Cingular Spends on GSM

Cingular Wireless LLC today talked up a $227 million investment in second-generation GSM (Global System for Mobile communications) infrastructure in two U.S. states, amid ongoing speculation that the carrier is delaying deployment of its 3G network.

The carrier has announced plans to invest “more than $160 million” in its Tennessee network before year’s end and “more than $67 million” in Kentucky (see Cingular Expands Network). A spokesman states that network buildout will be “primarily GSM,” benefiting the likes of suppliers Ericsson AB (Nasdaq: ERICY) and Nokia Corp. (NYSE: NOK).

The announcements come at a time when Cingular is attempting to move its customer base from networks that run on older Time Division Multiple Access technology to the global GSM standard, as well as handle the integration of AT&T Wireless’s subscriber base following last year's $41 billion acquisition (see Cingular Completes AT&T Deal).

“Since November we have successfully migrated over 4 million former AT&T Wireless customers to Cingular plans and billing systems,” said CFO Pete Ritcher on the carrier’s second-quarter results call last week (see Cingular Profit Narrows on Merger Costs). “We now have more than 78 percent of our total customer base on GSM. These GSM customers are now generating an impressive 90 percent of our total system minutes. This rapid migration of TDMA minutes to GSM benefits the integration work we are doing on our TDMA networks.”

On top of that, Cingular has also promised to offer 3G services based on W-CDMA technology “in most major markets by the end of 2006.” (See Cingular Confirms 3G Trio and Cingular Touts 3G Plans.) Such plans involve a massive network overhaul, with the carrier having to deploy new base stations that are capable of providing increased voice capacity and realistic data-transfer speeds of around 300 kbit/s.

Media reports earlier this year suggested Cingular was planning to delay the rollout of 3G networks in an attempt to focus attentions on its GSM efforts, a view strengthened by a recent analyst report on the matter.

“Our contacts around Cingular are indicating that the operator is reallocating portions of its capital budget from WCDMA deployment toward network coverage and capacity improvements for GSM,” notes George C. Notter of Jeffries & Company, Inc. “We know of a number of WCDMA base station deployments and base station upgrades that have recently been put on hold -- these include various sites that were originally targeted for 2005 and 2006 WCDMA deployment.”

For its part, Cingular denies any such notion. “Most of the $6.2 billion capex budget for 2005 was earmarked to enhance quality and coverage of the GSM/GPRS/EDGE network,” writes a spokesman in an email note to Unstrung. “Part of that will cover integrating the AWE and Cingular networks. This has been the plan and still is the plan. Between this year and the end of 2006, we expect to spend about $1 billion on deploying UMTS/HSDPA. This has been the plan and still is the plan. We are still scheduled to offer commercial UMTS/HSDPA service in 15-20 markets this year and to most major markets by the end of 2006. And yep, that was the plan and still is the plan.”

— Justin Springham, Still Senior Editor, Europe, Unstrung

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