3G Faces Capex Squeeze

Operator investment in WCDMA and future releases of high-speed packet access (HSPA) may be limited now that the commercial timescale has accelerated for Long-Term Evolution (LTE) and the lifespan of GSM/EDGE networks continues to defy expectations, resulting in a “3G squeeze,” finds a new report from Heavy Reading.

The narrowing gap between GSM/EDGE and LTE will cause global annual capex spend on WCDMA/HSPA equipment to peak at $19 billion between 2010 and 2012, according to the report, "3G Squeeze: GSM, LTE & the Future of Wideband CDMA."

Just as HSPA starts to find its feet and deliver the mobile broadband promise that the industry has desired for so long, it faces the risk of early redundancy thanks to the arrival of mobile WiMax and the operator push for so-called "4G" technology LTE. (See Verizon, Vodafone Head for LTE, China Mobile Joins LTE Threesome, and Vodafone Plans LTE Powwow.)

In the HSPA+ technology roadmap, downlink speeds go to 80 Mbit/s and beyond. While the 28.8 Mbit/s release of HSPA+ is expected to be widely deployed, it is by no means inevitable that operators will invest in future HSPA+ releases beyond that. This is because of the drive from Verizon Wireless to bring forward the development in next-generation LTE, which is capable of up to 100 Mbit/s downlink speeds.

Vodafone Group plc (NYSE: VOD), for example, said at an analyst event earlier this year that it was not currently committed to investing in HSPA+ beyond the 28.8 Mbit/s release. The operator announced in February that it will trial 28.8 Mbit/s HSPA+ with gear from Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , and Qualcomm Inc. (Nasdaq: QCOM) (See Vodafone Pumps Up HSPA.)

According to the latest figures from the Global Mobile Suppliers Association (GSA) on the state of 3G network deployments, there are 125 commercial 3.6 Mbit/s high-speed downlink packet access (HSDPA) networks and 45 commercial 7.2 Mbit/s HSDPA networks worldwide. Vodafone, for one, says it plans to launch a 14.4 Mbit/s network by the end of this year.

But even with tremendous operator pressure on vendors to speed LTE development, LTE won’t start to take a substantial share of the 3rd Generation Partnership Project (3GPP) infrastructure market until 2012, according to the report.

On the other side of the 3G squeeze, GSM and EDGE infrastructure sales have shown no sign of slowing down. But that may change this year, because sales growth in emerging markets is starting to flatten out with the exception of some high-growth markets like India.

In fact, the report finds that the first GSM network shutdowns could happen as soon as 2012 or 2013. This is likely to happen first in markets like Finland, Hong Hong, Norway, Singapore, Sweden, and Taiwan. And operators in these markets are already considering this option.

“3GPP assumes a phased migration from one generation of cellular technology to another,” says the report’s author, Heavy Reading senior analyst, Patrick Donegan. “But with the surge of investment in GSM that we’ve seen in emerging markets, and now Verizon Wireless’s push for LTE, the phased approach is breaking down as it comes into contact with strong regional variations in market demand. This is creating uncertainties of the kind that that the 3GPP ecosystem is having to navigate for the first time.”

The Heavy Reading report examines the regulatory, standards, and product roadmaps for GSM/EDGE, WCDMA/HSPA, and LTE between 2008 and 2012 and analyzes the factors affecting operator capex decisions and the implications for equipment suppliers.

For more information on the report, click here.

— Michelle Donegan, European Editor, Unstrung

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