After years of hype and billions of dollars in network upgrades, the time has come for the worldwide W-CDMA market to take off.
Perhaps the best indication that W-CDMA technology has reached the tipping point comes from Vodafone Group plc, one of the world’s largest wireless carriers. Vodafone recently announced it plans to have close to a dozen W-CDMA handsets ready for the holiday shopping season. The handsets span the gamut-from relatively inexpensive, voice-centric devices to high-end gadgets for heavy data users. With a range of handsets and a growing number of services, market watchers concur: W-CDMA has hit prime time.
“I think that’s fair to say,” agreed John Jackson, a mobile-phone analyst with research and consulting firm Yankee Group.
W-CDMA has long stood as the industry’s beacon, the light at the end of the tunnel for carriers suffering from sagging voice revenues and saturated markets. Indeed, vendors for years exalted the benefits of W-CDMA technology as blazing fast and revolutionary. Handset makers promised to wow consumers with sleek, flashy gadgets. Industry rallied around the promise of 3G. The hype reached a fever pitch.
But as the years passed, the promise of 3G turned into somewhat of a joke. As the world’s economic situation soured, carriers continued to push out their W-CDMA deployment plans. Those that did manage to launch did so with bulky handsets and limited coverage areas.
In the United States, Verizon Wireless and later Sprint Nextel Corp. managed to jump into the high-speed wireless bandwagon with their CDMA2000 1x EV-DO launches. Each carrier sells a handful of EV-DO-capable handsets that boast download speeds of between 400 and 700 kilobytes per second. Although AT&T Wireless Services Inc. was the first in the United States with a W-CDMA network, the operator only covered six cities and offered two handsets. Cingular Wireless L.L.C., which acquired AWS last year, has promised to expand W-CDMA services to up to 20 U.S. markets by the end of this year.
Worldwide, the 3G situation continues to improve. NTT DoCoMo Inc. in Japan and Vodafone in Europe have W-CDMA networks up and running, as do many other carriers across the world. Indeed, the launch pace is increasing, according to research firm Informa Telecoms & Media. The company said there were 50 live commercial W-CDMA networks in operation in the second quarter of last year, but that number has doubled to 100 today. The firm said worldwide W-CDMA subscribers number 34.5 million-out of a total worldwide wireless user base of more than 1 billion-and the number is set to increase to more than 50 million by the first quarter of next year.
On the handset side, vendors like Nokia Corp. and LG Electronics Co. Ltd. have unveiled W-CDMA handsets clearly meant for the mass market-they are relatively inexpensive and designed with regular users in mind.
Yankee Group’s Jackson pointed to Sony Ericsson Mobile Communications L.P.’s newly released K600 as a prime example of the new crop of W-CDMA phones for the common man.
“It’s clearly positioned as a mass-market imaging device,” he said.
Indeed, W-CDMA technology represents the real future for the world’s handset manufacturers. According to numbers from investment banking firm UBS, the market for GSM and CDMA handsets has largely leveled off while the W-CDMA handset market is set to explode. The firm forecasts GSM handset sales will hit 529 million this year, growing slightly to 543 million in 2007. CDMA is much the same, hitting 157 million this year and growing to 168 million in 2007. W-CDMA, on the other hand, will grow from 44 million this year to 137 million in 2007.
As handset makers analyze the market, they realize that much of the future lies in W-CDMA. Even Qualcomm Inc., which has long promoted its own CDMA path, has embraced the W-CDMA future. The company is the world’s No. 2 vendor of W-CDMA chips. However, Qualcomm continues to promote its own CDMA EV-DO migration path with Revisions A and-most recently-B.
So how have handset vendors fared in the early days of W-CDMA?
“I think the vendor that can get there earlier while maintaining margins will be able to capitalize on a massive opportunity,” Jackson said.
According to numbers from Strategy Analytics, Nokia has made W-CDMA a priority during the past year, moving from the No. 5 market-share position to the No. 1 market-share position. The firm said Nokia sold 2.3 million W-CDMA phones in the third quarter, giving it a 23.2-percent worldwide market share.
Nokia’s moves blast out several Asian upstarts hoping to capitalize on an early W-CDMA position. Indeed, NEC Corp. was the world’s No. 1 W-CDMA vendor in the third quarter of last year, but the company has dropped down to No. 2 and its shipment numbers are actually decreasing. Other W-CDMA players, including LG, are seeing similar declines in their W-CDMA handset shipment numbers.
Part of the challenge in the worldwide W-CDMA handset market revolves around intellectual property and patent licensing.
“The IPR issue continues to be an albatross around the neck of broader vendor participation,” Jackson said, explaining that heavyweights like Nokia and Motorola command strong IPR positions. “That is not true of other notables, like LG, Samsung Electronics Co. Ltd., Sharp Corp. and others.”
Indeed, the W-CDMA IPR issue came to a head recently through legal filings from Nokia, chipmaker Broadcom Corp., Qualcomm and others. Nokia and a handful of other wireless players accuse Qualcomm of engaging in anticompetitive business practices. The companies allege Qualcomm isn’t licensing its W-CDMA patents fairly-an allegation Qualcomm vehemently denies. The heated battle recently took another turn when Qualcomm filed a patent-infringement lawsuit against Nokia, a lawsuit similar to one it filed against Broadcom earlier this year.
“The vendors that are IPR `haves’ have a very significant near-term cost advantage,” Jackson said. “That is magnified by the operators’ need to get (handset) volumes.”
However, Jackson said IPR squabbles in the W-CDMA space could slow the development of the market.
“Everybody is sort of posturing to get a good position-and that’s not helpful,” he said.
Nonetheless, wireless carriers will continue to demand ever more advanced-and inexpensive-phones. Such devices will become increasingly important as carriers look to recoup their multibillion-dollar investments in W-CDMA networks. The issue likely will take years to play out, and the list of ultimate winners is far from clear.
“But overall the news is good for consumers,” Jackson said, pointing out that average selling prices for W-CDMA handsets are nearing those for regular GSM phones.
