NATIONAL EV-DO PLAN REFLECTS CAPEX RENEWAL

Verizon Wireless' plan to spend $1 billion above and beyond its planned capex budget in 2004 and 2005 to expand its CDMA 1X EV-DO coverage nationally reflects an expected increase in wireless carrier capex across the industry and brightening prospects for vendor revenue. It also could prove a catalyst for other CDMA carriers to make firm decisions about deploying EV-DO.

The $1 billion is part of a commitment by the corporate parent of Verizon Wireless to spend a combined $3 billion to enhance its wireless and wireline broadband infrastructures, according to Ivan Seidenberg, CEO of Verizon Communications, who discussed the plan during his keynote last week at the Consumer Electronics Show in Las Vegas.

If not a return to the free-wheeling capital spending of a few years ago, Verizon's plan at least reflects a reversal of the declining budgets that characterized the wireless industry in fiscal years 2001, 2002 and 2003.

“The $1 billion is incremental — in addition to what would have been our network capex for 2004 and 2005,” a Verizon spokesman said. “We have not yet announced capex figures for 2004 and 2005.”

Verizon's capex for 2003 ranged from $4.4 billion to $4.7 billion, and it gave projections recently that its 2004 budget would be in line with that figure.

Just a few weeks ago, analyst Steve Levy of Lehman Brothers predicted in a research note that carrier spending would increase in 2004. “The combination of a renewed focus on network strength for both quality and coverage, and healthy growth in subscribers and usage will result in higher than expected capital spending in 2004,” he wrote.

In addition, while Verizon was announcing its expansion plans last week, one of the wireless industry's key vendors, Nokia, gave guidance for 2004 that projected improvement in both network gear and handset businesses.

While saying that Verizon's national EV-DO commitment may not necessarily affect the data adoption and expansion plans of other carriers, Iain Gillott, principal of iGillot Research, said the announcement could apply pressure to other CDMA carriers to get their own upgrade plans in order. Sprint has said it will wait to upgrade its national 1X RTT network until EV-DV is available, likely in 2005 or 2006, but could Verizon's aggressive plan change Sprint's tune?

“There could be some re-examination, with Sprint sitting down with their vendors,” Gillott said. “If they say it will be ready in 2005, Sprint might hold them to it and stick with DV, but if it's later, you might see Sprint reconsider. They never said they wouldn't deploy DO.”

Seidenberg didn't say which U.S. cities would see the EV-DO upgrade first or when the carrier's expansion project might begin — the Verizon spokesman said the information was being guarded “for competitive reasons.” A formal company statement promised that customers in several markets would be able to get the upgrade to the carrier's BroadbandAccess branded service beginning this summer, with broader availability next year.

The Verizon spokesman also said the carrier has not signed any vendor contracts to carry out the expansion, though it is widely believed that Nortel Networks, which rolled out the carrier's first commercial EV-DO network in San Diego, and Lucent Technologies, which supplied equipment for the second market launch in Washington, D.C., are in line for some or all of the business.

While the upgrade could be a boon to Nortel and Lucent as the lead contractors, Gillott said it could prove an even greater benefit to small companies such as Airvana, which provides the modules that convert Nortel's CDMA base stations to EV-DO.

Companies that support media-rich applications — from the major media conglomerates down to the developers and device-makers — also could benefit, Gillott said. “The media companies have really been wanting to do more in wireless,” he said. “We could see some [mobile virtual network operator] agreements follow this expansion. We could see a ripple effect all the way down the food chain.”