4G: A whole new ball game

While many operators are still in the process of deploying and optimizing their 3G networks (including CDMA EV-DO and UMTS/HSPA), major communications equipment vendors are already banging the 4G drum. Although new orthogonal frequency division multiplexing technologies will undoubtedly continue to lower the costs per megabit relative to current technologies, success for 4G has to be about more than a continually declining cost curve.

The first question about 4G is why we need it when there is still debate over the return on investment in 3G. It may be difficult to see the returns from 3G, but one has to consider that without these investments, business as usual would have faced a steady decline because of market saturation, intense competition and the resulting lower pricing. New data services enabled by 3G have allowed operators to halt and reverse average revenue per user declines. 3G has provided a new arsenal of products and services that increase the operators' ability to differentiate offerings and improve customer loyalty. Given the apparent benefits of 3G now and the potential for further growth, do operators need to spend billions more on 4G?

That answer may be different for different providers. If the only goal is a faster-speed and lower-cost network, it is unclear that enhanced speeds alone will generate the returns necessary to justify such a significant upgrade, especially considering the extensive investment made for 3G. By avoiding technology licensing fees and royalties, and utilizing improved spectral efficiencies, 4G can deliver wireless services at lower costs relative to 3G. However, for 4G to make sense, operators must create new business models that extend services beyond handset-centric voice and data services.

The logical extension for wide area connectivity provided by 4G technologies is in the computer and consumer electronics space. Mobile providers already have begun to embed 3G technologies into laptops with select OEM partners. Although there appears to be a strong interest, the mix of devices and challenges with these business models may hinder their success-the variety of laptop models with embedded devices is limited. Where they do exist, service is limited to a single provider, and the monthly cost for this service usually exceeds the cost of wired broadband.

Wide-scale 4G embedded in computing devices could reduce the cost to purchase and costs to use, thus expanding the mobile broadband market. Furthermore, the potential to create new 4G services lies in a large base of embedded devices, extending to music players, digital cameras and other consumer electronic devices. Consumers already connect these devices to computers to exchange digital files. With embedded 4G technologies, the functionality of these devices increases, enhancing the value for both the device manufacturer and the consumer. Imagine real-time video sharing with friends and relatives with a 4G digital camcorder or sending photos directly from a 4G camera for printing, posting and sharing.

The 4G vision and reality are two different things. Development of these technologies needs to involve players outside the traditional mobile ecosystem. New business models between network operators, device manufacturers, retailers, content providers and other intermediaries must be developed. The traditional model of buying a plan and a device at retail doesn't apply in the majority of 4G use cases. In developing these new models, all parties must be realistic about what the consumer is willing to pay for the additional benefit. Yes, there are more questions than answers at this time, but the industry and consumer have much to gain from getting it right.

Susan Simmons is a vice president for CSMG Adventis, a large specialist telecom and media management consulting firm. She can be reached at (617) 999-1000 or Susan. Simmons@csmg-global.com.