The next-generation upgrade path battle between GSM and CDMA escalated last week as U.S. Cellular Corp., which serves more than 3 million wireless customers, said it plans to overlay its current TDMA markets, roughly two-thirds of its coverage area, with CDMA 1x technology. The carrier said the remaining one-third of its markets that already use CDMA also would be upgraded to 1x during the three-year buildout time frame.
The company said its decision to deploy CDMA instead of going with a GSM overlay similar to AT&T Wireless Services Inc. and Cingular Wireless was made after looking at network capacity issues, cost concerns and the implementation of data services.
“After reviewing all other technologies currently available we remain convinced that CDMA is the right path for our customers,” said Richard Goehring, executive vice president and chief technology officer for U.S. Cellular. “Our investment in CDMA will significantly increase network capacity, reduce future capital outlays and enable us to provide data capacity very quickly.”
Explaining the need to clear room in its current spectrum holding to implement next-generation services, Goehring said U.S. Cellular found 1x would require only 3.5 megahertz of spectrum to implement services, compared with nearly 5 megahertz for GSM. While the difference appears small, Goehring noted U.S. Cellular currently uses all 25 megahertz of cellular spectrum it controls in most of its markets and was not willing to clear unnecessary spectrum that might have an impact on services.
Goehring also pointed out the increased spectrum efficiency of CDMA, noting it was twice as efficient as TDMA and GSM and more than five times more efficient than analog technology. More important, once the carrier gets enough 1x handsets into customers’ hands, U.S. Cellular expects to see an additional doubling of network capacity.
The clearer upgrade path for CDMA was also highlighted as a reason for the carrier’s decision. With only software upgrades needed to implement 1x onto a CDMA network, U.S. Cellular expects to save money on network construction in the long term. The carrier said it plans to spend around $450 million during the next three years to upgrade its entire network to 1x, with 40 percent of its customer base covered by the end of next year and 75 percent covered by the end of 2003.
While U.S. Cellular would not give an exact figure on how much it would have cost to deploy GSM on its network, the carrier did say it would have cost hundreds of millions of more dollars to go the GSM route. U.S. Cellular did not name a vendor for its upgrade, noting it was still looking at potential suppliers.
Wireless data also played a part in the carrier’s decision to deploy 1x on its network. Goehring noted the higher speeds it saw from 1x, more than double than GPRS and comparable to EDGE, sealed the decision for the carrier.
While the company expects to spend a majority of its capital expenditures during the next several years on the overlay, U.S. Cellular said it will continue to support its current TDMA customers. Goehring also said the company was not completely shutting out the possibility of using GSM in some of its markets down the line.
“We will continue to support TDMA technology for the foreseeable future and will evaluate the use of GSM technology on a case-by-case basis to ensure that U.S. Cellular can continue to best serve existing customers and roaming partners whenever possible,” Goehring said.
While U.S. Cellular outlined a number of reasons for its decision to move ahead with CDMA, the choice leaves its future lucrative roaming revenue sources up in the air. With its old TDMA and CDMA networks, U.S. Cellular was an ideal roaming partner for most of the large carriers, including Verizon Wireless, Cingular Wireless and AT&T Wireless. Limiting its network to CDMA will cut out Cingular and AT&T Wireless, forcing U.S. Cellular to rely more heavily on Verizon Wireless and Sprint PCS as roaming partners. Goehring said the company took into account its roaming agreements, and still felt the CDMA path would serve the carrier best in the end.
“CDMA seems like [the] right technology and cost decision,” noted Ric Prentis, wireless analyst at Raymond James & Associates Inc.
U.S. Cellular’s stock closed up $1.21 per share following the announcement last Wednesday to $44.96 per share on light trading volume.
U.S. Cellular’s decision may also impact any industry consolidation. Before its move to CDMA, the carrier looked to be a good fit for either of the big three nationwide carriers as a potential acquisition target. Now, Verizon Wireless would seem to be the most likely suitor, with Sprint PCS and Alltel Corp. as less likely alternatives.
“U.S. Cellular’s choice could have an impact on the industry consolidation picture, as we believe consolidation among large carriers is most likely to occur along technology lines,” said Kevin Roe, wireless analyst at ABN AMRO.
Analysts also noted the move might expedite a deal between GSM carriers Cingular and VoiceStream Wireless Corp., as Cingular still needs additional spectrum to fill in its coverage holes.
With its decision to deploy CDMA on its network, most of the nationwide and larger regional carriers have now made their next-generation upgrade paths public. And, unlike the rest of the world, the battle appears to be split fairly evenly in the United States between the GSM and CDMA camps. Verizon Wireless, Sprint PCS, Alltel and U.S. Cellular, serving around 52 million subscribers, are marching down the 1x path, while Cingular, AT&T Wireless and VoiceStream, serving approximately 47 million customers, are holding the GSM line.
