AT&T Wireless stakes claim to 3G

But demand is debatable - and faster, more available alternatives are emerging.

AT&T Wireless last week rolled out 3G wireless services to customers in four markets, becoming the first operator to turn up such a service in the U.S.

It's not much, but it's a start.

AT&T Wireless last week rolled out 3G wireless services to customers in four markets, becoming the first operator to turn up such a service in the U.S.

The rollout - initially in Detroit, Phoenix, San Francisco and Seattle, with Dallas and San Diego on the way - marks a drastic cutback from the 13 markets AT&T Wireless originally planned to tap by midyear. The carrier announced early last year that it was scaling back its 3G plans because of lack of demand and a shift in investment priorities (see here).

Still, last week's rollout of the 220K to 320K bit/sec Wideband Code Division Multiple Access (WCDMA) service could address needs for users seeking higher-speed throughput for delivery of data-intensive business applications - such as streaming audio and video - to their handsets. WCDMA is also known as Universal Mobile Telecommunications System (UMTS).

Before 3G, AT&T Wireless' highest data rates were 130K bit/sec through Enhanced Data Rates for Global Evolution (EDGE) technology enhancements to its 30K to 40K bit/sec GSM network. Cingular Wireless, which is acquiring AT&T Wireless, also is going 3G via WCDMA and has issued RFPs to vendors for the equipment to support 3G services next year.

But 3G might not be fast enough. Competitors Verizon Wireless and Sprint are or plan on supporting higher data rates through an alternative CDMA technology called Evolution Data Optimized (EV-DO). EV-DO will support speeds from 300K to 500K bit/sec, maxing out at 2.4M bit/sec.

Verizon Wireless has begun turning up EV-DO in San Diego and Washington, D.C., and plans to extend the service to one-third of its 40 million U.S. subscribers by year-end.

Sprint last month at the Supercomm trade show announced intentions to support EV-DO. The company is investing $1 billion in the technology and plans to roll it out in select markets later this year.

Nextel, meanwhile, has an orthogonal frequency division multiplexing market trial underway in North Carolina that addresses the wireless data portion of a 3G rollout. The company has stated intentions of exploring multiple technologies, including EV-DO, as a migration path for its network.

T-Mobile has 2.5G General Packet Radio Service (GPRS) for its GSM network but its plans for 3G are unclear.

Playing leapfrog

And there's more leapfrogging to come: Cingular and AT&T Wireless might surpass Verizon Wireless and Sprint when they go beyond WCDMA to High Speed Downlink Packet Access (HSDPA), which offers data rates up to 14.4M bit/sec.

HSDPA is still in the testing stage, according to AT&T Wireless.

"To really be on par with EV-DO, they need more than just UMTS," says Keith Mallinson, an analyst at The Yankee Group. "They've got to go for HSDPA, which is a turbo-charging that goes into the multimegabits."

For the time being though, AT&T Wireless is offering 3G at $25 per month on top of a voice plan for consumers. For business customers it costs $80 per month in addition to a voice plan.

Perhaps at this price, demand might germinate. But analysts say there is no significant pent-up demand in the U.S. for 3G; that's why AT&T Wireless scaled back its initial plans.

AT&T Wireless turned up 3G to fulfill a $10 billion obligation to NTT DoCoMo, which owns 16% of the carrier. An agreement between the two stipulated that if AT&T Wireless does not meet its 3G upgrade plans, NTT DoCoMo could turn in its investment for a $10 billion payout.

"A lot of this is driven more by the NTT requirement than by demand," says Allen Nogee, an analyst at In-Stat/MDR. "The NTT requirement is for [3G in] four cities but AT&T Wireless did six to be safe."

Another issue is the lack of backward-compatibility between AT&T Wireless' WCDMA and EDGE devices. Instead, customers get a free EDGE card when they sign up for service. They can fall back to 100K to 115K bit/sec of national service when they venture out of the four 3G cities.

Phones, however, are backward-compatible with the much slower, 40K bit/sec GPRS service, AT&T Wireless says.

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