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Wireless Data at the Crossroads . . . Again!!
CEDAR KNOLLS, NJ, August 28, 2002 -- The recent launches of CDMA1XRTT systems by Sprint PCS and Verizon Wireless (2.5G or 3G depending on your prejudices) and GPRS systems from T-Mobile, AT&T Wireless and Cingular once again puts the focus on the prospect of wireless data communication services for carriers.
Probe Research has been following wireless data in the U.S. for more than a decade and was disappointed at what first appeared to be poor marketing on the part of the carriers. But now they believe can be explained only by a complete lack of interest on the part of businesses and consumers. "That's not to say that there haven't been some high-profile successes," comments David Chamberlain, research director. "United Parcel Service and Federal Express have both dedicated massive resources to wireless data communication and the business case for wireless for these highly competitive delivery services is compelling and obvious. Research in Motion and its highly visible cadres of Blackberry pager enthusiasts are proof that at least some people in some companies place a high value on wireless e-mail communication."
Today in the U.S., however, the big six mobile wireless carriers are adding -- at great expense -- data communication capabilities to their voice-centric networks. Why? What are they expecting to achieve today that they were unable to achieve five years ago? A more important question may be "what has changed so drastically since 1995 (or 1998 or 2000) that causes us to be freshly optimistic that subscribers will want to use wireless data?"
Wireless Data History
Chamberlain suggests that to understand where this all might be going it may be valuable to take a brief look at the facts Probe has compiled showing where wireless data communication has been.
RAM, ARDIS, CDPD
In the era of wireless data's first rise and fall -- 1993 to 1998 -- RAM Mobile Data (now Cingular Interactive), ARDIS, (now Motient) and the Bell-owned cellular carriers with their CDPD networks were all building and promoting their always-on packet networks. "They were mildly differentiated (CDPD was fastest, ARDIS offered in-building coverage) but all were basically marketing themselves to business and enterprise users," Chamberlain explains. "There were "vertical" applications for public safety, route delivery and break-and-fix field service. "Horizontal" applications consisted of e-mail and graphics-free, highly-compressed web surfing."
Since 1998 RAM Mobile Data has been re-named twice; ARDIS was abandoned by its corporate parents -- Motorola and IBM, no less -- and is tottering back from its bankruptcy. CDPD, for all the marketing might of its RBOC parents, has nearly vanished except for public safety systems because police officers rarely roam outside their well-defined geographic patrol areas. CDPD was dealt another blow this month when wireless integrator and CDPD reseller GoAmerica abruptly dropped all support of its CDPD customers citing the high cost of roaming.
Paging Networks
Other entrants in the packet data mobile communications network were the two-way narrowband PCS networks originally licensed by SkyTel, PageNet and PageMart. At the same time they were splurging on government spectrum auctions they were embarking on a series of poorly-considered mergers while ignoring a powerful competitor: the looming generation of digital PCS phones would offer the same paging capabilities alongside the very desirable voice services. Even though these two-way paging carriers offered cool Blackberry-like keyboard devices, the low-bandwidth low-capacity systems ran out of subscribers, marketing ideas and money at about the same time. The entire sector tanked and even Motorola, which practically invented the sector, stopped manufacturing new devices to operate on the networks.
Does GPRS = CDPD?
Try to guess what four-letter abbreviation XXXX represents in the paragraph below.
"XXXX is an always-on wireless IP network that provides data connectivity in parallel with existing voice services. XXXX is designed to displace minimal amounts of voice traffic while still providing capacity for subscribers using WAP-equipped handsets or connecting to the Internet with a laptop or PDA. XXXX is being installed in a relatively small number of markets but is expected to expand, even to tier-2 and tier-3 markets as its popularity increases. Although XXXX subscriber equipment is relatively scarce and in some cases is more expensive and less attractive to users, the increased functionality is expected to draw a large number of users, especially with the widespread penetration of the Internet among businesses and consumers. These data users are also expected to pay more for access to data services, increasing overall carrier revenue."
Chamberlain suggests that if you filled in the XXX's with CDPD or GPRS, you would have been right in either case. "The only difference is the era. If it were written in 1995, it referred to CDPD. In 2002, it describes GPRS."
That should give the companies installing GPRS pause because CDPD is widely considered a commercial failure. Most carriers that spent millions of dollars installing and promoting CDPD have stopped supporting it altogether or passed marketing to small multi-network integrators such as GoAmerica.
What Has Changed?
What has changed so radically in the past five years that convinces network operators that a network having nearly identical characteristics -- apart from speed -- will change from being a complete failure to becoming overwhelmingly attractive to business users and consumers?
One way to discover the source of this new optimism and the newest round of installing expensive data communication networks might be to review the objections of the past -- the difficulties that once prevented widespread uptake of wireless data that have been swept away in 2002.
Subscriber Equipment
The subscriber equipment of 1997 -- WAP phones, cradles for Palm devices and external modems -- were scarce, expensive and usually quite bulky and unattractive compared with the mobile phones of the late 1990s. In short, it was a step backward for anyone who wanted to communicate data. In addition, carriers generally did not subsidize the cost of non-handset devices, putting them out of reach of all but the most committed companies.
2002 brings some optimism in the form of the Handspring Treo and Pocket PC phones offered by Verizon Wireless and VoiceStream. These devices are attractive replacements for the bulky clip-on external modems for PDAs and external modems are a thing of the past. Road Warriors can also use cables to connect existing handsets to laptop computers (in practice, those cables are difficult to find and expensive to buy). Unfortunately, Bluetooth hasn't yet made a significant impact in the U.S.
