The Alcatel/Lucent deal is under increased scrutiny these days. One of the primary culprits is investors' views about the future of the CDMA market. CDMA accounts for about 45 percent of Lucent's revenue and more than 70 percent of the company's operating profits.
Investors don't like the publicity surrounding CDMA technology as some highly publicized operators begin moving toward GSM and W-CDMA. Vivo in Brazil recently decided to flip from CDMA to GSM, and SK Telecom--the first operator in the world to deploy CDMA technology in the 1990s--and KTF have launched W-CDMA in the 2100 MHz band. Meanwhile, Australia's Telstra is shutting down its CDMA2000 network altogether to deploy W-CDMA. Research firm Dell'Oro Group last week revealed that CDMA sales fell 26 percent from the second quarter last year, and of course, Lucent continues to struggle with CDMA.
Lucent CEO and chairwoman Pat Russo said the "negative speculation about the CDMA market and Lucent is unwarranted" during a conference call discussing the company's Q3 earnings. She says the market for CDMA2000 will remain sturdy through 2010 and Lucent will exploit "pockets of growth." She pointed to EV-DO upgrades and China as specific areas of growth for the company, which saw revenue dip in line with predictions: $2.05 billion down from last year's $2.34 billion.
Russo is correct when she says the CDMA2000 market should remain sturdy through 2010. According to Lance Wilson, wireless infrastructure research director with ABI Research, the real reasons for the technology shifts we've seen are complex and have mostly to do with economics. "Operators just got good deals," he said. Most operators aren't ready to abandon the investments they have already made in their CDMA2000 networks as they can easily reuse their spectrum assets and leverage existing equipment to receive operating and capital expenditure efficiencies as they migrate to the various flavors of EV-DO. To be sure, CDMA2000 operators, especially those who compete with WCDMA/HSDPA players, will continually look to upgrade to higher-speed versions of EV-DO to stay competitive.
Beyond 2010, however, is when CDMA2000's future becomes cloudy. EV-DO Rev. C will include OFDMA and MIMO. So will WCDMA's Long Term Evolution (LTE) standard. That's when operators--CDMA2000 and WCDMA alike--will have to spend a significant amount of money to deploy OFDMA anyway and could more easily flip from one technology to the other.
That's why CDMA2000 advocates need to ensure that the EV-DO Rev. C market moves faster than the LTE market. Otherwise EV-DO operators could look to who has the most economies of scale if they are going to deploy OFDMA at the same time as their competitors. And economies of scale will likely tip in the favor of LTE since GSM dominates the market and most GSM operators are following the 3G path that leads them to LTE.
The race is on. The Third-Generation Partnership Project (3GPP2), which sets standards for CDMA2000, expects the Rev. C specifications to be published in the second half of 2007 with products in late 2008. LTE specs are also expected to be published at the end of 2007.
Then there is that pesky standard for 3G operators known as WiMAX, which is supposed to have all of the OFDMA and MIMO elements working before Rev. C and LTE. Of course, you could ask, why can't we all just get along and harmonize everything around the same OFDMA/MIMO standards? We all know the answer to that one. Commercial interests will always keep that from happening, so it should be an exciting race with some far-reaching implications for many vendors.
Some other observations about last week's headlines...
The irony wasn't lost on me last week. Sprint COO Len Lauer resigned amid the company's dismal second-quarter results that resulted primarily from adding too many prepaid customers. Remember, it was Lauer who replaced ousted Chuck Levine in 2002 as president of Sprint after the company took a disastrous turn when it added too many prepaid customers. And Lauer cleaned house in 2002. He put an end to the high-risk ClearPay prepaid pricing program that had driven subscriber growth for many quarters, introduced new competitive pricing plans and announced a renewed focus on customer care. Nearly four years later, Lauer left with Sprint facing many of the same problems he fixed in 2002.
Leap Wireless versus MetroPCS: Can you actually patent flat-rate pricing scheme for wireless service ,or is this another example of our broken patent system? The name of the patent is even vague: "Method for Providing Wireless Communications Services and Network and System for Delivering Same."
Hmmm, maybe Nortel isn't shedding its UMTS business to Alcatel after all. The Canadian vendor announced a major 3G and high-speed downlink packet access upgrade contract with France's Bouygues Telecom last week. Nortel now has a strong 3G foothold in France, supplying UMTS infrastructure to two of the three major 3G license holders. Of course, maybe its laying the groundwork for Alcatel in Alcatel's own back yard. -Lynnette