Cingular Confirms 3G Trio 608278

Analyst says Nortel's accounting scandals may have cost it a cherry deal

December 1, 2004

3 Min Read
Cingular Confirms 3G Trio

Cingular Wireless has confirmed Ericsson AB (Nasdaq: ERICY), Lucent Technologies Inc. (NYSE: LU), and Siemens AG (NYSE: SI; Frankfurt: SIE) as suppliers of its commercial UMTS (Universal Mobile Telecommunications System) network, a deal initially flagged by Unstrung last month (see Network Duo Linked to Cingular).

According to a statement, the carrier “will be building 3G UMTS with HSDPA (High Speed Downlink Packet Access) networks in a number of major urban and suburban markets beginning in 2005.” It expects to offer 3G services “in most major markets by the end of 2006.” (See Cingular Touts 3G Plans.)

Cingular already offers UMTS services in Dallas, Detroit, Phoenix, San Diego, San Francisco, and Seattle, courtesy of its $41 billion acquisition of AT&T Wireless Services Inc. (NYSE: AWE) (see AT&T Launches 3G and Cingular Completes AT&T Deal).

UMTS is the 3G upgrade to the GSM (Global System for Mobile communications) standard, using a wideband-CDMA (W-CDMA) air interface on top of the GSM core network to increase voice capacity and boost data-transfer speeds to realistic rates of around the 300-kbit/s mark.

Used with existing W-CDMA networks, HSDPA-compliant handsets and base stations could increase transfer rates to bursts of several Mbit/s, at least in theory. HSDPA is a standardized feature in the 3rd Generation Partnership Project (3GPP) Release 5 specification, introduced in August 2002 (see Release 5 to the 3G Rescue).

The U.S. carrier has not revealed financial details of today’s announcement, but Lehman Brothers believe Cingular “is likely to spend approximately $500 million on W-CDMA in 2005 and $1 billion in 2006.”

In terms of vendor share, Lehman Brothers estimates a split of “around 40% for WCDMA market leader Ericsson, 30-35% for Lucent and around 25-30% for Siemens.” (See Ericsson Supplies Cingular 3G, Lucent Grabs Cingular Action and Siemens Wins Cingular 3G)

The deal is a massive fillip for Lucent, but a major loss for Nortel Networks Ltd. (NYSE/Toronto: NT). To date Lucent has scored only two piddly UMTS contracts in Europe, a huge contrast to its CDMA (Code Division Multiple Access) market dominance and past success in the GSM space (see Lucent's 3G Bit Part, Lucent Does 3G in Seville , and Lucent Falls Wide).

“The Lucent win with Cingular Wireless will, at last, legitimize Lucent’s WCDMA business, which has been widely criticized for a lack of major wins,” notes Technology Business Research Inc. (TBR)’s Bill Lesieur.

Meanwhile Nortel has lost the bid despite being one of the vendors for AT&T’s UMTS trials and a traditional Cingular supplier (see Nortel Powers AT&TW 3G and Nortel Ships to Cingular). “The loss will emerge as the most prominent example that Nortel’s accounting scandals are finally impacting its market position in a very visible manner,” claims Lesieur. “Nortel’s board of directors will likely see the Cingular loss as a major red flag in the consideration of the breakup of Nortel and other merger options.”

For the time being at least, Nokia Corp. (NYSE: NOK) has also been excluded from the UMTS network equipment deal. Cingular has, however, signed an agreement with the Finnish vendor to enhance its GSM and EDGE (Enhanced Date Rates for GSM Evolution) networks “and possibly support the deployment of its 3G UMTS network.” (See Cingular, Nokia Extend Deal.)

Earlier this year Cingular’s main rivals announced their own plans for 3G rollout, opting to deploy CDMA2000 1xEV-DO (Evolution, Data Only) technology from Lucent, Motorola Inc. (NYSE: MOT), and Nortel (see Sprint Confirms EV-DO Network and Verizon Repeats on 3G).

— Justin Springham, Senior Editor, Europe, Unstrung

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