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3G Wireless in the US: cdmaOne to cdma2000 Migration
 

3G Wireless in the US: cdmaOne to cdma2000 Migration

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    3G Wireless in the US: cdmaOne to cdma2000 Migration 3G Wireless in the US: cdmaOne to cdma2000 Migration Document Transcript

    • 3G WIRELESS IN THE US: CDMAONE TO CDMA2000 paper prepared for: Information and Telecommunications Protocols: Modeling and Policy Analysis Kennedy School of Government, Harvard University (STP-308) Massachusetts Institute of Technology (ESD.127) Fletcher School of Law and Diplomacy, Tufts University (DHP P251) May 8, 2000 Jonathan Liew, Kennedy School of Government, Harvard Sohil Parekh, Technology and Policy Program, MIT Maureen Rivaille, Fletcher School of Law & Diplomacy, Tufts Chris Zegras, Department of Urban Studies & Planning, MIT
    • Table of Contents 1. INTRODUCTION..................................................................................................... 1 2. MARKET ANALYSIS.............................................................................................. 2 2.1 HISTORY ................................................................................................................ 2 2.2 DEMAND AND SUPPLY FORCES ............................................................................... 3 2.3 CONCLUSION........................................................................................................ 14 3. POLICY ANALYSIS: 3G, REGULATION & CONVERGENCE PROCESS..... 15 3.1 TECHNOLOGY OVERVIEW ..................................................................................... 15 3.2 COMPETING STANDARDS VS. THE BENEFITS OF CONVERGENCE .............................. 17 3.3 ACTORS IN THE STANDARDIZATION PROCESS ........................................................ 18 3.4 CHRONOLOGY OF THE STANDARDIZATION PROCESS .............................................. 19 3.5 SPECTRUM ALLOCATION ....................................................................................... 22 3.6 THE NORTH AMERICAN CASE ............................................................................... 25 3.7 INTERNETWORKING AND BILLING ......................................................................... 26 3.8 CONCLUSION........................................................................................................ 27 4. CDMA STANDARDS, ARCHITECTURES AND MIGRATION – 2G AND 3G28 4.1 INTRODUCTION..................................................................................................... 28 4.2 CURRENT STANDARD – 2G/2.5G .......................................................................... 28 4.3 1XRTT, 3XRTT – CDMA’S 3G ........................................................................... 28 4.4 THE IS-95 (2G) ARCHITECTURE ........................................................................... 29 4.5 THE 1XRTT (3G) ARCHITECTURE ........................................................................ 30 4.6 ARCHITECTURE MIGRATION ISSUES ...................................................................... 34 5. MODEL ANALYSIS AND RESULTS................................................................... 36 5.1 METHOD LOGY ..................................................................................................... 36 5.2 BASIC ASSUMPTIONS ............................................................................................ 37 5.3 CDMAONE (1S-95A) MODEL ............................................................................... 38 5.4 CDMA2000 (1XRTT) MODEL............................................................................. 40 5.5 MODEL RESULTS AND ANALYSIS .......................................................................... 43 5.6 SENSITIVITY ANALYSIS ........................................................................................ 45 6. KEY FINDINGS AND IMPLICATIONS .............................................................. 50 6.1 PRIMARY FINDINGS .............................................................................................. 50 6.2 RESULT IMPLICATIONS ......................................................................................... 51 6.3 MIGRATION IMPLICATIONS ................................................................................... 52 6.4 MARKETS, REGULATION & COMPETITION............................................................. 53 6.5 DIRECTIONS FOR FUTURE RESEARCH .................................................................... 53
    • Introduction 1. INTRODUCTION The wireless market is large and growing rapidly in the United States. Increasingly, data, rather than voice, services are being demanded. It is estimated that in 2003 as much as 15% of the $60 billion wireless market will involve wireless data and internet services. However, the current wireless infrastructure in the US only supports first generation (1G or analog) and second generation (2G or narrowband digital) technologies. Furthermore, there are multiple technology standards, such as TDMA, GSM and CDMA.1 The challenge for the US wireless industry is to migrate to a “third generation” (3G or broadband digital) of wireless technology, which will permit broadband digital transmission of rates up to 384 kKbps.2 The cost of migration from second to third- generation wireless will depend on the technology standard of the existing infrastructure. This paper provides a preliminary estimate of the cost of migration for a generic CDMA infrastructure in the US market. Section 2 of this paper provides a market overview of the wireless services industry. Section 3 discusses the key regulatory and public policy issues for the US wireless industry, including the international process of standards harmonization, the difficult problem of spectrum allocation and the need for convergence. In Section 4, generic network architectures of second and third generation CDMA technologies are presented and the details related to the migration from 2G to 3G are outlined. The fifth section presents and discusses the methodology and assumptions used in the model to estimate the costs of 2G and 3G architectures and provides model results and test sensitivities. The paper concludes with a presentation of the implications of the work. 1 These technology standards will be described later in the paper. For now, TDMA stands for Time Division Multiple Access, GSM stands for Global System for Mobile Communications and CDMA stands for Code Division Multiple Access. 2 Though data rates of up to 2 Mbps may be supported.
    • Market Analysis 2. MARKET ANALYSIS The wireless industry is complex, growing rapidly, and involves numerous participants. This section will provide: § A brief overview of the history of wireless in the US; and § A comprehensive summary of the market demand and supply forces influencing the wireless industry. 2.1 HISTORY In the US, wireless technology emerged in the 1920s. Police departments in Michigan, New Jersey and Connecticut were among the first to use, in their patrol cars, similar radiotelephone service technology as that used in oceangoing vessels3. Over time, sophisticated advances were made, such as the invention of Frequency Modulation and call “handoff” technology. In 1977, the Federal Communications Commission (FCC) authorized an experimental license in Chicago, and AT&T rolled out a beta-test analog cellular service covering Illinois.4 The analog based system proved so successful that it soon dominated the cellular market and delayed the introduction of the technically superior digital systems. Nonetheless, digital technologies finally emerged, beginning with the TDMA IS-54 standard. GSM technology, which dominated the international digital cellular market, was commercially deployed in the US in 1996 following additional spectrum allocation by the FCC. Then, Qualcomm, a US cellular firm, developed a technically more efficient digital technology, CDMA. The end result was the emergence of a multiple second-generation (2G) technology standards. In contrast, there has been a very different evolution of wireless technology in Europe. Multiple analog standards developed early, which created a range of incompatible networks. There was the Nordic Mobile Telephone System in 1981 that operated in Denmark, Sweden, Finalnd and Norway. Total Access Communications was an analog mobile technology, launched in 1985, in the UK. France developed the Radiocom 2000, Italy the RTMI/RTMS5 and West Germany the C-Netz.6 Deliberate efforts were taken to evolve to a single digital standard in Europe. The result was an open, non-proprietary digital cellular standard that allowed equipment to be easily multi-sourced by different operators. That technology was the Global System for Mobile Communications (GSM). By 1991, commercial GSM networks, operating at 900 MHz were operating in Europe, and at 1.8Ghz in the UK.7 "3 http://www.wow-com.com/consumer/faqs/faq_history.cfm, “The History of Wireless” 4 Kibati, Mugo, “Wireless Local Loop in Developing Countries: Is it Too Soon for Data? The Case of Kenya,” M.S. Thesis, MIT, May, 1999,p.41 5 RTMI stands for “Radio Telefono Mobile Integrato” and RTMS stands for “Radio Telefono Mobile di Seconda generazione” 6 Kibati, op. cit., p.42 7 ibid, p.42 Page 2
    • Market Analysis Consequently, Europe has evolved from incompatible, multiple analog standards into one open and interoperable digital cellular standard. In contrast, the US has evolved from one dominant analog standard into multiple incompatible digital cellular standards. 2.2 DEMAND AND SUPPLY FORCES The need for 3G technology has evolved from a combination of two forces - consumer “pull” demand for wireless data services, and a vendor and carrier “push” supply of wireless data infrastructure. Consumer “pull” demand The key determinants of demand for wireless technology infrastructure are the growth in wireless subscribers and data services, innovation, technology and pricing of handsets, and the relative pricing of wireless and internet access. Increase in wireless and data services The market size of wireless services is large and growing. As at 30 June 1999, annual total service revenues were $37.2 billion from a subscriber base of 76.3 million in the United States8. The growth rate in the number of subscribers was 52.7%pa over 1985 to 1999. In recent times, this growth has slowed, but is still high in absolute terms; over 1992-1998, compound annual growth in wireless was 32%pa, compared to 5%pa in long distance and 4%pa in local telephony9 (Figure 2.1). Wireless consumers in the US are starting to demand data, in addition to voice, services. However, the US market appears to be 2-5 years behind the European market in the adoption of wireless internet and data services. Preliminary research indicates that most consumers have difficulty understanding the form and impact of mobile data services and functionality. For example, 42% of respondents to a Yankee survey10 that covered 3,414 respondents who were primarily technology users, did not know or did not answer if they would be interested in mobile data services. In addition, most consumers do not associate their wireless phone with the internet. 51% of users interested in online access nominated the portable computer as the most appropriate device for internet access, and only 22% nominated the wireless phone. Furthermore, there currently does not appear to be substantial interest in wireless internet connectivity. The following statistics help frame this ambivalent level of consumer interest: § Only 8% of households express interest in data services over cell phones at today’s prices;11 § Between 9%12 and 17%13 of PDA users are interested in PDA wireless internet usage; and 8 CTIA Semi Annual Wireless Industry Survey, June 30 1999 9 Forrester, “A Second Wind for Wireless”, January 1999 10 Yankee, “1999 Mobile User Survey: Enhanced Services, Paging and Messaging Services and Mobile Data”, August 1999 11 Forrester, “Net Devices Ascend”, June 1999 Page 3
    • Market Analysis § 22% of respondents were very or somewhat interested in wireless connectivity with personal web pages.14 Figure 2.1: Number of wireless subscribers and total wireless revenue (1985-99)15 100.0 40.0 90.0 35.0 80.0 30.0 Number of Subscribers (millions) 70.0 Total Service Revenue ($billion) 25.0 60.0 50.0 20.0 40.0 15.0 30.0 10.0 20.0 5.0 10.0 0.0 0.0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Year Subscribers Service Revenue Nonetheless, Europe provides clear evidence that consumers desire wireless data services, with the popularity of data applications such as Short Messaging Services, and the migration towards a 2.5G “GPRS over GSM” technology that promises a potential 115 Kbps network speed.16 Despite an apparent slowness of consumers to warm to wireless data service in the US, recent industry surveys in the US confirm an emerging interest in wireless data services: almost 25% of people have “Quite a Bit” or a “Great deal” of interest in owning a wireless phone with data services17 and 37% of wireless phone users were very or somewhat interested in mobile data communications18 (See Figure 2.2). 12 Forrester, “Net Devices Ascend”, June 1999 13 Forrester, “PDAs Need Traction”, July 1999 14 Yankee, “1999 Mobile User Survey: Enhanced Services, Paging and Messaging Services and Mobile Data”, August 1999 15 CTIA Semi Annual Wireless Industry Survey, June 30 1999 16 Yankee, “Next Generation Cellular Data: Now for the Rollout”, p.1, 4 17 Peter Hart Research Associates, “The wireless marketplace in 2000”, February 2000, p.14 18 Yankee, “1999 Mobile User Survey: Enhanced Services, Paging and Messaging Services and Mobile Data”, August 1999 Page 4
