ROLLOUT KICKS OFF 3G'S AMAZING RACE

The rollout of CDMA 1x EV-DO services in San Diego and Washington, D.C., by Verizon Wireless last week could be the catalyst that propels the U.S. wireless data industry several years into the future.

Boasting 300 kb/s to 500 kb/s download speeds, Broadband Access service from Verizon Wireless is the first true third-generation service deployed in a major U.S. market (Monet Mobile Networks offers EV-DO service in Duluth, Minn.) and far exceeds the capabilities of competitors' mobile data networks.

“This launch makes us the industry leader in data access,” said Bill Stone, vice president of marketing for Verizon Wireless. “We feel that with the speed that we offer, along with the convenience and simplicity of a single network, we're meeting a key market demand.”

In essence, Verizon Wireless has made the San Diego and Washington, D.C., markets test beds that will determine 3G's market viability. If they prove successful, the carrier could launch EV-DO (for data only) services nationwide, prompting its competitors to follow suit.

The carrier's initial target is the enterprise market. Verizon Wireless is focused on winning the most lucrative customers in both areas, hyping the service's ability to link with corporate virtual private networks and work with any security protocol. Industry observers believe that if the carrier can land that business and and create a core high-speed data user base, the carrier will begin expanding the network's reach.

“Verizon needs to know it can fill that pipe,” said Andrew Cole, an analyst with Adventis. “It needs to know businesses are willing to use that service extensively and that there are applications for this service. Enterprise will supply the financial validity for these new networks.”

Stone acknowledged that one of the main attractions for larger enterprises would be nationwide coverage, which, with two markets, Verizon Wireless can not offer. But the EV-DO networks do hand off to the carrier's nationwide 1xRTT network, providing ubiquitous—albeit slower—coverage. Verizon Wireless also hopes to land a significant number of smaller business customers in the EV-DO markets, Stone said.

As far as plans for expansion, Verizon Wireless has not committed to a timeline. “It's still too early in the game to tell exactly when and if we'll roll out to new markets,” Stone said.

The launch puts Verizon Wireless ahead of its peers. Most major national carriers have completed their cdma2000 1x and GPRS rollouts, but the data speeds produced by those technologies, while theoretically as high as 144 kb/s with 1x, usually clock in between 32 kb/s and 64 kb/s. EV-DO provides broadband speeds that Sprint PCS, AT&T Wireless, Cingular Wireless and T-Mobile can't match unless they accelerate their plans to evolve their data infrastructures.

Cingular has committed to deploying EDGE technology next year, while AT&T Wireless has said it will start its first wideband CDMA trials around the same time. Sprint PCS, the only other large wireless carrier capable of quickly following Verizon Wireless into the higher speed realm, has run DO technology through its paces in a trial in Boise, Idaho, but so far remains unconvinced that the technology is worth it.

Because it is specifically designed for data, EV-DO requires a service provider to commit separate channels dedicated to data access, while 1x hosts both voice and data over the same carriers. The cost to deploy an EV-DO overlay is both expensive and spectrally inefficient, a Sprint PCS spokesman said. Additionally, DO is limited to laptop users because handsets are not yet capable of handling the raw streams of data that DO is capable of sending.

“Sprint leads the industry in data now—we have 2.1 million Vision subscribers,” the spokesman said. “This is a big phenomenon we're riding here. Why would we go on to something new that hasn't been proved practical or even fiscally prudent?”

Sprint PCS is opting instead to supplement its networks with Wi-Fi, committing to turn on 2100 hot spots across the country for its hardcore data users. And in 2006 it plans to deploy 1x EV-DV, the next generation of data services supporting broadband data at speeds up to 5 Mb/s, as well as voice.

But Sprint PCS hasn't entirely discounted the possibility of an EV-DO deployment. Sprint PCS officials were quick to point out they would be able to deploy EV-DO services fairly quickly if they decide a market for the enhanced service does exist, needing only a software upgrade and new line cards in their base stations.

The success of the new offering from Verizon Wireless might force Sprint PCS to play that wild card. If the carrier expands EV-DO to other major markets, or if it commits to full nationwide rollout, Sprint could be forced to react.

“In Sprint's public remarks, it has always left the door open to DO,” said Randy Battat, president and CEO of Airvana, which supplied the base station controller software and line cards for the Nortel-based San Diego network. “As Verizon gets a lot a happy customers from its DO deployment, Sprint will have to make a decision. I can't imagine Sprint not wanting its own happy customers.”

But until a broader rollout comes, competitors of Verizon Wireless have the luxury of being able to watch from the sidelines. It's also likely carriers will find other ways to compete in Verizon's EV-DO markets, such as lowering data prices or boosting Wi-Fi efforts, said Jeff Rickard, senior analyst for wireless services at Current Analysis.

But that strategy won't work if Verizon Wireless starts expanding. Price competition goes only so far, and carriers can't rely too heavily on hot spots without running the risk of Wi-Fi displacing the market for their own wide area broadband services when finally deployed, Rickard said.

“The bottom line is the carriers so far have had only OK adoption of their data services—no one's breaking down the door,” Rickard said. “The other carriers will watch Verizon Wireless closely, but unless it pushes forward into a lot more markets, other carriers have very little incentive to accelerate their deployments.”