Consumer options for wireless data communication in 2002 are broader and more interesting than in 1997. Carriers deliberately withheld interesting designs, color screens and other advanced capabilities until their advanced networks were ready. This is having the effect of introducing new applications, enticing customers to use the new networks and reduce the subsidies paid by the carrier. After all, people are willing to pay more for something newer, cooler and sexier than their friends have.
Lack of Compelling Applications
There has not been a sudden swell in the number of applications, e-mail users, business travel or laptop ownership in the past three to five years. Neither road warriors nor vertical industries have suddenly discovered the value of mobile applications for route delivery or dispatch of technicians. In fact, most MIS departments have been successfully fending off wireless data applications since 1995 with a variety of objections. Perhaps the almost-routine use of e-mail and web-related applications are so much a part of daily business life that the convenience of accessing these applications has become more compelling, analogous to the routine checking of voice mail messages whenever the opportunity arises.
For consumers, however, the story is much different. Users in Europe and the U.S. have already demonstrated a willingness to pay for ringtones, wallpaper and other ways to customize their handsets. Camera-equipped handsets and multimedia messaging could well offer a very compelling and personal reason to use handsets for something besides voice calls. And, of course, we cannot ignore the trendiness factor for the youth population who buy and use these devices.
Spotty Network Coverage
Here's an area where things haven't improved much in the past five years. CDPD construction has all but halted and the coverage maps of CDPD, Motient, and Cingular Interactive cover nearly the same metropolitan areas. GPRS deployment by Cingular and AT&T Wireless is falling behind schedule and Verizon Wireless has decided on a market-by-market rollout. T-Mobile has GPRS installed in its entire voice network but that network did not have particularly good coverage in the first place. The cellular industry has been building out thousands of cell sites in recent years primarily for extending the voice networks. At the end of 1997 the U.S. mobile networks had 51,600 cell sites; by the end of 2001 this had more than doubled to 127,540 and construction has continued into 2002. With now over 85% of all subscribers on digital phone sets, the industry strategy was to extend digital voice coverage and reduce the importance of the AMPS analog networks. (The FCC will allow carriers to phase out the analog networks.) This analog to digital conversion is precisely the same model that the landline carriers implemented in the 1980s into the early 1990s. Data communications were not a priority for either sector in this changeover.
Small Pool of Potential Users
Subscriber counts for both cellular/PCS and paging networks in the U.S. skyrocketed when the focus shifted from the business to the consumer user. By the end of 1997 mobile subscribers in the U.S. were 55.3M and this more than doubled to 128.4M by the end of 2001. While the pool of subscribers had grown dramatically and total MOUs have likewise grown in proportion, the average length of call has been virtually static despite robust calling plans: 2.31MOUs/call in 1997 to 2.74MOUs/call in 2002. This suggests that while subscribers use mobile devices more often, they have yet to change their behavior beyond short voice calls.
Speed
Despite the beliefs of both supporters and detractors of advanced wireless networks, Probe Research has not identified any correlation between network access speed and the number of subscribers. In addition, DoCoMo's extremely successful data service -- i-Mode -- famously runs on a very slow 9.6 kbps connection.
In the case of packet-switched mobile networks, the subscriber can continue to use the handset for simultaneous voice calls and isn't forced to wait (and count connection minutes) while an application downloads. Therefore, it is the packet-switched connection and not the speed that is more compelling for users, particularly consumer users.
Assessment
CDMA 1XRTT is coming online in the U.S. Last week Sprint PCS announced the nationwide launch of its PCS Vision Network, which is an evolutionary step for its CDMA network. Verizon Wireless is continuing to roll out its Express Network, which has been operating since the spring. While there remains some dispute about whether the 1XRTT is truly a 3G technology, that argument is far less important than the fact that these two carriers are actively promoting and -- we assume -- are in the process of loading commercial customers. AT&T Wireless, Cingular and VoiceStream are deploying their decidedly 2.5G GPRS systems.
According to Chamberlain, all have taken different marketing approaches:
AT&T Wireless and Verizon have stated that they are pursuing the laptop-equipped business user and are battling it out by hyping bits per second -- a dangerous and ineffectual differentiator. To their credit, both AT&T Wireless and Verizon Wireless are also offering their own consumer-oriented portals. AT&T's m-mode campaign seems to confuse more than clarify the benefits of the "m-Life" but its recently-launched picture applications are a step in the right direction.
Cingular and VoiceStream are offering little besides WAP applications over a different transport network.
Only Sprint PCS, with its PCS Vision positioning, seems to be providing something tangible and compelling for what has already proven to be the largest and most lucrative market for mobile phones, the consumer market.
"In the world of wireless data, very little has changed in the past 5-7 years for the business user that would signal a big change from the frustrating bygone eras of mobile computing," states Chamberlain. "The consumer side, however, looks much brighter." Probe Research believes that it is in the area of new applications for consumer users that wireless data will get its greatest
Probe Research, Inc. provides ongoing strategic analysis and consulting in three primary sectors of the technology industry - Telecom, IP and Wireless - and their related convergence issues. Probe's latest study, Voice and Data Networks: The Next Ten Years, provides a high-level perspective and synthesis of these areas. Written by Allan Tumolillo, COO, it offers five probable scenarios for the future of the industry based on the market, macroeconomic, industry and technological drivers of the evolution of networks.
To obtain more information or to arrange an analyst interview in Europe or the U.S., contact Karen Verrinder or visit Probe on the web at www.proberesearch.com.
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