    • Market Analysis Figure 2.2: Interest in the Following Wireless Data Functions19 100% 90% 80% 70% 67% 74% 60% 78% 79% 84% 50% 40% 30% 20% 33% 26% 22% 21% 10% 16% 0% Send/receive email Internet access Send/receive faxes Remote network access Document transfer Interested Not Interested Demand for greater bandwidth in wireless is likely to initially emerge from corporations that seek to establish mobile data networking and wireless data access for their employees. Yankee believes that the number of remote and mobile employees in large corporations will double in five years.20 Furthermore, in order to support mobile data networking of an increasingly mobile workforce, 77% of corporations believe that speeds of at least 56 Kbps will be required.21 Corporations believe that network speed, in addition to security and reliability, is one of the three most significant barriers to corporate adoption of mobile data networks.22 Clearly, there will emerge a need for wireless broadband digital capabilities. Consequently, high growth in wireless data services is expected in the future. Forrester forecasts annual growth rates of 8.9% in total wireless spending from 2000 to 2005.23 This is driven by a 47% annual growth rate in data, as distinct from voice, services. Consequently, revenue from wireless data services as a percentage of total revenue will grow. Industry analysts such as Forrester24 and Robinson Humphrey25 predict that data spending will be as much as 14% to 15% of total spending in 2004. 19 Yankee, “1999 Mobile User Survey: Enhanced Services, Paging and Messaging Services and Mobile Data”, August 1999 (sample size of 1,981 valid respondents). 20 Yankee, “Corporate Mobile Data Strategies: Higher Speeds Are a Prerequisite for Enterprise-Wide Deployment”, September 1999, p.3 21 ibid, p.1 22 ibid, p.6 23 Forrester, “A Second Wind for Wireless”, January 1999, p.9 24 ibid Page 5
    • Market Analysis Figure 2.3: Data as a percent of total wireless spending (1998-2004F)26 50% 60 45% 50 40% Data as a % of total spending Total spending ($billions) 35% 40 30% 25% 30 20% 20 15% 10% 10 5% 0% 0 1998 1999 2000 2001 2002 2003 2004 2005 Time Data spending Total spending Innovation, Technology and Pricing of Handsets Continual innovation in wireless devices will drive greater penetration of wireless mobile phones. Forrester believe that a winning wireless device is one that will retain a relatively focused purpose and will fulfill a single consumer need.27 It will include additional features such as web access that will supplement this primary purpose. More importantly, innovation will drive greater ownership of mobile phones, particularly amongst technology optimists. Forrester also predicts that carriers will begin to capture more customer segments by emphasizing new user benefits such as:28 § Security blankets for young and old: Location specific technology, that will help law enforcement agencies to pinpoint callers in an emergency, will appeal to security conscious consumers; § Closer touch for couples/families: Wireless technology is location sensitive, which will allow wireless phone numbers to be associated with a person rather than a place. § Stylish phones for the fashion aware: As phone prices fall, phones will be associated with fashion labels such as Nike and Ralph Lauren. New colors and styles will engender repurchases on a seasonal basis. The wireless handset industry is dominated by incumbents, such as Nokia, Motorola and Ericsson, and new market leaders such as QUALCOMM and Samsung. Broadly, there are four types of handset technology – analog, TDMA, CDMA and GSM. Currently, analog technology handsets dominate. However, 34% of the estimated 32.6 million US handsets sold in 1999 used CDMA technology, 30% used TDMA technology, and only 25 Robinson-Humphrey, “Wireless Internet: The Internet Goes Mobile”, January 2000. 26 Forrester, “A second wind for Wireless”, January 1999. 27 Forrester, “The New Consumer Electronics”, September 1999. 28 Forrester, “A Second Wind for Wireless”, January 1999. Page 6
    • Market Analysis 15% were analog.29 Yankee argues that the lead of CDMA in the US market is primarily driven by the availability of high quality dual band phones from handset providers such as Motorola and QUALCOMM.30 Figure 2.4 illustrates the anticipated change in the composition of handset technology in the US. Figure 2.4: Composition of handset technology in the US31 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1997 1999 2001 2002 CDMA TDMA GSM Analog Table 2.1: Retail Price Changes from 1999Q1 to 1999Q432 CDMA TDMA GSM High-tier phones 43% N/a 20% Mid-tier phones 9% 5% 11% Low-tier phones -20% -58% -32% The pricing of handsets has diverged such that low-tier33 phones are getting cheaper and high-tier phones are getting more expensive. The implication is that the low-tier phones will engender greater penetration amongst the more price sensitive customer segments. Cheap low-tier phones will be effective in stimulating new demand given Forrester’s prediction that wireless penetration will be limited due to 80% of nonsubscribers being deterred by high prices and lack of need34. High-tier phones may become more 2929 Yankee Group, “Mobile Phones Drive Wireless Sales in the Next Millennium”, December 1999, p.2 30 Yankee Group, “Mobile Phones Drive Wireless Sales in the Next Millennium”, December 1999, p.1 31 2000 MultiMedia Telecommunications Market Review and Forecast. 32 Yankee Group, “Mobile Phones Drive Wireless Sales in the Next Millennium”, December 1999. 33 Low tier phones are <$150, mid tier phones are between $150-$349 and high tier phones are >$350 34 Forrester, “Net Devices Ascend”, June 1999, p.8 Page 7
    • Market Analysis expensive, as less price sensitive technology optimists seek continual technology upgrades (See Table 2.7). Average standard retail prices increased for GSM, TDMA and CDMA technologies between the first quarter and fourth quarter of 1999. Yankee suggests that operators are no longer subsidizing handsets as strongly as before and is predicting that operators will start viewing handsets as profit makers rather than profit takers.35 Nonetheless, analysts predict that the average price of handsets will drop from $185 in 1999 to $150 in 200336, which will further encourage handset sales. Figure 2.5: US Cellular Penetration Over Time37 35 30 25 US cellular penetration (percent) 20 15 10 5 0 1996 1997 1998 1999 2000 2001 2002 2003 Year As a result, there will be greater ownership of wireless data devices in the US. It is predicted that cellular penetration in the US will increase rapidly as illustrated in Figure 2.5. Despite this growth, an anticipated level of 31% penetration of cell phones in the US in 2003 will be much lower than the ownership levels expected in Europe. High cellular penetration is expected in 2003 for most European countries, such as Sweden (79.4%), Italy (70.9%), the UK (64.2%), Germany (57.6%) and France (50.2%).38 Cost of wireless and Internet access Wireless access is competitive due to the large number of national and regional players. AT&T launched the industry’s first one-rate plan in mid 1998, which has been 35 Yankee Group, “Mobile Phones Drive Wireless Sales in the Next Millennium”, December 1999, p.6 36 2000 MultiMedia Telecommunications Market Review and Forecast, p.180 37 2000 MultiMedia Telecommunications Market Review and Forecast, 38 2000 MultiMedia Telecommunications Market Review and Forecast, p.177 Page 8
    • Market Analysis subsequently replicated by most other carriers.39 The simplified one-rate plans have increased the transparency of wireless pricing. Furthermore, it is expected that greater price competition will arise from carriers seeking greater market share of voice and data minutes. Table 2.2 shows a pricing survey of one rate plans for wireless carriers is indicative of the level of competition in the industry. Table 2.2 Comparison of One-Rate Plans (as at November 1999)40 Carrier Coverage Price Minutes Comments AT&T Wireless National 89.99 600 Industry leader 119.99 1000 149.99 1400 Sprint PCS National 70.00 700 Attractive pricing 99.99 1000 149.99 1500 Bell Atlantic Mobile National 159.99 1600 Depends on other carriers to complete calls Omnipoint National 139.99 1200 North American average Bell Atlantic Mobile Regional 39.99 200 East Coast 59.99 500 99.99 1000 Nextel Regional 49.99 30 Expensive for Regional 69.99 300 89.99 600 American Cellular Regional 75.00 600 Midwestern Baby Bell The average monthly bill per subscriber has fallen from $95.00 in 1988 to $39.00 in 1999, and is forecasted to fall to $37.00 in 200341. This is despite the average length of a call remaining constant over time at approximately 2.40 minutes per call42 (See Figure 2.6). US consumers are currently required to pay for both outgoing and incoming calls. For example, in the case of one-rate plans, minutes incurred from both outgoing and received calls are deducted from minute usage limits. The system of Calling Party Pays (“CPP”) instead requires the calling party to pay for the call; incoming calls are free to the cell phone user. This system is common overseas. It is expected that CPP will further encourage cellular penetration, as it will reduce the cost of use to the cell phone user. Analysts suggest that CPP may be a US standard by 2003.43 39 Wohl, Phillip “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.2 40 Wohl, Phillip “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.2 41 2000 MultiMedia Telecommunications Market Review and Forecast, p.174 42 CTIA Semi-annual wireless industry survey results 43 Wohl, Phillip “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.3 Page 9
    • Market Analysis Figure 2.6: Average local call length and Average local monthly bill (1988-2003F)44 10 100 9 90 Average local call length (minutes) 8 80 Average local monthly bill ($) 7 70 6 60 5 50 4 40 3 30 2 20 1 10 0 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Time Call length Monthly bill Pricing for wireless internet access is currently bundled with the pricing for voice services. Table 2.3 describes Sprint PCS’s wireless web pricing schedule as an illustration of the current level of pricing for wireless internet access in the market. Table 2.3: Sprint PCS Wireless Web Plans45 Price Voice and Data Number of Cost per Cost per Minutes Internet additional additional updates voice/data Internet update minute Wireless Web Add-on option 9.99 50 50 0.30 0.10 Wireless Web Plans 59.99 300 200 0.30 0.10 89.99 500 200 0.25 0.10 129.99 800 200 0.25 0.10 179.99 1200 200 0.25 0.10 Carrier “push” supply of wireless data infrastructure The supply of 3G technology infrastructure in the US is also being “pushed” by vendors and carriers. Vendors, such as Ericsson and Lucent, have an incentive to push the virtues of 3G technology; with capital spending on 2G networks plateauing, these vendors are 44 CTIA Semi-annual wireless industry survey results, 2000 MultiMedia Telecommunications Market Review and Forecast. 45 “New Wireless Data Services Deliver the Power of the Web to the Hands of Mobile Users”, Yankee Group, September 1999. Page 10
    • Market Analysis actively pushing 3G technology.46 Numerous wireless carriers, including Sprint PCS, and Bell Mobility already have or will have nationwide and regional coverage of wireless data services using circuit switched and packet switched networks of up to 14.4 Kbps in network speed.47 It is predicted that there will be over $15 billion in wireless communications infrastructure spending over 2001 to 2003.48 The following section provides an overview of the wireless carrier market in the context of the multiple 2G digital technologies. It describes the: • Market share and national coverage of each technology standard; • Prevalence of technology by US carrier; and • The emerging dominance of CDMA technology worldwide. Market share by technology The market share of the different technologies of CDMA, TDMA and GSM can be measured using either the number of subscribers or POPs. POPs refers to the population of potential customers. Table 2.4 outlines the estimated market share statistics of each technology. Table 2.4: Estimated Market Share of Technology in the US (!998)49 CDMA TDMA GSM iDEN POPs (millions) 208.5 191.6 174.5 191.5 Est number of subscribers (millions) 6.4 8.0 2.7 2.9 Market penetration 3.1% 4.2% 1.5% 1.5% Number of licenses 358 341 231 187 Note: Includes cellular and PCS POPs and licenses; iDen refers to another technology, currently provided by the largest Short Mobile Radio provider, Nextel. This technology is not explained here as it does not immediatedly relate to cellular or PCS technology. Nonetheless it is included for completeness; POPs are based on 1990 US Census data; Number of subscribers is based on 1998 data. Though TDMA technology currently has more subscribers than CDMA technology, the market shares are relatively equal by POPs and number of license as seen in Figure 2.7 There is significant national coverage offered by each technology. Wireless subscribers in the top 50 US markets will have a choice from carriers that offer nearly four digital technology standards, plus analog, once the GSM markets and some remaining AT&T Wireless, Sprint PCS and Nextel licenses are built out.50 In terms of carrier choice and overall footprint, CDMA dominates by a factor of about 2 to 1.51 46 Forrester, “The Dawn of Mobile cCommerce”, October 1999 47 Yankee, “New Wireless Data Services Deliver the Power of the Web to the Hands of Mobile Users”, p.1 48 2000 MultiMedia Telecommunications Market Review and Forecast, p.173 49 U.S. Federal Communications Commission, (FCC), Wireless Telecommunications Bureau, Fourth Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, 99-136, ppB-7, B-10. 50 Yankee, “Mid-1999 North America Wireless Update: Emergence of the New Wireless Industry”, p.5 51 Yankee, “Mid-1999 North America Wireless Update: Emergence of the New Wireless Industry”, p.6 Page 11
    • Market Analysis Figure 2.7 Market Share of POPs, subscribers and licenses by technology52 100% 15% 17% 90% 25% 80% 14% 21% 70% 23% 60% 40% 50% 31% 40% 25% 30% 20% 32% 32% 27% 10% 0% POPs (%) Number of subscribers (%) Number of licenses (%) CDMA TDMA GSM iDEN Prevalence of technology by US carrier Though the market currently appears quite fragmented it is becoming increasingly concentrated. Yankee notes that prior to the PCS auctions, no one carrier covered more than 30% of the US population. However, in 1999, four carriers had licenses that nearly covered a nationwide footprint and four other carriers covered 30% to 60% of POPs.53 It is clear that the race is on to expand coverage and capacity. Recent acquisition prices indicate multiples of between $1,900 to $6,400 per subscriber and between $170 to $280 per POP,54 which demonstrate that high prices will be paid for market consolidation. Three clear market leaders have emerged, AT&T Wireless55, GTE, and Sprint PCS. Table 2.5 identifies major US carriers in the market, outlines the technology and vendors employed and describes their approximate subscriber base. 52 U.S., FCC, op. cit., 99-136. 53 Yankee, “Mid-1999 North America Wireless Update: Emergence of the New Wireless Industry”, p.12 54 ibid, p.18 55 AT&T Wireless was floated as a company separate from AT&T on 26 April 2000 Page 12
