Us wireless Industry: Key Developments in 2007

(Executive summary available in French and English)

January 2008

EXECUTIVE SUMMARY

For the US wireless industry, 2007 was a year of continued growth (especially on the data side), accompanied by a dizzying array of developments and disruptive forces on the market, regulatory, and technological fronts.

• 
  the industry reached a milestone of 250 million wireless subscribers in November, quadrupling over the past ten years
  
• 
  spending by US households on wireless services was set to exceed wireline services by the end of the year
  
• 
  net-adds, pegged at 1.65 million subscriptions per month, continued to decline on a year-over-year basis
  
• 
  nearly 90% of handsets sold in the US are replacement devices, significantly higher than the 50% global average
  
• 
  impressive growth in the wireless data market, reaching $5.85 billion in service revenues at the end of Q2 (an 81.6% increase over the previous year)
  
• 
  the percentage contribution of data to overall service revenues for the industry jumped from 14.5% to almost 17% in Q2, and is projected to reach 20% by the end of the year
  
• 
  in June, Verizon handled a record 10 billion TXT messages, the highest volume ever reached for a single carrier
  

Change was omnipresent, happening on various fronts:

• 
  New Players: new kids on the block, Apple and Google, shook established norms and practices in the industry, with the introduction of the iPhone, Android and the Open Handset Alliance
  

• 
  New Approaches: “openness” – for networks, platforms, devices and mobile software -- was the mantra of key industry players such as FCC chairman Kevin Martin, Google and Verizon; and the relationship between carriers and handset manufacturers starts to get redefined on significantly different terms, with revenue-sharing arrangements now in play as well as the possibility of direct relationships with customers on a more independent basis
  

• 
  New Opportunities: additional airwaves afforded by the upcoming 700 MHz wireless spectrum auction serve as a catalyst for the rapidly growing wireless data market; mobile advertising starts to take hold; MVNO’s soldier on, but several players drop out of the game
  

• 
  New Technologies: LTE emerges as the dominant path for the development of 4G wireless broadband, perhaps putting the death knell to the CDMA vs. GSM religious wars that have for so long characterized the US industry; WiMax experiences speed bumps along the way; MediaFLO emerges as a de facto leader for mobile video platforms; and new technologies like femtocells present new possibilities for increased penetration in the marketplace
  

1. US WIRELESS INDUSTRY: BY THE NUMBERS

1.1 Subscriptions and Penetration

CTIA, the US Wireless Industry Association, reported in November that the total estimated wireless subscribers in America surpassed the 250 million mark, quadrupling over the past ten years.

In the second quarter of 2007, the industry also reached a subscription penetration rate of 80%. Additional data released by the CTIA also revealed that Americans use more minutes, for less cost, than any other consumers in the developed world. Further, research conducted by the Federal Communications Commission (FCC) reported that 98% of Americans can choose from at least four different service providers. ¹

On the broadband front, the FCC released data at the end of October indicating that wireless high-speed subscribership grew nationwide by more than 600% from 2005 to 2006. The research also showed that new wireless broadband subscribers made up 62% of the total growth in high-speed lines during the second half of 2006.²

1.2 Wireless vs. Wireline Spending

A

ccording to data released by the Bureau of Labor Statistics for the year 2006, American households spent on average $524 for their cellphone bills, compared with $542 for residential and payphone services. It is projected that by the end of 2007, the wireless spend will surpass the wireline one for the first time (Only as recently as 2001, this ratio was 3:1).³ In next year’s survey, Voice over Internet Protocol (VoIP) will be tracked as a separate line item.

