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Verizon may switch wireless standards

The largest U.S. wireless company is considering changing to a different phone network technology, and its decision could help declare a winner in the global standards war.

Verizon Wireless, the largest wireless company in the United States, is considering changing to a different phone network technology, and its decision could help declare a winner in the global standards war.

Verizon, which has more than 27 million subscribers, has spent about $5 billion building a wireless phone network that uses CDMA (code division multiple access) technology, developed by wireless technology giant Qualcomm.

But a Verizon spokeswoman said that when the company upgrades to so-called third-generation (3G) technology sometime in 2004, it could switch to network equipment based on a rival technology known as wCDMA.

Although the abbreviation implies that the technology is a successor to CDMA, the new standard is an upgrade to the current GSM (Global System for Mobile Communications) technology that is popular with wireless operators in Europe and Asia.

Operators using 3G versions of GSM and CDMA will be able to offer the same types of new services, such as high-speed, always-on Internet access. The two standards do have subtle differences, though, including operating on different radio frequencies.

Some analysts said the potential switch by Verizon could solidify GSM and its next generation of standards as the dominant high-speed phone network in the world.

"If Verizon were really to deploy (the different technology) and begin phasing out the current network, then certainly it would not just shift the balance of power, but signal that wCDMA is really the winner," said Ira Brodsky, president of Datacomm Research, a St. Louis, Mo.-based market analyst firm.

"Qualcomm's version is going to finish a very distant second," he added.

Verizon representatives emphasized that the company has yet to make a firm decision concerning a change.

But the switch, if it occurs, could have a profound effect on the wireless sector, which consists of a patchwork quilt of networks that run on different types of hardware that can't interact with each other. The two most popular are GSM and CDMA.

By most accounts, a half-billion cell phone users, mainly in Asia and Europe, use GSM networks to make calls. Fewer than 100 million customers, including Verizon's, use CDMA-based networks. A switch by Verizon could swing enough new customers into GSM-based networks to ensure it remains the dominant global standard, analysts say.

"This is all about global carriers and their core technologies," said Bryan Prohm, a wireless industry analyst at Gartner Dataquest, a market research firm. Prohm said most wireless carriers are likely to remain loyal to their existing transmission technology when upgrading to higher-speed systems in the future, because of their familiarity with it. "They are very wedded to the 'dance with who brung ya' philosophy," he said.

If Verizon decides to break with CDMA, the change would not take place for at least three years. "We are talking 2004, 2005," Verizon Wireless spokeswoman Andrea Linskey said. "By that point, who knows what will happen."

Pressure from abroad?
Any changes made by Verizon could be a signal of Vodafone's growing influence.

Vodafone, which uses a GSM network and is expected to upgrade to GSM-based wCDMA in a few years, already is among the largest wireless carriers in the world. The company took a 45 percent stake in Verizon last year and has since pressured the U.S. provider to switch network technologies, several analysts have said.

But most of Vodafone's predominately European consumer customers can't use the Verizon network when visiting the United States because the GSM and CDMA technologies are incompatible. Instead, Vodafone has roaming agreements with other networks, including VoiceStream Wireless', which is controlled by Deutsche Telekom and is considered a Vodafone rival in Europe.

Vodafone Chief Executive Chris Gent told analysts last week that the company pays $100 million a year to Deutsche Telekom in roaming charges.

A single global network, based on the same technology, would save Vodafone roaming costs while allowing Verizon and Vodafone customers to use their phones effortlessly when traveling abroad.

Vodafone is "catering to a global traveler and businessman," Gartner's Hart said. "They want to offer one product."

But some analysts questioned whether Verizon should consider a switch in technology.

Jane Zweig, chief executive at wireless analyst firm Herschel Shosteck Associates, pointed out that previous attempts to launch wCDMA-based networks have failed.

One flop came from NTT DoCoMo in Japan, which delayed the launch of its 3G network by another four months because of system glitches. DoCoMo decided instead to offer the service on a trial basis to fewer than 4,000 customers instead of its entire 23 million customers.

wCDMA "is a new technology that is unproven and will require an enormous infrastructure investment," Zweig said.

AT&T Wireless, the No. 3 U.S. wireless provider and the only of the four top carriers that plans to use wCDMA, declined to comment on Verizon's considerations. But spokesman Rich Blasi said, "We think wCDMA is the most cost effective and technologically advanced path to provide wireless services."

Still uncertain is what effect, if any, a switch by Verizon might have on Qualcomm, analysts say.

Qualcomm created the CDMA technology and has made billions of dollars licensing it to other companies. The company's CDMA technology is the dominant standard in Korea and North America, where all but one of the top four carriers uses CDMA hardware in their networks.

Qualcomm is now focused on China, which is regarded as the next telecommunications gold mine. If Verizon switches, though, Qualcomm's CDMA could lose some of its luster, analysts say.

Qualcomm could be financially pinched by a Verizon switch, analysts believe. The company makes much of its profits by licensing CDMA technology to handset makers. With Verizon's possible change in technology, that could mean less royalties from CDMA for Qualcomm.

"This could limit the market potential for CDMA," said Tole Hart, a communications industry analyst with Gartner.

Qualcomm spokeswoman Ann Stowe said the company already has announced that it will manufacture cellular phone and wireless network chips that work with both CDMA and wCDMA, the GSM upgrade.

Stowe says that even if Verizon Wireless switches to a wCDMA-based network in a few years, Qualcomm won't lose the wireless giant's business. Qualcomm could still supply wCDMA technology to Verizon, she says.

"This is not a battle between these two standards," she said. "Both will be good for Qualcomm."