    • Market Analysis Table 2.5: Outline of Carriers by Market Share and Technology56 Carrier Digital Air Subscriber Base Penetration Vendors Interface (thousands) (of covered Technology POPs) Aerial GSM 332 1.6% Nokia Communications Airtouch CDMA 8128 9.2% Motorola, Nortel, Lucent Ameritech CDMA 3400 13.5% Lucent AT&T Wireless TDMA 7624 5.3% Lucent, Ericsson Bell Mobility CDMA Nortel Bell Atlantic CDMA 6391 9.0% Lucent, Motorola Mobile BellSouth Mobility TDMA 426 3.0% Ericsson Rogers Cantel TDMA N/a N/a Ericsson GTE Wireless CDMA 4889 7.4% Motorola, Lucent Microcell GSM N/a N/a Nortel Nextel iDEN 3375 1.8% Motorola Powertel GSM 338 2.3% Ericsson PrimeCo CDMA 1105 3.4% Lucent Omnipoint GSM 466 1.0% Lucent, Ericsson, Nortel, Siemens PBMS (Pacbell?) GSM 967 3.2% Ericsson Sprint PCS CDMA 3350 2.4% Lucent, Motorola, Nortel SBC GSM, IS136- 6232 15.6% Ericsson TDMA US West CDMA N/a N/a Lucent, QUALCOMM Western Wireless GSM 696 9.0% Nortel, Nokia Emerging dominance of CDMA technology worldwide Although GSM is widely installed in Europe, CDMA appears to be the dominating technology worldwide. Numerous companies in the US, including GTE, Bell Atlantic Mobile and Sprint PCS, have selected CDMA as their primary technology. Japan, China, Korea, Thailand and the Philippines, in Asia, and Brazil, Peru, and Chile, in Latin America, have also adopted the CDMA platform.57 Furthermore, countries such as Poland and Russia, which currently have no wireless networks, are currently leaning towards CDMA, and Middle Eastern and African countries such as Israel, Zambia, Egypt, Nigeria and Yemen are adopting CDMA technology.58 It appears that CDMA is a more 56 Yankee Group, “Mid-1999 North America Wireless Update: Emergence of the ‘New’ Wireless Industry”, June 1999. 57 57 Wohl, Phillip “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.4 57 Yankee, “1999 Mobile User Survey: Enhanced Services, Paging and Messaging Services and Mobile” 58 58 Wohl, Phillip “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.5 Page 13
    • Market Analysis efficient long term technological choice. Consequently, there is an industry trend towards adopting CDMA technology in the US and worldwide that will rival GSM technology in Europe. Figure 2.8 shows the anticipated dominance of CDMA technology . Figure 2.8: Market Share of technology by worldwide subscribers59 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1998 2000E 2002E CDMA TDMA GSM 2.3 CONCLUSION The US wireless industry has evolved from one first generation anlog standard to multiple, second generation narrowband digital standards. The industry is subject to both consumer “pull” forces and carrier “push” forces in its evolution towards third generation broadband digital technology. Consumer pull forces are arising from burgeoning demand for wireless data and internet services, innovation and cheap pricing of handsets and competitive pricing of wireless and internet access. Carrier push forces are coming from the emergence of competing national footprint carriers, consolidation in the industry and the rise of CDMA technology in the US and worldwide to rival GSM technology in Europe. The industry trend towards third generation wireless technology and high capacity data services appears inevitable. 59 Wohl, P. “Telecommunications: Wireless”, Standard & Poors Industry Surveys, December 1999, p.5. Page 14
    • Policy Analysis: 3G, Regulation & Convergence 3. POLICY ANALYSIS: 3G, REGULATION & CONVERGENCE The market overview introduced the reader to the different technologies available in the U.S. Currently each country or region of the world has its own second-generation standard for mobile telephones. The case of the United States is particularly blatant: there, the juxtaposition of different technologies and standards results in a fragmented map of mobile telecommunications networks. This in turn slowed down the adoption of mobile technologies by the end-consumers. On the other hand, the unification of standards in the European Union enabled the fast development of mobile networks. As industry players move towards third-generation mobile telephony, the advantages of harmonizing standards towards a universal norm become more pressing. Indeed, behind the development of 3rd generation network lays a powerful dream: enabling the users to communicate anywhere at anytime. To fulfill this dream, global roaming has to become reality, which requires universal standards and internetworking agreements. The International Telecommunications Union is a powerful force behind the standards harmonization process. International Mobile Telecommunications-2000 (IMT-2000) is the ITU vision of global mobile access. Scheduled to start service around the year 2000, subject to market and other considerations, IMT-2000 is an advanced mobile communications concept intended to provide telecommunications services on a worldwide scale regardless of location, networks or terminals used. However, the ITU’s task has been made difficult in the past by serious divergence in commercial interests, and uncertain technological features. Fortunately, the standards wars seem to be over, which is a huge step in enabling the mobile Internet dream. Still, convergence remains an on-going process, involving multiple actors, and encompassing many difficult issues, such as internetworking and billing. In addition, on a regulatory level, spectrum allocation has not yet been resolved in the United States, threatening the smooth deployment of 3G networks in North America. This section will provide: • A brief introduction to the technology; • An analysis of the benefits of convergence vs. competing standards; • A presentation of the different actors involved in the standardization process; • A chronology of the Standardization process; • A discussion of the difficult problem of spectrum allocation; • An introduction to the issues of billing and internetworking. 3.1 TECHNOLOGY OVERVIEW The term cellular derives from the cell-based nature of the network (the honeycomb hexagons in Figure 4.1) a structure which is key to the provision of service across a wide geographic area using a limited amount of spectrum. In a typical application, a number of radio frequency (RF) channels is assigned to each cell in a service area, with no Page 15
    • Policy Analysis: 3G, Regulation & Convergence adjacent cells operating on the same frequency.60 Cells that are spaced far enough apart, however, can reuse the same set of frequencies without causing “cochannel interference.” Cellular systems operate within a limited frequency spectrum – a given carrier is normally awarded this spectrum by a regulatory body (i.e., through spectrum auctioning – further discussed below). Given a fixed amount of spectrum, cellular systems currently use one of three basic multiple access methods to share this limited resource among users: frequency division multiple access (FDMA), time division multiple access (TDMA), and code division multiple access (CDMA). FDMA was the principle initial multiple access technique employed in the first generation, analog commercial cellular telephone systems and is based on the relatively simple division of the frequency into traffic channels, with each channel going to a user based on demand. TDMA, a standard now widely deployed in much of the world (including in GSM networks, as discussed in Section 1), also divides the spectrum into channels. These channels, however, are then divided into time slots which are allocated to a specific user, who then gets access to the channel for the allocated time slot period. Both TDMA and FDMA systems require “guard bands” – in the case of FDMA, these are necessary to separate signals in each channel; in TDMA, guard bands are necessary to separate both the frequency channels and the time slots. The requirement of guard bands, plus the fact that both TDMA and FDMA each have periods of dedicated spectrum (whether that spectrum is actually being used or not) results in a sub-optimal use of spectrum.61 In CDMA systems, on the other hand, users share a block of spectrum through the use of a spreading code (pseudo-random noise or PN code), which is unique to the individual user. A PN code essentially acts as a form of encryption (indeed the technique was first developed for military radio communication purposes during World War II) – the information sent from a user is “spread” (or modulated) using the unique PN code; the PN-modified information then travels across the entire spectrum; the information is then “de-spread” using the same PN code at the receiving end. One of the benefits of CDMA is that the use of PN coding allows the entire spectrum to be used (i.e., spectrum re-use in adjacent cells), reducing the need for guard bands and increasing efficiency of use.62 This, combined with the fact that CDMA systems use the same set of frequencies in every cell in the network, provides a large improvement in network capacity over other cellular systems.63 In addition to improved capacity, CDMA advantages include: fewer 60 Strictly speaking, adjacent cells can share channels through sub-dividing cells into sectors. This is discussed further below. 61 Pandya, Raj, Mobile and Personal Communication Systems and Services, IEEE Press, New York, 2000, pp. 16 –18; Kibati, op. cit., pp. 50 –51. Though FDMA is less efficient than TDMA (many other important differences and complications between FDMA and TDMA exist, but are beyond the scope of this paper; see Kibati, op. cit.). 62 Pandya, op. cit., p. 18. 63 Rappaport, T., Wireless Communications: Principles and Practice, Prentice Hall, 1996, p. 6. Page 16
    • Policy Analysis: 3G, Regulation & Convergence dropped mobile calls due to “soft-handoff;”64 security and privacy, due to the PN technique; and lower power consumption and longer mobile unit battery life.65 3.2 COMPETING STANDARDS VS. THE BENEFITS OF CONVERGENCE Mobile carriers, depending on their existing infrastructure and technology, have developed several paths towards 3rd generation telephony. Figure 3.1 below Migration Paths to 3G, summarizes the various propositions: Figure 3.1 Migration Paths to 3G 2G 2.5G 3G CDMA CDMA 1xRTT/3xRTT (IS-95A) (IS-95B or (CDMA) HDR) GSM GPRS W-CDMA TDMA EDGE UWC-136 As one can see in Figure 3.1, specific upgrades and new standards have been created for each of the three leading 2nd generation technologies: CDMA, GSM and TDMA. However, it should be pointed out that GSM and TDMA technologies have started to converge in the 2.5G phase, with the development of the GPRS/EDGE standard. Thus, many observers bet that TDMA operators will probably adopt W-CDMA rather than UWC-136 in their move towards 3G, thus only leaving two main competing standards in the 3G phase: cdma2000 versus W-CDMA. The risk of emergence of two major incompatible and competing proposals is a serious one, especially when compared to the benefits of universal convergence. Harmonization would lead to a quasi world standard which would allow economical advantages for customers, network operators, and manufacturers. Indeed, convergence entails a wide array of benefits. First of all, by reducing the total research and development costs, convergence ultimately results in lower prices for the end-consumers. Secondly, convergence may render backward compatibility easier, which fastens new technology adoption and also reduces initial costs. Thirdly, and most importantly, convergence allows global roaming, which involves positive network effects. 64 A key function of a mobile cellular system is the ability to hand off calls as the mobile user passes from one cell to the next – a resulting key quality of service indicator for the user is the quality (transparency) of this hand-off. 65 Kibati, op. cit., p. 57. Page 17
    • Policy Analysis: 3G, Regulation & Convergence Most are convinced of the benefits of convergence, yet standards unification has proven to be a difficult process. The reader shall first be introduced to the different parties involved in the process. Then, the several stumbling blocks along the overall successful road towards harmonization will be recalled. Finally, the remaining issues to be dealt with in order to ensure global roaming will be identified. 3.3 ACTORS IN THE STANDARDIZATION PROCESS The standardization process is the result of the interaction of many different actors with widely divergent interests. Three categories of actors can be identified: international organizations, regional and national institutions and industry players. The following list does not pretend to be exhaustive, as we emphasize those aspects most relevant to cdma2000. • ITU: the International Telecommunications Union is an international organization headquartered in Geneva, within which governments and the private sector coordinate global telecom networks and services. The ITU is a specialized agency of the United Nations. The ITU is working to guide carriers towards a global standard that it calls International Mobile Telecommunications 2000, or IMT-2000. IMT-2000 is known in Europe as UMTS (Universal Mobile Telecommunications Systems). • TIA: the Telecommunications Industry Association carries on the international standardization activities for IMT-2000 in the U.S. TIA has prepared several proposals for 3G with UWC-136 as an evolution of IS-136 (TDMA), cdma2000 as an evolution of IS-95 and a WCDMA system called WIMS. • FCC: The Federal Communications Commission is an independent United States government agency, directly responsible to Congress. The FCC was established by the Communications Act of 1934 and is charged with regulating interstate and international communications by radio, television, wire, satellite and cable. The FCC's jurisdiction covers the 50 states, the District of Columbia, and U.S. possessions. • E.U.: the European Union has set up a timetable for introducing UMTS services in its member countries by January 1, 2002, via the ETSI: European Telecommunications Standards Institute. • 3GPP: the 3rd generation partnership project is an international group formed by GSM-supporting standards bodies, in order to formulate proposals for IMT-2000. • 3GPP2: the 3rd generation partnership project two is an international group formed by CDMA-supporting bodies, in order to formulate proposals for IMT-2000. 3GPP2 supports the cdma2000-based proposals from TIA. • OHG: the Operator’s Harmonization Group is an ad hoc group of cellular operators and manufacturers. Nicknamed as the OHG initiative, the OHG is a formal attempt to merge 3GPP and 3GPP2 proposals under a new, common proposal known as Global3G (G3G). • CDG: the CDMA Development Group is a consortium of companies who have joined together to lead the adoption and evolution of CDMA wireless systems around the world. The CDG is comprised of the world's leading CDMA service providers and vendors, working together to help ensure interoperability among systems, while expediting the availability of CDMA technology to consumers. Page 18