1

By the Numbers: Top Ten U.S. Wireless Service Providers
Operator	Subscriber Base	Net additions	Total Churn	Postpaid Churn	ARPU	Data ARPU	Revenues
AT&T Mobility	65.7 million	2.0 million	1.70%	1.30%	$50.82	n/a	$10.9 billion
Verizon Wireless	63.7 million	1.6 million	1.27%	0.96%	$52.17	$10.59	$11.3 billion
Sprint Nextel Corp.	54 million	-60,000	n/a	2.30%	59*	~$10	$8.7 billion
T-Mobile USA Inc.	27.7 million	857,000	2.90%	2.00%	$53	$8	$4.89 billion
Alltel Corp.	12 million	213,000	1.90%	1.31%	$55.96	$6.36	$2.3 billion
U.S. Cellular	6.067 million	52,000		1.60%	$52.71	n/a	$1 billion
MetroPCS Communications Corp.	3.66 million	114,300	5.20%	n/a	$42.77	n/a	$557 million
Leap Wireless International Inc. (estimates)	2.7 million**	36,500	5.20%	n/a	$45.13**	n/a	$393 million**
Dobson Communications Corp.	1.5 million	49,100	n/a	2.01%	$52.54	$7.03	$392 million
SunCom Holdings	1.14 million	2,200	2.90%	N/a	$57.38	n/a	$240 million
*postpaid only
**Second quarter results; Leap has not yet reported full 3Q results
Source: quarterly reports and company statements

.3 Top Ten US Wireless Service Providers: Snapshot

1.4 Market Share / Net-Adds

Based on Q2 results for 2007, carrier market share in the US stood as follows:

• 
  AT&T/Cingular: 27%
  
• 
  Verizon: 26%
  
• 
  Sprint: 22%
  
• 
  T-Mobile: 11%
  
• 
  Alltel: 5%
  
• 
  all others: 9%
  

Net-adds continue to decline for the industry as a whole. The current rate is 1.65 million subscriptions per month (down from 1.92 million per month in 2006, and 2 million per month in 2005). AT&T posted the strongest performance in Q2, adding almost 1.5 million new subscribers. T-Mobile has also experienced solid results with its “myFaves” launch, adding 2.5 million users since October 2006.⁴

1.4 Handset Manufacturers

Global market share among major handset manufacturers at the end of Q2 stood as follows:

• 
  Nokia: 37.9%
  
• 
  Samsung: 14.1%
  
• 
  Motorola: 12.4%
  
• 
  Sony Ericsson: 9.4%
  
• 
  LG: 7.2%
  

Compared to the previous quarter, Nokia was on the rise while Motorola lost the most significant ground (3.2%). In the US, 86-88% of handsets sold are now replacement devices (globally, this figure stands at just over 50%).⁵

1.5 Focus on Wireless Data

Notwithstanding the generally positive numbers in the US wireless industry overall, the real story of 2007 is the impressive growth of the wireless data market – reaching $5.85 billion in service revenues for the second quarter. Compared to the first two quarters of 2006, the US wireless data market in 2007 grew a significant 81.6%.⁶

On the carrier front, Verizon overtook Sprint in data ARPU with a 13% increase from its Q1 numbers to $9.84, whereas Sprint posted a data ARPU increase of only 5%, to $9.75. AT&T’s data ARPU increased by 11% to $8.77, with T-Mobile rounding out the big four with a 4% increase, to $7.80 for Q2 2007.

The percentage contribution of data to overall service revenues for the industry jumped from 14.5% to almost 17% in Q2 and is projected to reach 20% by the end of 2007. Again, Verizon leads the pack, posting an increase of 19% for wireless data ARPU as a percentage of overall service revenues from the previous quarter, followed by AT&T at 17.3%, Sprint at 16.3%, and T-Mobile at 15%.
Non-messaging data revenues continue to be in the 50-60% range for most US carriers. In June, Verizon handled a record 10 billion TXT messages, the highest volume ever reached for a single carrier.

2. KEY PLAYERS, KEY EVENTS

The year 2007 was marked by a series of dizzying developments and disruptive forces in the US wireless industry, beyond anything experienced in any single year prior. Three developments in particular stand out: (1) the introduction of the Apple iPhone, in an exclusive relationship with AT&T; (2) Google’s emergence as a new player in the US wireless industry, with its open source-driven Android mobile platform and the Open Handset Alliance (OHA) that will drive its development; and (3) Verizon’s announcement that it will open its wireless network to phones and mobile devices bought elsewhere. A fourth major factor affecting the industry is the upcoming 700 MHz spectrum auction, and is dealt with separately (see Section 3 below).

