Amid speculation that some CDMA operators are turning to GSM technology, GSM proponents have stepped up lobbying efforts to tout the technology’s global success. Meanwhile, CDMA backers say the moves have little to do with technology and instead are based on government policies and simple economics.
Nonetheless, the issue cuts straight to the heart of the long-running battle between CDMA and GSM, and could have serious reverberations for equipment, handset and intellectual property vendors on both sides of the technological isle.
Consider:
- The Global Mobile Suppliers Association sparked a fire with a new survey that says a growing number of CDMA operators are facing falling market share and are switching to GSM products. “The GSA survey … confirms 25 operators who are deploying or operating GSM/W-CDMA technology either as an overlay, or as a replacement of the existing CDMA systems.”
- In India, wireless users currently can choose either GSM or CDMA networks. However, Indian CDMA operator Reliance Communications recently applied for GSM spectrum in four cities and already has applied for GSM spectrum in two other major markets. The carrier reportedly feels that Qualcomm Inc.’s royalties are too high and are hindering growth—an assertion Qualcomm disputes.
- In the United States, Montana-based carrier Chinook Wireless in May contracted with Nokia Corp. to swap its CDMA network gear for GSM over a five-year period.
- In South Korea, KT Freetel Co. Ltd., the country’s second-largest carrier with 12 million subscribers, announced plans to leave CDMA technology behind in favor of further investment in W-CDMA. The Korean government has mandated that carriers launch W-CDMA networks, and KTF already has launched commercial W-CDMA services in several metro markets, including Seoul in 2003. However, KTF had trouble luring subscribers away from its CDMA2000 1x EV-DO network, launched in 2002. Early on in CDMA’s development cycle, Korea was its staunchest supporter and still has a loyal following there.
- In Australia, Telstra Corp., which operates both GSM- and CDMA-based networks, launched its network transformation strategy in November, announcing contracts with Alcatel Inc., Cisco Systems Inc. and L.M. Ericsson. Telstra said it is putting $2.55 billion behind the plan, which involves Ericsson deploying a national W-CDMA.
- And in Brazil, the country’s largest wireless operator and its only Tier 1 carrier using CDMA technology, Vivo Participacoes S.A., announced last month plans to launch a GSM-based network by Christmas. According to unofficial wire reports, L.M. Ericsson is the frontrunner for the network buildout contract, thought to be worth millions of dollars. An announcement is expected this week. But Vivo has said it will maintain its CDMA network and eventually upgrade both its GSM and CDMA networks with third-generation gear. The company said it will put the choice between CDMA and GSM in the hands of its 28.8 million subscribers.
The globe-spanning moves indicate a shift from CDMA to GSM. Qualcomm, the primary driver of CDMA technology, acknowledged the situation in its quarterly conference call with analysts last week. The company cited lower handset costs as one of the primary reasons carriers are considering moving from CDMA to GSM.
“In the past quarter, there’s been significant discussion surrounding some of the emerging market operators, in particular Vivo (in Brazil) and Alliance (in India) and how they may move from 3G CDMA to 2G GSM. Qualcomm royalties have been cited as a reason for this potential shift. In fact, the lowest CDMA2000 phones are below $40 in these emerging markets, and with net phone royalties under 5 percent, the royalty is a small amount in absolute dollars. We continue to invest significant effort and resources to drive the cost of the lowest CDMA2000 phones down,” said Paul Jacobs, Qualcomm’s chief executive officer, according to a transcript of the conference call from SeekingAlpha.com.
As the company sells handset chips for both technologies, Qualcomm sees revenues from both CDMA and W-CDMA networks. Further, Qualcomm holds a solid intellectual position in W-CDMA technology, although perhaps not as dominate a position as it does in CDMA.
For now though, much focus is on India. The country counts 1 billion potential wireless users—thus, the country’s technological choices carry a massive amount of weight with infrastructure and handset vendors.
India’s CDMA/GSM split is statistically similar to the global split, with 79 percent of the country’s 100 million subscribers using GSM-based services, leaving 21 percent to the CDMA carriers. As penetration levels rise, though, the nation’s carries are looking to 3G to expand their market opportunities.
However, the country’s 3G situation is on hold until India’s Department of Telecommunications revises its spectrum allocation policy. The government has been assessing its policy of doling out spectrum based on subscriber numbers, which specifically hurts 3G-ready CDMA operators as they must wait for spectrum before they can launch 3G services. Under the current system, CDMA operators must reach a subscriber-number benchmark before they can hope to gain spectrum. Government officials have vowed to announce changes by the end of the year.
Qualcomm spokesman Jeremy James explained that Reliance’s decision to apply for GSM licenses likely has more to do with spectrum than with royalty prices.
“We think it’s directly attributable to the spectrum policy and evidence that the policy is beginning to have a distorting effect,” said James. “We believe there is no question that a technology-neutral spectrum allocation policy would allow competition to be based on the merits of technology as opposed to market-distorting regulatory policies. We also believe that a technology-neutral policy would be best for Indian consumers and would help the Indian government achieve its teledensity goals.
“As the global transition to 3G takes place, it’s not at all remarkable that the GSM vendors do whatever they can to maintain GSM’s market share for as long as possible. There’s a lot of lobbying, deal-cutting and price-cutting going on. The GSM guys are highly motivated and they have margins that enable them because of the huge volumes they’ve traditionally enjoyed. They’re offering end-of-life pricing in order to keep 2G technology on the market, but the world is moving to 3G.”
James confirmed that Qualcomm has been in ongoing conversations with the Indian government about its spectrum policy.
While the world watches India’s 3G moves, as well as technology choices in other markets across the globe, concerns mount on the ultimate future of the CDMA evolution path. However, many seem content that there is still plenty of life left in CDMA.
Indeed, both Verizon Wireless and Sprint Nextel have made it clear that they’re sticking with CDMA, and both plan to upgrade their networks to EV-DO Revision A technology in the coming years.