    • Policy Analysis: 3G, Regulation & Convergence All these organizations have been working on various concepts to be submitted to the ITU. Thus, while contributing to the emergence of several standards for 3G, they also participate to different degrees to the harmonization activities and to the international consensus building that we will now expose. 3.4 CHRONOLOGY OF THE STANDARDIZATION PROCESS 1998: Uncertainty and Competing Standards In 1998, 3G wireless communications is still far from being a reality. On the issue of standards, the ITU is strongly pushing for a single specification that would enable ubiquitous coverage across the world. However, some actors oppose its unification efforts. In particular, the European Union shows some signs of bad will, as it consistently refuses to compromise on minor technical issues. For instance, the European Union’s insistence on a different chip rate for cdmaOne’s proposed standard is clearly an unnecessary decision, probably intended to protect the commercial interests of European GSM-based operators. Indeed, some GSM operators show a lot of reticence to the adoption of the rival CDMA technology: “When CDMA was being developed [by San Diego-based Qualcomm], they [the European GSM industry] said it wouldn’t work. When CDMA was introduced, they said it was too little, too late66”. In the meantime, CDMA-based 2nd generation networks start to expand (REFERENCE). Looking forward, the CDMA Development Group (CDG) is particularly active in supporting the harmonization process for 3rd generation wireless. However, its efforts do not systematically pay off. According to Perry Laforge, executive director of CDG: “Political games remained a major stumbling block for quick development of 3G systems”, as he refers to the European protectionism. By the end of the year, two new international groups are separately launched on both sides of the Atlantic: the 3GPP initiative (whose goal is to merge the various W-CDMA proposals for GSM networks), and 3GPP2 (created around the American proposal of TIA TR45.5 or cdma2000, a proposal with several modes). This crystallization of the “standard war” bears the risk of emergence of two major incompatible and competing standards in global mobile networks. 1999: Steady Progress for Convergence In 1999, the ITU embraces the multi-standard approach to 3G, as its single standard approach encountered many stumbling blocks (i.e.: Intellectual Property Rights, political pressures). Indeed, the ITU is not in a position to arbiter the GSM/CDMA debate, as it prefers to let the market decide. 66 Debunking the myth of Europe’s wireless, by Ira Brodsky, Network World, www.nwfusion.com, 1/17/00. Page 19
    • Policy Analysis: 3G, Regulation & Convergence Thus in March 1999, the ITU adopted a 3G air interface plan that included 2 standards, and 3 modes: a TDMA standard, a CDMA standard in 3 modes: cdma2000 (Qualcomm), W-CDMA (European backed), and a 3rd technology for unlicensed PCS spectrum. Operators are to choose among the technologies based on their existing systems. The IMT-2000 specifications for 3G networks are finalized at the end of 1999, and are summarized in Figure 3.2. Figure 3.2: IMT-2000 Specifications IMT-2000 Terrestrial Radio Interfaces IMT-DS IMT- IMT-TC IMT-SC IMT-FT Direct MCMulti Time Single Frequency spread Carrier Code Carrier Time CDMA TDMA FDMA The IMT-2000 terrestrial standard consists of a set of radio interfaces that allow performance optimization in a wide range of radio operating environments. Thus, the new specification supports a wideband CDMA specification with three parts, a single- carrier standard for TDMA/GSM systems, and a frequency-time Digital European Cordless Telephone (DECT) specification. The dissonance between GSM and CDMA operators played a critical role in the ITU shift to a multi-standards approach. While CDMA representatives were generally in favor of harmonization, the GSM Alliance consistently supported a multiple-technology solution. According to Don Warkentin, chairman of the Alliance and CEO of Aerial Comm.: “It is imperative that wireless operators have the right to choose a mode that works best for their technology and satisfies the needs of their customers”67. 67 cf. Group looks at CDMA harmonization, by Peggy Albright, Wireless Week, 4/26/99. Page 20
    • Policy Analysis: 3G, Regulation & Convergence In this context of dual standards, the maximization of common aspects of the divergent standards seems to be the right way to go, given the impossibility of reaching a consensus on a universal standard. To put it in a nutshell, multi-standards will not impede internetworking and global roaming. That is precisely what the industry is working on, revitalizing the unification process from “inside”. These efforts have been incorporated in the IMT-2000 3G specifications. The OHG, for instance, was created as a formal attempt to merge 3GPP and 3GPP2 proposals under a new, common proposal known as Global3G (G3G). Recognizing the benefits of convergence, the OHG put forward a way of technically aligning cdma2000 and WCDMA to create a single three-mode CDMA standard. 3GPP and 3GPP2 agreed to align their standards with those recommended by the OHG, which will “ensure global roaming and seamless service providing”, reduce cost and avoid duplication, according to 3GPP. The work of the OHG is integrated in the IMT-2000 specifications. The dynamics that motivated the actors to work towards convergence were diverse. Indeed, the convergence process can also be read as an interesting economic battle, which has been won by the CDMA camp. As explained previously, CDMA-supporters have always been defending the merits of harmonization. But it is the rapid successes of the technology that forced the GSM-camp to soften its position. Indeed, CDMA “is spreading like wildfire in North & South America & Asia68”, due to its superior technological features for both voice and data. The GSM world has very recently, and quite reluctantly, adopted a converging path, as European GSM networks are running out of capacity. In that sense, convergence means a long-due acknowledgment by Europe’s GSM industry of CDMA superiority, as we enter 3rd generation wireless. European operators don’t really have a choice: when the rest of the world is speeding up its mobile telecommunications (14.4K bit/sec in the U.S., 64K bit/sec in Korea and Japan), the norm for GSM operators: 9.6K bit/sec, seems outdated. The protectionist European model has failed in front of the competitive U.S. model. It is now time for European carriers to catch up, and prepare for the next big challenge: international competition, from which they were until now relatively protected. Domestically, this is resulting into intense merger and acquisition activities, and the development of risk-sharing partnerships. Internationally, this implies a need to gain access to foreign markets, including Asia. As Figure 3.3 shows, by 2015, the combined U.S. and the European markets will represent less than one-fifth of the world subscribers, with a stagnating demand to be contrasted with explosive growth in the rest of the world. 68 Debunking the myth of Europe’s wireless, by Ira Brodsky, Network World, www.nwfusion.com, 1/17/00. Page 21
    • Policy Analysis: 3G, Regulation & Convergence Figure 3.3 Projections69 To conclude on the 3G harmonization process, it can be said that the standards convergence process has so far been quite successful, which makes a compelling argument for market forces and competitive environment versus government-mandated standards. However, standards harmonization is only the first step in allowing global roaming, and the IMT-2000 vision. The remaining issues, which need to be resolved in order to successfully deploy universal 3G networks, will now be analyzed. 3.5 SPECTRUM ALLOCATION Spectrum is a continuous range of radio frequencies. Spectrum allocation and coordination are essentially national issues, but the ITU plays a critical role in spectrum regulation, as harmonization is necessary to ensure global roaming. The Radio Regulations (RRs) of the ITU are updated in World Administrative Radio Conferences (WARCs). National regulators are not bound to follow the ITU guidelines for spectrum allocation. However, the ITU RRs form a tool to encourage national regulators to do so in order to achieve a global harmonization of spectrum. Three different sets of issues constitute areas for common spectrum regulation: Identification of spectrum; Allocation of spectrum for specific purposes (and cleaning from other usages); Licensing the spectrum. 69 UMTS Forum. Page 22
    • Policy Analysis: 3G, Regulation & Convergence International Spectrum Identification and Allocation In 1992, the ITU identified the IMT-2000 spectrum below the 230 MHz range. More precisely, WARC-92 freed up some new spectrum in the 1.8-2.2 GHz band for 3G usage. Figure 3.4: IMT-2000 Frequency Allocations70 Europe generally follows the ITU recommendations for spectrum issues via the Conference Européenne des Postes et Télécommunications (CEPT). However, in the U.S., the FCC has already allocated a significant part of the WARC spectrum in the lower band to second-generation personal communication services (PCS) systems. Figure 3.4 shows the IMT-2000 frequency allocations, and the use of this spectrum in different regions. The use of IMT-2000 spectrum in the U.S. certainly complicates the adoption of 3G technology. However, one advantage of CDMA technologies is that they don’t require new spectrum or clean spectrum in the existing band. Still, despite the availability of clean or dirty spectrum, a spectrum shortage is expected in almost every regions of the globe. The E.U.’s 15 Member States intend to negotiate additional radio spectrum at the upcoming World Radio Communications Conference (May-June 2000). According to the EU Commissioner for the Information Society, Erkki Likanen: “If we cannot ensure sufficient spectrum availability for third generation mobile phones, this will severely handicap the leap of the Internet from being screen-based to hand-held71”. The lack of spectrum is a serious issue for data-voracious 3G networks, and calls for the development of more spectrum-efficient technologies. 70 CDMA Development Group, 3G presenttions, www.cdg.org. 71 Europe needs more spectrum, by Alan Osborn, Total Telecom, 3/8/2000. Page 23
    • Policy Analysis: 3G, Regulation & Convergence In addition to the spectrum shortage, a lack of available bandwidth might also impede the implementation of 3G. As more and more people exchange multi-media files via their mobile devices, the IP network runs a serious risk of being over burdened. As pointed by Vincent Cerf: “The issue is not fiber. The problem is the switches. That’s the big challenge. (…) You have to rearchitect the system to change the way the traffic is managed and the way it flows through the Net72”. One solution envisaged by Cerf is the adoption of optical switches. However, such a shift is likely to be expensive, and it will add up to the already high infrastructure costs required by 3G technologies. Licensing the Spectrum at the Regional Level Once the necessary spectrum has been allocated for 3G telecommunications, specific frequencies range need to be licensed to individual carriers. At the regulatory level, three broad types of issues arise: • The division of available spectrum. • Mechanisms for attributing spectrum. • Roll-out and roaming agreement obligations. The first issue: division of available spectrum concerns the principles guiding regulatory authorities when attributing licenses. The typical questions that arise are: How many licenses should be offered? Should these licenses cover a regional or a national area? Typically, authorities must balance their decisions with regard to competition versus efficiency concerns. A way to allow regulators to achieve competitive objectives without fragmenting the spectrum could be opened up with the development of Mobile Virtual Network Operators (MVNOs). MVNOs would do not hold spectrum licenses, but would instead buy airtime from licensed network operators, while owning switches and intelligent network platforms to offer advanced services not provided by incumbents. Therefore, MVNOs could provide new revenue streams for carriers. The second issue relates to the choice of mechanisms for attributing the spectrum. Basically, there are two different attribution processes: comparative bidding and auctions. In a comparative bidding (or beauty contests), bids are evaluated on the basis of many criteria such as coverage, financing, and operational experience with networks & services being offered. This mechanism tends to favor the applicants with telecom experience, typically the incumbents, whose large existing coverage ensures speed of development. On the negative side, competitive bidding might create an environment with intense political pressures for the license-awarding authority. Auctions have the advantage of transparency and openness. New entrants can be awarded spectrum more easily, which increases the level of competitiveness in the market. However, as auctions tend to push license costs up, they might favor providers with deep pockets, if not telecom experience. In addition, high license costs ultimately result in higher end-users prices. A counter-argument might be that high initial costs will encourage maximum efficiency on the operators’ side in order for them to break-even 72 What will it take to shift to the Net, Interview with Vincent Cerf, Upside Today, 4/13/2000. Page 24
