In global wireless communications, decisions over which technology runs a cellular network can change history and make or break multibillion-dollar companies. That's what happened in the 1990s, when mobile operators upgraded their networks from analog to digital. The precursors of today's Verizon Wireless and Sprint Nextel (S) chose a cutting-edge technology called CDMA (short for code division multiple access) from then-startup Qualcomm (QCOM), assuring the San Diego company a central role in the mobile sphere for years to come.
Now, the industry faces a similar fork in the road as operators prepare to migrate their networks to so-called fourth-generation mobile technology that boasts faster download speeds and lower costs. Again, Qualcomm is at the center of the action, with an approach it calls Ultra Mobile Broadband, or UMB, that will make it easy to access multimedia applications from a variety of portable devices.
But Qualcomm's longtime European rivals"”which developed the competing Global System for Mobile (GSM) communications standard now used by about 80% of the world's subscribers"”have a 4G technology of their own: Long Term Evolution, or LTE, proffers similar specs to Qualcomm's UMB but, not surprisingly, is more compatible with GSM-type networks. Also in the mix: A cabal of tech companies that includes Intel (INTC), Cisco Systems (CSCO), and Samsung (SSNGY) is throwing its weight behind yet another technology, known as mobile WiMAX, akin to Wi-Fi on steroids.
Verizon wireless weighs a change
The stakes are high for the industry's transition to 4G technology. And as with all such shifts, there's hardly a more opportune moment for companies to defect from previous suppliers and make big bets on alternatives that could deliver an advantage. That's what Sprint Nextel did when it stepped off the CDMA train and committed to spending $5 billion on a WiMAX network (BusinessWeek.com, 9/3/07) it hopes will reach 100 million Americans by the end of 2008.
Now longtime Qualcomm loyalist Verizon Wireless, the No. 2 U.S. mobile operator, is mulling a switch. It's considering LTE, backed by the likes of Ericsson (ERIC) and Nokia (NOK), and has joined a group looking at the evolution of the GSM standards path. To be sure, Verizon Wireless is also looking at mobile WiMAX, UMB, and other alternatives. 'We are testing a lot of technologies,' says Verizon Wireless spokeswoman Nancy Stark. 'We have not yet made a decision.' Still, reports of the company's consideration of LTE sent shock waves across the industry.
Analysts say a move by Verizon Wireless to LTE or WiMAX could prove a major setback for the CDMA family of products, a $43 billion market for handsets and infrastructure dominated by players including Qualcomm, Alcatel-Lucent (ALU), LG Electronics (LGEJY), Samsung, and Nortel Networks (NT). Qualcomm and LG are among the most exposed to the CDMA market in terms of revenue and profit, but Alcatel-Lucent could suffer the most. Some $2.4 billion in Alcatel-Lucent revenue from CDMA gear would be wiped away, says Richard Windsor, a wireless analyst in London at Nomura Securities, a division of Nomura Holdings.
UMB: Already a distant third‾
Verizon Wireless' potential switch illustrates just how much the telecom industry could change as a result of choices being made now about 4G wireless technology. With so many questions swirling around CDMA's future, analysts are focusing less on UMB and more on LTE vs.