senior analyst with Visant Strategies (Iswasey@optonline.net).