    • Policy Analysis: 3G, Regulation & Convergence earlier. Once again, the tension between competition versus efficiency is apparent. Indeed, the main concern in licensing the spectrum should be to ensure a low-cost and fast deployment of 3G networks, while increasing competition by avoiding handing all licenses to the incumbents. 3.6 THE NORTH AMERICAN CASE In the U.S., the FCC and other U.S. government agencies still have to lay the groundwork for assigning spectrum allocation in the 2 GHz band. The FCC has planned to hold two spectrum auctions for 3G licenses this year. The Congress has already included in its spending plans the expected revenues from the first sale. The Congress forecast an income of $2.6bn from the June 2000 sale. U.S. carriers desperately need additional spectrum to roll out new 3G services. However, they have expressed doubts regarding the utility of the airwaves to be sold. Several companies with the strongest interest in bidding, such as BellSouth Corp. and Verizon Wireless, fear that the spectrum could be riddled with interference and held hostage by television broadcasters with overlapping claims: “In filing with the FCC, the companies have expressed worries they might endure years of negotiations with the broadcasters before they could put the airwaves to use. Wireless networks and television channels across the border in Canada and Mexico could bleed across their signals (…), perhaps embroiling them in multigovernmental negotiations while their sprectum goes fallow73”. Four years ago, the Congress awarded a large chunk of available spectrum to broadcasters for their transition to digital television. Today, digital broadcasters only use a small part of the spectrum. The FCC therefore made plans to compress the television broadcasters airwaves, and the Congress requested that the FCC sell the leftovers, more specifically the spectrum for television channels 60 to 69 to telecom carriers. The 60-69 spectrum is especially valuable because it allows signals to be transported around obstacles, such as trees or walls. Telecom carriers expect to use this spectrum for high-speed Internet connections to mobile devices. The FCC has until 2006 to relocate broadcasters, which might prove a daunting task: currently, 84 TV stations broadcast between 60 and 69, and 54 more have the right to do so. They are not likely to retract easily. According to a broadcasting industry analyst: “Congress gave them that property right. The only thing that’s going to get them off of there is enough money74”. In such a context, the spectrum could be worth as much as $25bn. However, 3G wireless providers will not bid unless the clearance process is clarified. In the meantime, the auctions will probably be delayed, which has threatening implications for the 3G industry. According to Barry West, CTO for Nextel Communications: “The U.S. government has badly screwed up the allocation of spectrum for 3G75”. Ken Wood, from 73 Wireless hopes left up in the air, by Peter S. Goodman, Washington Post, 4/27/00. 74 Ibid. 75 Ibid. Page 25
    • Policy Analysis: 3G, Regulation & Convergence AT&T Corp., warns the authorities: “If we don’t get the spectrum, the U.S. may be relegated to some sort of Third World status in terms of technology76”. To conclude, spectrum has become a vital commodity for the deployment of 3G networks. Whereas spectrum shortage remains a huge challenge for every region of the globe, the physical problem has been worsened in the United States due to incoherent domestic politics. The FCC needs to act quickly, as Europe and Asia have already earmarked more spectrum for 3G. 3.7 INTERNETWORKING AND BILLING The third and last issue: roll-out and roaming agreements obligations respectively refer to coverage and internetworking. As internetworking encompasses broader issues that strict spectrum allocation, we have decided to devote a special part to it. Regarding roll-out agreements, the issue is whether the regulatory authorities should force mobile operators to achieve a specific level of geographic (or demographic) coverage by a particular date. In that respect, whereas the need for universal service should not be forgotten, profitability rationale remains primordial. Thus, while the role of the authorities is to promote a large roll-out network, they must avoid doing so in a manner which might threaten the profitability of national carriers. Additionally, authorities must not allow existing operators to continue dominating by virtue of their existing infrastructure ownership. The question of internetworking agreements is intertwined with the extremely problematic issue of billing. Indeed, internetworking supposes efficient settlement agreements between carriers, which in turn rely heavily on the existence of data pricing systems. The switch to IP mobile communications implies that billing will be data-based, and not voice-based as it is the case with 2nd generation networks. Should the users be charged on a flat-rate basis, a per minute basis or a per byte basis? While the per byte basis seems to be the most appropriate, so that users are charged in accordance with their personal use of the network, such a system might alienate consumers. In addition, the per-byte billing involves huge technical challenges, which are far from being resolved. Keeping track of bytes is a technical nightmare that will require new switches, new clearing houses and new billing settlements. Another complication will be to figure out billing settlements between carriers, portals, ISPs and value-added services providers. In any case, internetworking and billing constitute huge challenges. Nobody knows yet how they will be dealt with, but the successful deployment of 3G networks relies on the industry’s ability to overcome them. Internetworking also constitutes a challenge for the regulators, as they must ensure that new entrants can interconnect seamlessly at fair rates with the existing operators. Indeed, it is doubtless that interconnection will be resisted by the entrenched players. 76 Ibid. Page 26
    • Policy Analysis: 3G, Regulation & Convergence 3.8 CONCLUSION The study of the convergence process helps to put our model into a broader perspective. Of course, regulation has a direct impact on path migration cost, through, for instance, the high price of spectrum licenses. But more importantly, standards harmonization and more generally the possibility of global roaming will change the general economic environment, by freeing competition. The face of the wireless world evolves at a tremendous pace. Yesterday, Europe was considered as the most advanced market, which perfectly illustrated the so-called benefits of government-mandated standards (GSM in that case). However today, CDMA-based technologies have imposed themselves on a worldwide scale as the most competitive offer in the market. It is interesting to notice that the best innovation came from the U.S. market, which was generally considered as backward compared to Europe. In any case, the opening up of the European market to U.S. operators, expedited by the adoption of IMT-2000 standards and networks, is likely to directly benefit the CDMA community. In that sense, a revenue model would usefully complete our cost model, as both are of equal interest to the mobile industry. Page 27
    • CDMA Standards, Architectures and Migration 4. CDMA STANDARDS, ARCHITECTURES & MIGRATION 4.1 INTRODUCTION This section provides an overview of the current CDMA 2G and 3G network standards and generic architectures. First, the current standard for 2G (IS-95) and 3G (1xRTT/3xRTT) and their performance characteristics are presented. Next, the architectures and component elements for both the 2G and 3G networks are detailed, including the commonalities and differences between the two. Finally, the potential paths of migration from 2G to 3G CDMA networks and implications for CDMA-based carriers are discussed. 4.2 CURRENT STANDARD – 2G/2.5G The prevailing CDMA 2G standard is known as IS-95 or TIA/EIA-95 and often referred to as cdmaOne. The IS-95 family of standards are actually disaggregated into 95-A and 95-B.77 The primary differences between A and B rests in the potential speed of data services offered (9.6 Kb/s vs. >14.4). Technically, IS-95-A could be considered as a 2G CDMA network and IS-95-B as a 2.5G network, since 95-B offers higher data speeds.78 However, we do not emphasize these distinctions in this paper as there are little actual physical changes required in the move from IS-95-A to IS-95-B (essentially, software changes in the BSC and new – though forward/backward compatible – handsets). The IS-95 network we model in the following section could essentially be either an IS-95-A or -B network, since the differences are effectively marginal. 4.3 1XRTT, 3XRTT – CDMA’S 3G The standards specified for CDMA’s 3G networks are broadly classified within the industry moniker cdma2000. The cdma2000 standard is actually comprised of two phases: 1xRTT and 3xRTT (RTT – Radio Transmission Technology). The 1xRTT is sometimes referred to as Phase I of the cdma2000 3G and 3xRTT as Phase II 3G. 1xRTT offers a doubling of voice capacity over IS-95, and will allow data speeds of up to 384 Kb/s (theoretically). It operates in the 1.25 MHz channel. For 3xRTT, data rates of up to 2Mb/s are theoretically possible, with support for all channel sizes (5MHz, 10MHz, etc.).79 77 Apparently, IS-95C also exists but is rarely referred to in actual implementation examples. 78 This differentiation is not completely analogous to the TDMA based evolution, which can be clearly differentiated into TDMA (2G) – EDGE (2.5G) – WCDMA (3G). There is an intermediary CDMA-based higher speed data service (HDR), which an enhancement to IS-95-B, but it seems that few US carriers will actually deploy this service, opting instead for the direct path from IS-95-A or B to 1xRTT (3G). 79 CDMA Development Group, “CDMA Development Group White Paper: Third Generation Systems, www.cdg.org, p. 2. Page 28
    • CDMA Standards, Architectures and Migration 4.4 THE IS-95 (2G) ARCHITECTURE Although the specific operations and components of a cellular telephone system depend on the specific technology employed (FDMA, TDMA, CDMA, as discussed in Section 3), the basic architecture of a cellular network is essentially common across standards (Figure 4.1 provides a basic network depiction).80 As such, the network described here (a depicted in Figure 4.1) can in most ways be generalized to other cellular networks. The Cell and BTS Within the cell, the user communicates with the system via the Base Transceiver Station (BTS). Each cell has one BTS, a tower which contains radio transceivers and antenna, a processor, channel cards, and other equipment necessary for providing service in the cell. The capacity of a BTS/cell is determined by the number of available channels, cell sectorization, and caller demand (typically measured in Erlangs). The Base Station Controller (BSC) Each BTS is controlled by a base station controller (BSC); one BSC typically manages several BTSs. A BSC contains a high capacity switch, and provides crucial services required for controlling the BTSs, including managing call handoffs from one cell to the next and administering radio resource. The capacity of a BSC is limited by the number of transmission ports they have to communicate with the transceivers from the BTSs. BSCs are typically loaded at 80% of capacity.81 The BSC has a direct trunk link to the BTS, typically via a T-1 line. The Mobile Switching Center (MSC) The mobile switching center (MSC) serves a similar role to the switch in a local phone central office (CO). The MSC switch (such as a 5eSS) provides connections to the PSTN as well as the data network via an internetworking function (IWF) (if data services are supported). It also must support all the functions required to manage the mobile user, including device registration, location updating, and call handoff (from one cell to another). Additional tasks of the MSC include call setup & supervision, routing, billing information collection, managing connections to BSCs and other MSCs. The MSC typically manages a number of BSC/BTS subsystems (typically via a T-1 connection), with its capacity measured by the number of Erlangs that its switch can handle.82 The Operations Support System (OSS) We have termed the Operations Support System (OSS) the subsystem of components and functionality that enables management of the mobile cellular system. Each of these components is described below. 80 Ibid., p. 18. The remaining description draws primarily from Pandya. 81 Kibati, op. cit., p. 46. 82 Kibati, op. cit., p. 72. Page 29
    • CDMA Standards, Architectures and Migration The Home Location Register (HLR)/Authentication Center (AC) The home location register (HLR) is a database of information on all subscribers (service restrictions and supplementary services, billing information, etc.) within the entire network, including a subscriber’s current location. Typically, there is one HLR per cellular network, though it might be deployed in a decentralized manner. The authentication center (AC) is often directly associated with the HLR. The AC contains the key parameters used to ensure authenticity in initial location registration, location updates, and call setup.83 The Visitor Location Register (VLR) The visitor location register (VLR) is a temporary database that contains information about the mobile users who are currently in the service area controlled by the MSC/VLR. There is typically one VLR per MSC. Equipment Identity Register (EIR) The equipment identity register (EIR) is a database which maintains the information needed to validate mobile devices in order to identify and deny service to stolen or fraudulent devices. 4.5 THE 1XRTT (3G) ARCHITECTURE The basic architecture of the 3G network does not differ significantly in a physical sense from that of the 2G (IS-95) network architecture just described. Each of the principal 2G components exist in the 3G deployment, although there are some changes in the underlying core network, the link to the data network, the software, and the hardware contained in the BTSs, BSCs, MSCs (and handsets) (see Figure 4.2). Specifically, required changes include:84 • the mobile station or handset – new handsets are required that are capable of handling high speed transmission; these handsets will be backward compatible to IS-95 and forward compatible to 3xRTT networks; • at the BTS – new channel cards and software, which allow for significantly increased (doubled) capacity for voice traffic in the cell; • at the BSC – a new packet data switch router (such as the Lucent Flexent), providing increased capacity, plus a direct connection to the data network (through to the “Internet”); • at the MSC – a new switch (Lucent Softswitch), which is directly linked to Sun Netra Servers, the softswitch is greatly expandable with the (relatively) simple addition of Netra Servers. 83 Pandya, op. cit., p. 35. 84 The changes proposed are not universal and are to some degree uncertain since there are not yet any commercial deployments of cdma2000 and many details are subject to vendor privacy concerns. Ultimately, different vendors and carriers will certainly have configurations different from that proposed here. We have chosen this 3G architecture based on conversations with Shawn O’Donnell (ITC) and representatives from Lucent and Qualcomm. Page 30
