People in the wireless industry have been talking about what will replace 3G networks in the next two or three years. AT&T (T), Verizon (VZ), Sprint (S), and their peers overseas need something to spark consumer demand now that many people already own handsets and higher-end smartphones.
Most of the 3G networks run about as fast as a DSL line. That works fine for transferring modest data files, talking, texting, going online, and even watching video. But, the phone companies don't seem to think consumers and business users will be satisfied by the way their networks operate now. Their next generation of technology will be about ten times faster than the one in the market today. (Read "25 People to Blame for the Financial Crisis".)
The race is already on to see who will get the customers for the new age of wireless products and services. The dark horse is Sprint (S) which is in an alliance with Intel (INTC), Clearwire (CLWR) and several other technology companies to build an ultrafast WiMax network. The more successful operations like Verizon are putting their money on Long Term Evolution (LTE) products.
Both technologies will probably work. Like all broadly deployed services, there will be plenty of glitches. Even a 3G-powered Apple (AAPL) iPhone drops calls as people move around the AT&T (T) network.
The competitors in the cellular services business are set on doing what many technology firms do. They will create several incompatible services and hope that enough consumers get behind one to make it the de facto standard. In the meantime potential subscribers will be confused, will waste money on products that they don't understand, and, eventually some will be told that their tech choice lost the battle. A similar problem faced consumers with high definition DVDs. The Blu-ray and HD DVD forces battled for over three years. Blu-ray won that war, but its sales have been very modest. Maybe the new technology seems too expensive to consumers. Maybe most people think video looks fine in standard definition. As CNET recently wrote, movies on Blu-ray disks can cost about twice what a regular resolution DVD does. The backers of Blu-ray and HD DVD each spent billions of dollars to win a market which may not even exist, at least not at the size they thought it would be.
The next generation of cellular service may be judged on more than how it functions. It may be much faster than the 3G networks that service handsets now. But that won't matter if customers are unwilling to upgrade their current service and get new subscription plans. At some point, old handsets for 3G won't work, and acquiring new cell phones will be an additional cost.
Owning a Porsche with a 500 horsepower engine may impress a lot of people, even the driver. When it comes to daily use, however, most of that output is useless.
Douglas A. McIntyre
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