Editor's Corner

As the market turns toward emerging markets as the next growth engine, CDMA2000 technology appears to be taking a public-relations hit, and the area of contention is around handset costs. Nokia said it is essentially bowing out of the CDMA handset market, saying the emerging markets business case for the technology is looking more challenging. Meanwhile, India's two key CDMA2000 operators, Reliance and Tata, are publicly unhappy about the cost differential between CDMA handsets and ultra low-cost GSM phones. They want lower handset pricing by paying less royalties to Qualcomm and are doing some saber rattling by re-evaluating their technology choices. And finally, Vivo, the largest operator in Brazil, is now getting some quotes from vendors about how much it might cost to overlay GSM over the CDMA2000 network. Vivo, which has been steadily losing market share to its GSM competitors, is also unhappy about the handset price differential, but is also suffering from a lack of nationwide coverage. Recently, CDMA 1x EV-DO customers haven't been able to use the analog network to roam because the handsets don't include the feature.

The focus of technology has quickly shifted away from technical superiority to economics, which plays into the hands of GSM. Players in emerging markets like Brazil went with CDMA in the past to differentiate themselves from their GSM competitors, who are at a disadvantage to CDMA when it comes to deploying high-speed data services in the same network. But in emerging markets highly dominated by voice and data applications that don't require high-speed connections, it appears innovation and sophistication of CDMA2000 is doing little to counter the competing GSM operators' moves to offer cheaper handsets.

And the cost of GSM equipment is falling dramatically. In Latin America, the fastest growing market for GSM, both of the region's dominant operators, America Movil and Telefonica Moviles have embarked on aggressive buying sprees of mobile operators and are either ripping out CDMA2000 networks or deploying GSM alongside the existing CDMA2000 network. Telefonica has been deploying GSM alongside CDMA2000 in many regions. It says GSM has been fueling its growth in many markets, and with each deployment, the costs to deploy GSM falls dramatically, Antonio Viana-Baptista, chairman and CEO of Telefonica Moviles, which owns Vivo in partnership with Portugal Telecom, said during the company's quarterly call with analysts. Viana-Baptista confirmed the company is studying a GSM strategy, and speculation is that it's pretty much a done deal.

"Vivo should achieve certain benefits with a GSM network that we believe the stock market has not priced in yet, namely cheaper handsets, lower maintenance capex and a decline in fraud related charges, among others," said Morgan Stanley in a recent report.

Paradoxically, the CDMA Development Group, which has been working on an ultra low-cost handsets development initiative for about two years now, came out with news last week that CDMA2000 is in fact leading the way in entry-level handsets in India. The CDG said some 21 CDMA2000 phones being offered for less than $50 wholesale from 10 different suppliers in India. That compares with 18 GSM handsets being offered for less than $50 from five suppliers. The Yankee Group says CDMA2000 handsets have accounted for about 60 percent of all entry-level handsets imported to India on a monthly basis. For more than six months, the price differential has been between $1 and $4.

Further, Yankee Group handset analyst John Jackson argues that consumers don't necessarily want the cheapest phone. "... The lowest priced handsets may actually drive consumers away. In markets such as India where PC penetration is nominal, the data-capable handset will define the Internet experience for a massive numbers of end users."

Is this a matter of some operators playing politics then? James Person, vice president of Asia Pacific with the CDG, told me that Reliance is really suffering from a lack of spectrum set up by the government. Because CDMA is twice as efficient as GSM, Reliance gets half the spectrum, he said. The operator, which offers both GSM and CDMA2000, has applied for a GSM 1800 MHz license in the major cities of Dehli and Mumbai. Reliance hasn't made any financial committments for more GSM yet.

CDMA2000 royalties appears to be at the crux of all of this. Reality or not, operators and handset vendors say that expense simply adds on to the cost of CDMA2000 handsets. And we already know Qualcomm's stance on lowering its royalty rates: No way!

FierceWireless will not be publishing tomorrow because of the holiday. Have a Happy Fourth of July. See you on Wednesday. -Lynnette