    • CDMA Standards, Architectures and Migration Furthermore, there is a fully functional data network incorporated into the 3G architecture. In the architecture that we have proposed, the BSCs have a direct link to the core data network via the packet data switch node (PDSN). The core data network then links to the public data network (Internet) via a packet data gateway node (PDGN).85 85 This data network architecture is consistent with presentations on the CDMA Development Group (CDG) web-site (www.cdg.org); see for example, Boettger, David, “IP Core Networks for cdma2000 Radio Access” or Park, Myungsoon, “Evolution to 3G: Financial and Technical Perspectives,” 29 March 2000. Page 31
    • CDMA Standards, Architectures and Migration Figure 4.1 “2G” CDMA (IS-95) Network Architecture, Components & Functions MS MSC VLR BTS MSC HLR/AC T-1 T-1 BSC IWF EIR BTS T-1 T-1 BSC Internet BTS PSTN MS Mobile Station – the portable telephone unit (i.e., cell phone) BTS Base Transceiver Station – transceivers, processors, etc. which allows MS to communicate with network BSC Base Station Controller – manages BTSs, controlling/managing handoffs, managing frequencies, etc. MSC Mobile Switching Center – serves the role of central office phone switch, setting up and routing calls, collecting billing information, managing mobility, sending calls through to the PSTN/Internet VLR Visitor Location Register – a temporary database, containing information about mobile users currently within a particular MSC’s service area HLR/AC Home Location Register/Authentication Center – a centralized database with permanent information about the carrier’s user base; the AC maintains the key parameters for location registration and updates. EIR Equipment Identity Register – keeps information needed to prevent fraud/theft of services IWF Interworking Function – provides an access point to the packet-based Internet “world” Page 32
    • CDMA Standards, Architectures and Migration Figure 4.2 “3G” CDMA (1xRTT) Network Architecture, Components & Functions MS MSC VLR BTS MSC HLR/AC IP IP BSC EIR BTS IP PDSN DCN PDGN IP BSC BTS PSTN Interne t The Principal elements (BSC, BTS, MSC, EIR, VLR, HLR) are as described in Figure 4.1. The elements in italics represent hardware and/or software changes from the 2G network and include: • MS – new handsets for maximum data rates (network is backward compatible for older handsets) • BTS – new channel cards • BSC – new switch, router • MSC – new switch principal changes are hardware and software switchouts at the BTS, BSC and MSC). In addition, the 3G architecture has components specific to packet transport as described below: IP The entire internal network becomes packet-based, an IP-based “core network” PDSN Packet Data Service Node DCN Core Network Backbone PDGN Packet Data Gateway Node Page 33
    • Technology: Migration and Network Architecture 4.6 ARCHITECTURE MIGRATION ISSUES The proponents of CDMA technology tout many of its inherent benefits. The initial IS- 95 2G architecture on its own offers expanded capacity over traditional cellular networks, meaning more voice customers can be reached with fewer cell sites. Furthermore, IS-95 is already data capable (although low-speed), since the equipment is IP-based. The move to 3G not only further increases the capacity of the voice network, but also offers high speed data rates, with the promise of speeds in the 384 Kb/s to 2 Mb/s range. This can be achieved – according to proponents – via a relatively risk free and affordable incremental upgrade from cdmaOne to cdma2000 (see Table 4.1). Table 4.1 Basic Changes Across the CDMA Migration Path86 Packet Data 95A 95B cdma2000 cdma2000 Equipment 1xRTT 3xRTT requirements Handset Forward- Forward/ Forward/ backward Forward/ compatible -14.4 backward- compatible - backward Kbps on higher compatible - 14.4Kbps on compatible - G networks 14.4Kbps on 95A, 114 Kbps on 14.4Kbps on 95A and up to95B and 307Kbps 95A, 114 Kbps 114 Kbps on on 1x, 3x on 95B and 3G 307Kbps on 1x, 2Mbps Infrastructure Standard New software New switches/ Backbone in BSC software at BSC/ modifications MSC, backbone New BTS changes, new BTS channel cards channel cards The elegance of the CDMA technology seems to back up these claims. In the uncertain world surrounding future demand for mobile data, a current IS-95 carrier can opt to upgrade to 1xRTT simply as a way to expand voice capacity in already burdened networks. This option can even be pursued incrementally within a 2G network, since there is full forward/backward compatibility in handsets – in other words, a carrier could deploy cdma2000 within a subset of cells in an existing 2G network.87 This option would allow an operator to essentially develop data “test beds” within its existing network to help determine future data provision needs. This stands in comparison to the option available for TDMA-based carriers which, in order to move to data services, must employ a costly packet overlay, while essentially annexing spectrum to dedicate solely to data transport. 86 Carley, W., S. Buckingham, “A Comparison between GPRS and cdmaOne Packet Data,” Mobile Lifestreams Limited (www.mobilelifestreams.com). 87 Dennet, S. “The cdma2000 ITU-R RTT Candidate Submission (0.18),” TIA, 1998, p. 13. Page 34
    • Technology: Migration and Network Architecture In general, the path of migration for upgrading to cdma2000 from cdmaOne consists of making the changes outlined in the previous section and summarized in Table 4.1. Once at 1xRTT (cdma2000 Phase I), the move to Phase II (3xRTT) can be done with relatively minor upgrades. Throughout these paths, users are not forced to acquire new handsets since there is compatibility among different generation CDMA networks. Beyond these apparent benefits, CDMA’s IP-based functionality offers significant potential advantages in terms of capitalizing on possible scale economies in the IP world - IP-based purchasing (routers), technicians familiar with IP standards, the inherent scaleability of many IP components, and possible purchasing advantages (“IP component feature inheritance from other IP product development efforts”88). Despite these apparent advantages, there are several uncertainties regarding actual practical network migration from an IS-95 to a 1xRTT network. These include what might happen to existing BSCs and/or MSCs, if their required numbers are significantly scaled back with future network needs. 88 Boettger, op. cit. Page 35
    • Model Analysis and Results 5. MODEL ANALYSIS AND RESULTS 5.1 METHOD LOGY Greenfields Approach The aim of the cost model developed for this project is to provide analytical rigor to a comparative analysis of the costs associated with migrating from second-generation cdmaOne (IS-95A) networks to third-generation cdma2000 (1xRTT) networks. The methodology adopted for this project mirrors the methodology employed by Bennion et al.89 in their analysis of migration costs from second-generation GSM networks to 2.5G GPRS networks in Europe. Specifically, a classic Greenfields approach is employed – the two architectures are separately modeled. The first model is a 2G cdmaOne (IS-95A) based cellular wireless network. The second model represents the enhanced network architecture, technical and cost assumptions associated with building and maintaining a phase I 3G cdma2000 (1xRTT) based cellular wireless network that provides robust data services and Internet connectivity. A comparative analysis of these two models is a first step to understanding the incremental costs associated with migrating from second-generation to third-generation cellular wireless networks for current CDMA-based network operators. It is important to note here that an alternative approach could have been employed that directly estimates migration costs associated with the technical changes that need to be made to an existing cdmaOne (IS-95A) network. However, such an approach would require important assumptions about the rate at which phased migration occurs within cellular networks and would introduce significant complexities from a modeling perspective. In addition, such an approach would not reveal the capacity benefits, technical scalability and cost savings associated with certain network components of a third-generation cdma2000 (1xRTT) network. Consequently, a Greenfields approach was chosen for the model and the results are interpreted in terms of migration costs below. The rest of this section is organized as follows. Section 5.2 introduces the methodology and describes the basic modeling assumptions. Section 5.3 describes the cdmaOne (IS- 95A) model and clearly specifies the technical and cost assumptions. Section 5.4 describes the cdma2000 (1xRTT) model with the associated technical and cost assumptions. Section 5.5 describes the results of both models and discusses the sensitivity analysis performed. The results and implications for incremental migration costs associated with moving to CDMA-based third generation networks are discussed in Section 6. 89 Bennion, et al., “Wireless Networks: The European Case,” paper for DHP P251, Telecom Modeling and Policy Analysis, Tufts University, 1999. Page 36
    • Model Analysis and Results 5.2 BASIC ASSUMPTIONS Although the model developed for this paper consists of two separate Greenfield models, there are certain assumptions that are common to both the cdmaOne (IS-95A) and cdma2000 (1xRTT) models. These assumptions are described below: Primary Model Driver For a cost model of a cellular wireless network, the key assumption is the number of cells required to provide network coverage. This determination can be based on two separate variables: targeted coverage area or targeted subscribers. From a target coverage area perspective, a second-generation cell can cover 7.17 km2 on average in urban areas and 150 km2 on average in rural areas. The target coverage area is a binding constraint from a modeling perspective when population density is low, because cells hit their coverage area capacity limitations before they hit their subscriber capacity limitations. However, we assume that cdma2000 networks will first be deployed in more densely populated urban areas in the United States. Based on this assumption, we believe that the target subscribers will be the binding constraint from a modeling perspective – cells will hit their subscriber capacity limitations before they hit their coverage area capacity limitations. Consequently, the number of targeted subscribers is chosen as the primary model driver. Under this assumption, the entire network scales up to the number of subscribers it hopes to cover. In both models, the number of targeted subscribers determines the number of cells (BTSs) required. In turn, the number of BTSs determines the number of BSCs, MSCs, OSSs and other core network elements required. Each of these network components require specific numbers of sub-components. The determination of the exact number of network components required is based on technical assumptions that are described in greater detail below. The cost model essentially calculates the number of network components required and then calculates the total capital cost associated with deploying these components. Time Frame and Targeted Subscribers Both models cover a five-year time period (2000-2004). In each model, the key assumption is that a network operator is starting a network buildout from scratch in 2000. In subsequent years, the network is scaled to the increase in the number of subscribers year over year. That is, additional cells (BTSs) and other network components are added to the network to service the increased subscribers. The targeted number of subscribers is a key assumption. Both models target CDMA- based subscribers in the United States. We assume that the number of subscribers in 2000 is approximately 12 million, growing at 40% a year to reach approximately 47 million in 2004 (see Figure 5.1). Page 37
    • Model Analysis and Results Figure 5.1: CDMA-based cellular wireless subscribers in the US90 60000000 50000000 40000000 30000000 20000000 10000000 0 2000 2001 2002 2003 2004 Cell Deployment As the number of subscribers grows, additional cells and other network components are deployed. Both models assume that the cells (BTSs) deployed are at full capacity. That is, each cell is fully sectorized (3 sectors per cell) and each cell sector has its full complement of radio transmitter-receiver couples (6 per sector and 6x3 = 18 per cell). Deployed cells are also used at capacity, such that the total subscriber-generated traffic is optimally distributed over the entire network. Other network components (BSCs and MSCs) are also operated at capacity, aggregating the maximum number of BTSs that is technically feasible given the technical assumptions described below. Clearly, these are simplifying assumptions. In reality, cells are rarely deployed at full capacity. As demand increases, additional transmitter-receiver couples are added and cells are sectorized as needed. Similarly, other network components are deployed with an eye on network expansion. However, provisioning for future capacity increases would introduce unnecessary complications from a modeling perspective. 5.3 CDMAONE (1S-95A) MODEL Technical and Cost Assumptions The model technical assumptions, operating cost assumptions, and capital cost assumptions are shown in Tables 5.1, 5.2 and 5.3. 90 1999-2003 Multimedia Telecommunications Market Review and Forecast Page 38
    • Model Analysis and Results Table 5.1: cdmaOne Technical Assumptions BTS Assumptions Channels / Transmitter-Receiver 12 Transmitter-Receivers / Sector 6 Channels / Sector 72 Capacity / Sector (assuming 72 channels, 1% blocking rate) 58 Erlangs Sectors / BTS 3 Capacity / BTS 174 Erlangs Capacity Required (voice) / Subscriber 0.1 Erlangs Subscribers / BTS 1740 T-1 lines required / BTS 1 BSC Assumptions Transmitter-Receivers / BTS 18 Transmitter-Receivers / BSC 120 BTSs / BSC 6.67 T-1 lines aggregated at BSC 7 MSC Assumptions Capacity / MSC Switch 2500 Erlangs Load Capacity at MSC 80% BTSs / MSC 11.50 T-1 lines aggregated at MSC 11 Other Assumptions OSS / MSC 1 (assumed colocated) Maximum Simultaneous Callers / BTS = Channels / BTS 216 Table 5.2: Operating Cost Assumptions for cdmaOne (IS-95A) networks91 Operations Direct expenses, subsidies, commissions, interconnections (30%) $105 Maintenance, salaries, benefits, overhead (50%) $175 Marketing, subscription (IS-95A - 20%) $70 Total for IS-95A $350 91 Cost estimates are based on Guyton, Wireless Networks in Europe: A Three Step Model, Masters Thesis, Fletcher School of Law and Diplomacy, May, 2000. Page 39
    • Model Analysis and Results Table 5.3: Capital Cost Assumptions for cdmaOne (IS-95A) networks92 Base Transceiver Station Transmitters/Transceivers (18) and Antennas (6) $318,000 70m Lattice Tower - Materials, Installation, Site Preparation $55,000 4xE1 microwave for cell interconnection, installation $30,000 Container for cell site with AC wiring, security, etc. $10,000 Antenna Installation $8,000 T-1 Line to the BSC $18,000 Total Cost for 1 Base Transceiver Station $439,000 Base Station Controller Cost per Transcoder $3,000 Switch (Autoplex), 120 Transcoders ($3000/TRX) $360,000 T-1 Line to the MSC $126,000 Total Cost for IS95A Base Station Controller $486,000 Mobile Switching Center Switch (5eSS / 2500 Erlangs Capacity) $3,000,000 Link to PSTN (Public Switched Telephone Network) $206,897 Total Cost for 1 IS-95A Mobile Switching Center $3,206,897 Operations Support System HLR, VLR, EIR, AC (Authentication Center) $500,000 Billing and Customer Management Center $500,000 OMC (Operations Management Center) $500,000 Total Cost for 1 IS-95A Operations Support System $1,500,000 Software Licensing Software Licensing Costs / Connected User $30 5.4 CDMA2000 (1XRTT) MODEL Technical Assumptions According to industry sources and information from the CDG, cdma2000 (1xRTT) network has double the capacity associated with a cdmaOne (IS-95A) network. This doubling of capacity is represented in our cdma2000 (1xRTT) model in several ways. First, the number of channels per Transmitter-Receiver couple is doubled from 12 to 24. This is a direct consequence of the use of CSM5000 channel cards in the BTS. Second, 92 Cost estimates are based on various sources, including: Kibati, op. cit., Bennion, et al., op. cit.; and available industry information. Page 40
    • Model Analysis and Results the number of transcoders in the BSC is doubled from 120 to 240. This is a direct consequence of the replacement of the older Autoplex switches in the BSC with newer, higher-capacity Flexent switches. Third, the effective capacity of an MSC goes from 2500 Erlangs to 25000 Erlangs. This is a direct consequence of the replacement of the older 5eSS switch with a Lucent Softswitch and a farm of 10 Sun NetraServers. Given the higher-bandwidth Internet connectivity that a third-generation network will provide, it is expected that the capacity per subscriber will increase to reflect data usage. Specifically, the capacity per subscriber increases from 0.1 to 0.2 Erlangs. These changes significantly impact the configuration of the CDMA network, and the new configuration is reflected in the technical assumptions detailed in Table 5.4. Table 5.4: Technical Assumptions BTS Assumptions Channels / Transmitter-Receiver 24 Transmitter-Receivers / Sector 6 Channels / Sector 144 Capacity / Sector (assuming 144 channels, 1% blocking rate) 125 Erlangs Sectors / BTS 3 Capacity / BTS 375 Erlangs Capacity Required (voice) / Subscriber 0.1 Erlangs Capacity Required (data) / Subscriber 0.1 Erlangs Subscribers / BTS 1875 T-1 lines required / BTS 1 BSC Assumptions Transmitter-Receivers / BTS 18 Transmitter-Receivers / BSC 240 BTSs / BSC 13.50 PDSNs / BSC 1 T-1 lines aggregated at BSC 14 MSC (Softswitch and NetraServers) Assumptions Capacity / NetraServer 2500 Erlangs NetraServers / Softswitch 10 Load Capacity of NetraServer 80% BTSs / Softswitch 53.33 T-1 lines aggregated at MSC 53 Other Assumptions BTSs / PDGN 260 BTSs / DCN 260 OSS / MSC 1 (assumed colocated) Maximum Simultaneous Callers / BTS = Channels / BTS 432 Cost Assumptions Capital Costs The capital costs assumptions associated with a third-generation cdma2000 (1xRTT) Greenfield model are summarized in the table 5.5. Given that cost information for components of 3G networks is difficult to obtain, some of the cost estimates used in the cdma2000 (1xRTT) model are the costs associated with similar components in the Guyton WCDMA model.93 93 Guyton, op. cit. Page 41
    • Model Analysis and Results Table 5.5: Capital Costs assumptions for a cdma2000 (1xRTT) network94 Base Transceiver Station Transmitters/Transceivers (18) and Antennas (6) $318,000 70m Lattice Tower - Materials, Installation, Site Preparation $55,000 4xE1 microwave for cell interconnection, installation $30,000 Container for cell site with AC wiring, security, etc. $10,000 Cost per Channel Card $1,000 Channel Card (1 per channel) $30,857 Antenna Installation $8,000 T-1 Line to the BSC $18,000 Total Cost for 1 Base Transceiver Station $469,857 Base Station Controller Cost per Transcoder $3,000 T-1 Line to the MSC $252,000 Switch (Flexent), 240 Transcoders ($3000/TRX) $720,000 Total Cost for 1 cdma2000 BSC $972,000 Mobile Switching Center Lucent Softswitch $800,000 1 cdma2000 Netra Server $200,000 Operations Support System HLR, VLR, EIR, AC (Authentication Center) $500,000 Billing and Customer Management Center $700,000 OMC (Operations Management Center) $700,000 Total Cost for 1 cdma2000 1xRTT OSS $1,900,000 Core Network PDSN $26,000 PDGN $37,000 DCN (Core Network Backbone) $4,000,000 Software Licensing Software Licensing Costs / Connected User $30 Operating Costs The operating cost assumptions associated with a third-generation cdma2000 (1xRTT) model are summarized in Table 5.6. Cost estimates are based on Guyton [2000]. Table 5.6: Operating Cost assumptions for cdma2000 (1xRTT)95 Operations Direct expenses, subsidies, commissions, interconnections (30%) $114 Maintenance, salaries, benefits, overhead (50%) $190 Marketing, subscription (cdma2000 - 1.2*IS-95A) $84 Total for cdma2000 $379 94 Cost estimates are based on information from various sources, including: Kibati, op., cit., 1999,; Bennion, et al., op. cit., 1999; and industry information made available to us. 95 Guyton, op. cit. Page 42
    • Model Analysis and Results 5.5 MODEL RESULTS AND ANALYSIS Results Total Network Costs The total network costs associated with CDMA-based networks are as follows. For a second-generation cdmaOne (IS-95A) network, the total discounted costs from 2000 - 2004 are $59,100,141,156. Figure 5.2: Total network costs associated with a cdmaOne (IS-95A) network $20,000,000,000 $18,000,000,000 cdmaOne Discounted Operating Costs $16,000,000,000 cdmaOne Discounted Capital Costs $14,000,000,000 $12,000,000,000 $10,000,000,000 $8,000,000,000 $6,000,000,000 $4,000,000,000 $2,000,000,000 $0 2000 2001 2002 2003 2004 Figure 5.3: Total network costs associated with a cdma2000 (1xRTT) network $20,000,000,000 $18,000,000,000 cdma2000 Discounted Operating Costs $16,000,000,000 cdma2000 Discounted Capital Costs $14,000,000,000 $12,000,000,000 $10,000,000,000 $8,000,000,000 $6,000,000,000 $4,000,000,000 $2,000,000,000 $0 2000 2001 2002 2003 2004 Page 43
    • Model Analysis and Results For a third-generation cdma2000 (1xRTT) network, the total discounted costs from 2000 - 2004 are $55,034,948,240. That is, the total network costs for a cdma2000 network are approximately 6.9% lower than the total network costs for a cdmaOne network. The breakdown of these total costs in terms of capital costs and operating costs are shown in Figures 5.2 and 5.3. Total Operating Costs As can be seen from the figures above, operating costs constitute the major component of total network costs in both models. The total discounted operating costs from 2000 - 2004 for a second-generation cdmaOne (IS-95A) network are $37,829,131,207. The total discounted operating costs from 2000 - 2004 for a second-generation cdma2000 (1xRTT) network are $40,963,544,935. That is, the operating costs associated with a cdma2000 network are approximately 8.3% higher than the operating costs associated with a cdmaOne network. Total Capital Costs Capital costs associated with the two models are as follows. The total discounted capital costs from 2000-2004 for a second-generation cdmaOne (IS-95A) network model are $21,271,009,950. The total discounted capital costs from 2000 - 20004 for a cdma2000 (1xRTT) network are $14,071,403,305. That is, the capital costs associated with a cdma2000 network are approximately 33% lower than the operating costs associated with a cdmaOne network. Network Component Costs The capital costs associated with both models can be broken down by network component. The major network components for a cdmaOne (IS-95A) network are the BTSs, the BSCs, the MSCs, the OSSs and the software licensing costs (see Figure 5.4). Of these, the capital expenditure on the BTSs is the largest component of capital costs, accounting for 47% of the total capital costs associated with a cdmaOne (IS-95A) network. Figure 5.4: Network component capital costs for a cdmaOne (IS-95A) network BSCs 8% MSCs 30% BTSs 47% Software OSSs 1% 14% Page 44
    • Model Analysis and Results On the other hand, the major network components for a cdma2000 (1xRTT) network are the BTSs, the BSCs, the NetraServers, the Softswitches, the OSSs, the PDGs, the PDSNs, the DCNs and the software. Of these, the BTSs are the most significant network component of capital expenditures, representing 72% of the total capital costs associated with a cdma2000 network. Figure 5.5: Network component capital costs for a cdma2000 (1xRTT) network BSCs 11% "Netraservers" 6% "Softswitch" 2% OSSs BTSs 5% 72% PDGNs 0% DCNs PDSNs 2% 0% Software 2% 5.6 SENSITIVITY ANALYSIS Target Subscribers Clearly, the assumptions made about target subscribers have a significant influence on the total capital costs associated with both network models. Both models assume the annual rate of growth of 40%. To study the influence of the number of target subscribers on the total capital costs associated with both networks, the growth rate is varied from 10% to 70% and the results are shown in Table 5.7. Table 5.7 Capital Costs Sensitivity with Respect to Subscriber Growth Rate % Growth in CdmaOne cdma2000 Subscribers 10% $7,201,113,374 $4,763,900,210 20% $10,556,825,810 $6,982,359,930 30% $15,138,962,307 $10,016,210,741 Base - 40% $21,271,009,950 $14,071,403,305 50% $29,320,097,632 $19,394,171,947 60% $39,714,614,941 $26,268,285,770 70% $52,944,383,770 $35,020,024,755 Page 45
    • Model Analysis and Results From Table 5.7 we can see that the capital costs associated with cdma2000 networks are always approximately 33% less than the capital costs associated with cdmaOne networks, irrespective of the rate of subscriber growth. This result can be explained by the nature of the model. Both models scale to the number of subscribers, so it is not surprising that the capital costs are directly proportional to the number of subscribers. Voice Demand Given that both models are subscriber driven, the assumptions made about the demand for voice traffic per subscriber should significantly impact the number of cells deployed and have a direct influence on the total capital costs. The baseline assumption made in both models is that the voice demand per subscriber is 0.1 Erlangs. For the purposes of sensitivity analysis, the voice demand per subscriber is varied from 0.05 to 0.15 Erlangs for both models as shown in Table 5.8. Table 5.8 Capital Costs Sensitivity with Respect to Voice Capacity per Subscriber Erlangs per Subscriber cdmaOne cdma2000 (voice) 0.05 $ 10,638,250,514 $ 10,555,145,524 0.07 $ 14,886,803,018 $ 11,960,086,062 0.09 $ 19,136,811,940 $ 13,365,201,704 Base - 0.1 $ 21,271,009,950 $ 14,071,403,305 0.11 $ 23,392,582,450 $ 14,772,488,889 0.13 $ 27,640,649,460 $ 16,175,218,325 0.15 $ 31,904,746,635 $ 17,588,968,431 The sensitivity analysis reveals that at low levels of voice demand, the capital costs associated with cdmaOne and cdma2000 networks are most similar. On the other hand, at high levels of voice demand, cdma2000 networks provide the most bang for the buck, with capital costs almost half that of corresponding cdmaOne network capital costs. It is important to note here that in this analysis, data demand associated with cdma2000 networks was held constant at 0.1 Erlangs per subscriber. Data Demand in cdma2000 Networks One of the greatest benefits of third-generation cellular wireless networks is the availability of wireless Internet access. However, it is unclear what the demand for data will be. Given this uncertainty, it is important to vary the data capacity per subscriber, which is our proxy for data demand in the cdma2000 model. In the base case, the data capacity per subscriber was assumed to be equivalent to 0.1 Erlangs. To analyze the impact of varying data demand on total capital costs, the data capacity per subscriber was varied from 0 to 0.2 Erlangs. The results are summarized in Table 5.8. Page 46
    • Model Analysis and Results Clearly, a variation in data demand has a direct impact on the total discounted capital costs associated with cdma2000 networks. The capital costs drop proportionally with the Erlang proxy for data demand. This would suggest that low data demand is a favorable situation for cdma2000 network operators. However, this is a simplification. In reality, networks will be built out before data demand is known. As such, the important message from this analysis is that the relative accuracy of data demand predictions are critical for adequate provision of network infrastructure given the sensitivity of capital costs to projected data demand. Table 5.8 Capital Costs Sensitivity with Respect to Data Capacity per Subscriber Data capacity per subscriber Cdma2000 Total Discounted Capital (Erlangs) Costs 0 $ 7,037,736,263 0.02 $ 8,443,622,926 0.04 $ 9,848,559,533 0.06 $ 11,256,468,533 0.08 $ 12,660,648,722 Base - 0.1 $ 14,071,403,305 0.12 $ 15,474,275,973 0.14 $ 16,879,100,520 0.16 $ 18,281,926,725 0.18 $ 19,685,777,859 0.2 $ 21,102,823,499 MSC Capacity Both models make assumptions regarding the capacity contained within the MSC. The cdmaOne model assumes that the capacity of the 5eSS switch within the MSC is 2500 Erlangs. The cdma2000 model assumes that the capacity of a single Sun NetraServer connected to the Lucent Softswitch is 2500 Erlangs. While these assumptions are based on the work of Kibati [1999] and on industry information, it is possible that the capacity of these important network components varies from vendor to vendor. To account for this variance, a sensitivity analysis was performed on the impact of varying switch/server capacity on total capital costs for both models. The results are tabulated in Table 5.9. From this analysis, it is clear that for cdmaOne networks, the capacity of the 5eSS switch in the MSC is an important factor. The capital costs jump significantly if the capacity of the switch is lower than assumed, because more MSCs are now needed. However, if the capacity of the switch is greater than assumed, the capital costs drop significantly before leveling off, because fewer MSCs are needed until a certain minimum number of MSCs is approached. On the other hand, for cdma2000 networks, the capacity of the NetraServers placed with the Lucent Softswitch in the MSC is important, but does not impact costs as significantly as in the case of cdmaOne networks. The drop in costs associated with higher capacity NetraServers is particularly small at the highest Page 47
    • Model Analysis and Results NetraServer capacity tested. From a deployment perspective, higher capacity NetraServers suggest that fewer MSCs will be needed given the scaleability of cdma2000 MSCs. Table 5.9 Capital Costs Sensitivity with Respect to Server Capacity CdmaOne 5eSS Switch Discounted Capital cdma2000 NetraServer Discounted Capital Capacity (Erlangs) Costs Capacity (Erlangs) Costs 1000 $34,730,002,493 1000 $16,883,002,055 Base - 2500 $21,271,009,950 Base - 2500 $14,071,403,305 5000 $16,785,178,495 5000 $13,134,379,939 7500 $15,287,579,366 7500 $12,821,367,324 10000 $14,541,910,666 10000 $12,665,996,106 12500 $14,093,433,757 12500 $12,570,958,076 15000 $13,793,719,128 15000 $12,508,378,409 17500 $13,578,521,981 17500 $12,464,802,212 20000 $13,419,126,622 20000 $12,430,769,236 There is an important caveat to this analysis. The capital costs of cdmaOne and cdma2000 networks actually become comparable if the capacity of a cdmaOne 5eSS switch is significantly higher than assumed and the capacity of an individual NetraServer is correctly estimated or slightly lower than assumed. This suggests that the technical assumptions that go into both models are extremely important in determining which network model has higher capital costs. NetraServer-Softswitch Configuration in cdma2000 Networks The cdma2000 model assumes a specific network configuration with the MSC. It assumes that every Lucent Softswitch is connected to 10 Sun NetraServers. However, this technical assumption is inherently variable because a Lucent Softswitch is designed to be almost infinitely scaleable. That is, in reality, the number of MSCs does not reasonably change with subscriber growth as it does in the model. At each MSC, the number of NetraServers is simply increased to scale the switching capacity to the increase in subscriber demand. To analyze the impact of different NetraServer-Softswitch configurations on total discounted capital costs, the number of NetraServers per Softswitch is varied from 1 to 40. The results are in Table 5.10. The sensitivity analysis reveals that there at first there are significant cost benefits associated with increasing the number of NetraServers per Softswitch in cdma2000 networks. However, the cost savings begin to plateau after a point. This suggests that given a certain level of subscriber demand, there is an optimal NetraServer-Softswitch configuration. Clearly, this optimal configuration also depends greatly on the individual capacity of a NetraServer, which was examined above. Page 48
    • Model Analysis and Results Table 5.10 Capital Costs Sensitivity with Respect to NetraServer-Softswitch Configuration cdma2000 NetraServers per Discounted Capital Softswitch Costs 1 $ 23,761,772,460 5 $ 15,148,077,589 Base - 10 $ 14,071,403,305 15 $ 13,711,337,162 20 $ 13,533,167,590 25 $ 13,424,501,488 30 $ 13,353,115,155 35 $ 13,301,872,876 40 $ 13,264,163,239 Page 49
    • 6. KEY FINDINGS AND IMPLICATIONS 6.1 PRIMARY FINDINGS This paper has focused on the development of a particular technology becoming increasingly predominant in today’s rapidly growing cellular wireless industry - CDMA. As shown in Section 2 of this report, the worldwide growth in cellular wireless usage has been phenomenal. This growth has arisen through a convergence of demand and supply forces – an ever more mobile and information hungry population around the world is increasingly embracing the concept of mobile communications, while continuous technological advances (in handsets and networks) and competition in markets continues to drive improvements in service quality and prices. Today, the wireless world is abuzz with the dream of wireless Internet access and promises of high-speed data access (upwards of 2Mbits per second) to mobile users, anywhere and anytime. Within this context, something of a global standards battle emerged, as the various telecommunications carriers and equipment vendors wed to particular spectrum sharing techniques (FDMA, TDMA, CDMA or their derivatives) each aimed to ensure the viability and dominance of their respective technology as the market evolved. Several key factors are involved here: 1. carriers’ large sunk investments in second generation (2G) networks and the desire to ensure that the move to higher speed data access can occur in a low-risk, cost- effective way, capitalizing on the 2G infrastructure; 2. the need to operate within existing spectrum allocations and/or develop services within new spectrum (with the associated high costs of spectrum acquisition); 3. the desire to ensure global inter-operability (so called “global roaming”) for users across different networks, implying either the use of common 3G spectrum across regions or devices that can operate in multi-spectrum environments (likely translating into higher consumer costs); It now seems clear that in the move to 3G, CDMA-based networks will dominate, whether it be current 2G CDMA networks evolving to cdma2000 or the GSM/TDMA camp eventually moving to W-CDMA. This success of CDMA technology constitutes a powerful case in favor of decentralized innovation systems versus government-mandated technology specification. In the case of Europe, the TDMA-based GSM standard for mobile wireless enabled an initial rapid proliferation of cellular usage and an apparent benefit to the region’s telecom carriers and consumers. However, the subsequent market dominance of GSM put European carriers in the difficult position of being unable to easily take advantage of the superior technical features of CDMA once this technology became commercially viable. In the U.S., on the other hand, the lack of a unified cellular standard – which had been viewed by many as a limitation to wide-scale cellular penetration – created an incentive for carriers and vendors to develop innovative new techniques, thus leaving the market as Page 50
    • the ultimate technology arbiter. Thus, as CDMA became a commercial reality, carriers in the US were able to develop wireless networks based on this technology (if, of course, they were not already invested in TDMA-based networks). Since it is now quite clear that 3G networks will be CDMA-based, the CDMA carriers stand better situated on a cost-effective, less technically complicated migration path. To explore the technical and financial implications of the migration from 2G CDMA networks to 3G CDMA, we developed a cost-engineering model of 2G and 3G architectures in the United States. The final part of this paper is devoted to presenting the key findings and implications of our model. 6.2 RESULT IMPLICATIONS The results and sensitivity analysis obtained from the model provide several important insights. Given the Greenfield nature of the two models developed for this paper, these insights and their corresponding implications are most relevant to carriers considering deployment of third-generation cdma2000 (1xRTT) networks from scratch in the United States. The most important implications of this study are detailed below. Significantly Lower Capital Costs for cdma2000 Networks The analysis of model results reveals that the capital costs associated with cdma2000 networks are significantly lower (upto 33%) compared to cdmaOne networks serving the same subscriber base. This suggests that carriers considering from-scratch deployments of thirg-generation cdma2000 networks will enjoy significant capital cost advantages relative to operators of second-generation cdmaOne networks. In addition, these new players will have the advantage of increased network capacity and wireless Internet connectivity. Operators with Lowest Operating Costs best positioned to benefit from cdma2000 Networks The analysis of model results reveals that operating costs are more important than capital costs in determining total network costs for both second-generation cdmaOne and third- generation cdma2000 networks. This suggests that operators who are able to operate most efficiently and reduce their operating costs will incur the least total costs associated with deploying and maintaining third-generation cdma2000 networks. By reducing their operating costs, these network operators will be best able to remain profitable in a competitive market. Forecasting of Data Demand for cdma2000 Networks is critical The sensitivity analysis reveals that the capital costs associated with cdma2000 networks are quite sensitive to the proxy for data demand. This suggests that network operators interested in deploying third-generation cdma2000 networks must carefully assess the projected demand for data before building out their networks. If network operators overestimate the demand for data, they may build out networks that have significantly greater capacity than is needed. This will translate into unrecoverable capital investments (unless they can expand their voice subscriber base to fill capacity, which may be Page 51
    • possible). Given uncertainty, it may be better for network operators to err on the side of caution. However, operators would need to be cognizant of potential customer service issues that may arise from under capacity. If demand for data is greater than projected, then network operators could selectively deploy scaleable network components in cdma2000 networks to compensate. Technical Assumptions regarding cdma2000 network architectures are important The sensitivity analysis also reveals that capital costs associated with deploying cdma2000 networks are somewhat sensitive to technical assumptions regarding the capacity of MSC equipment. This suggests that network operators considering deployment of such networks must ensure that the overall network is optimally configured given a certain number of subscribers and based on certain voice and data traffic assumptions. Such network optimization might involve NetraServer-Softswitch configuration in the MSC. 6.3 MIGRATION IMPLICATIONS The models developed for this paper also provide several indirect but important insights for current owners of second-generation cdmaOne (IS-95A) networks considering migration to third-generation cdma2000 (1xRTT) networks. Given the large base of existing CDMA-based second-generation networks in the US, these implications may have the greatest relevance to the industry as it stands today. The most important of these implications are detailed below. Existing investments in 2G networks leveraged during Migration to 3G networks. One of the greatest benefits associated with CDMA-based cellular wireless networks is that the technology allows for a graceful transition to next-generation networks. In other words, operators can upgrade their networks from cdmaOne (IS-95A) to cdma2000 (1xRTT) with relatively minor incremental equipment and software upgrades. Specifically, migration will involve replacing channel cards in the BTSs, and switch upgrades in the BSCs and MSCs. Internet connectivity is provided with the addition of a core IP network that connects at each BSC through a PDSN and to the Internet through a PDGN. Existing investments in other second-generation hardware (such as BTSs, OSSs, etc.) is preserved. Phased migration strategies will dominate Given the uncertainty that exists surrounding the demand for data, it is likely that cdma2000 migration will occur in a phased manner. Operators may decide to upgrade a portion of their coverage area to cdma2000 (1xRTT). These pilot upgrades are most likely to occur in the downtown areas of large cities, where demand for data is perceived to be the greatest. These phased migration strategies are made possible by characteristics specific to CDMA networks. First, complete internetworking between cdmaOne and cdma2000 networks is possible. Subscribers can use cdmaOne cellular phones in cdma2000 cells and enjoy the same services that they have in cdmaOne cells. Second, cdma2000 networks are built to be extremely scaleable in nature. This is particularly evident in the configuration of the cdma2000 MSC as consisting of a Lucent Softswitch Page 52
    • and a farm of Sun NetraServers which can be scaled to increase capacity. Lastly, migration to third-generation phase 2 cdma2000 (3xRTT) networks will also occur in a phased manner, building on 1xRTT networks. 6.4 MARKETS, REGULATION & COMPETITION Since in the US established operators can only use currently available PCS spectrum for 3G deployment, backward compatibility is crucial96 – a big plus for CDMA. Furthermore, cdmaOne carriers can effectively migrate to “3G” within their existing spectrum. Our research suggests that in the US, CDMA-based carriers have a large advantage for both expanding voice capacity and moving to data. For Greenfield developers, with free selection of technology, cdma2000 is the likely option. For those TDMA-based 2G providers who have large sunk (non-depreciated) investments they will attempt to maximize their existing infrastructure through the EDGE97 overlay and hope that this will meet the data demand of consumers for the near future.98 There is the possibility that some current TDMA carriers may make the switch to CDMA, not over their existing networks, but in their future network expansions (AT&T, for example, has many PCS licenses not yet built out and could theoretically pursue a channel by channel migration to CDMA99). In that case, our results of relatively low cost cdma2000 deployment may offer a compelling reason to seriously contemplate that path. Some industry analysts suggest that “non-CDMA operators are nervous about the capital expenditures involved with the data market and are uncomfortable that CDMA carriers may have a large cost advantage.”100 6.5 DIRECTIONS FOR FUTURE RESEARCH The models developed for this paper represent a mere first step in understanding the costs associated with second- to third-generation migration for CDMA-based networks. Further research could provide more analytical rigor to the preliminary work presented here. Specifically, further research could develop a non-Greenfields migration model that will more accurately calculate the migration costs associated with moving from cdmaOne to cdma2000 networks. It is also important to note here that the work presented here represents only the first incremental step to a phase 1 third-generation network. Further work could focus on the next incremental step of moving from cdma2000 1xRTT network to the cdma2000 3xRTT network, which is expected to comply fully with the ITU's IMT-2000 third-generation standard. 96 Chaudhury, P., W. Mohr, S. Onoe, “The 3GPP Proposal from IMT-2000, IEEE Communications Magazine, December, 1999, p. 76. 97 Enhanced Data 98 Chaudhury, et. al, p. 77. 99 Luna, L. “AT&T explores 1xRTT technology,” RCR, October, 11, 1999. 100 Ibid. Page 53