2.1 Apple, AT&T and the iPhone

Following rumours from the previous summer, Apple unveiled its much-ballyhooed iPhone on January 9^th, 2007 at the Macworld Expo trade show. In an exclusive relationship with Cingular Wireless (which, days later, would be re-branded as the long familiar AT&T)⁷, the phone was scheduled to launch in June 2007 in the US, with launches slated for the European and Asian markets later in 2007 and 2008, respectively.

Positioned by Apple CEO Steve Jobs as a “revolutionary and magical product that is literally five years ahead of any other mobile phone,” the iPhone would in fact incorporate three different products: a mobile phone (a quad-band GSM device with a revolutionary touch screen and other visual-oriented features), a widescreen iPod (capable of downloading and playing audio and video content from Apple’s iTunes service), and a portable Internet communications device (capable of web browsing and POP3/IMAP mail services on Cingular/AT&T’s EDGE network, as well as WiFi access points). Pricing was pegged at $499 for a 4GB model, and $599 for an 8GB model, to be distributed through both Apple’s and Cingular’s retail and online stores. Jobs also set a target of taking 1 percent of the global market for cellphones (10 million units) by the end of 2008.
The iPhone did indeed launch, on June 29^th, with various service plans starting at $59.99 per month – all of which included unlimited data, visual voicemail, 200 SMS text messages, roll-over minutes and unlimited mobile-to-mobile calling. AT&T indicated that in early sales, roughly 40% of iPhone subscribers were new AT&T customers and that they tended to sign up for more expensive service plans than other customers.⁸ On September 5^th, Apple announced that it was cutting the price of the iPhone – reducing the cost of the 8GB model by $200, to $399 – and offering a $100 store credit to consumers who had previously purchased the phone at the higher price. On September 10^th, Apple announced that it had sold one million iPhones to date.
The ramifications of Apple’s entry into the wireless market space are interesting. Apple’s relationship with Cingular began in February 2005, when Steve Jobs initiated a meeting with then-CEO of Cingular, Stanley Sigman. Market observers speculate that Apple’s choice of Cingular as its exclusive partner in the US came down to a key decision: GSM vs. CDMA. Even though Apple opted for Cingular’s EDGE broadband wireless service – considerably slower than Verizon and Sprint’s offerings which are capable of 1 megabit per second downloads, and even Cingular’s own 3G offering (which, as any 3G service, draws considerably more power) – at the end of the day Cingular’s network was aligned with a technology standard, GSM, enjoyed throughout Europe and nearly everywhere in Asia. Moreover, it has been reported that Verizon officials would never have given any handset manufacturer the kind of control over hardware and software design that Apple demanded of Cingular. ⁹
More overlooked – and perhaps as significant as the introduction of the iPhone itself – are the financial terms of the Apple-AT&T relationship. Neither party will disclose details, but it is assumed that a revenue-sharing agreement is in place. Speculation amongst observers and analysts peg the agreement most conservatively at $3 per month for existing AT&T subscribers who switched to the iPhone for a two-year contract; and a bonus of $8 on top of that (to a total of $11 per month per subscriber) for new customers.¹⁰ Others have estimated a bounty for new subscribers to be in the range of $150-200. In the most detailed analysis, Gene Munster of Piper Jaffray modeled the terms of the deal, and estimates that Apple may be receiving as much as $18 per month – which, extended over a two-year contract would roughly equal the market value of the phones themselves.¹¹ In any event, if such terms are in place, it would mark a significant departure from the traditional relationship enjoyed between carriers and handset manufacturers.

2.2 Google, Android and the OHA

The Internet behemoth Google, which has a reputation for breaking down barriers to advance its advertising and service businesses, made its first concrete foray in the wireless market space with “Android” – an open-source based software platform for mobile phones. Announced on November 5^th, Android will be developed by the Open Handset Alliance (OHA), an industry group of 33 companies led by Google. Partners include a mix of carriers (Sprint, T-Mobile), handset manufacturers (Motorola, Samsung, LG, HTC), semiconductor companies (Intel, Qualcomm, Texas Instruments) and other technology companies (eBay, Nuance, SkyPop).

The platform itself involves several layers of software for phones – an operating system, a user interface and applications such as advanced Web-browsing software. The Alliance expects the software – to be made available free of charge to carriers and handset makers – will be supporting mobile phones as early as the second half of 2008. The announcement also effectively quashed rumours that Google would be launching its own phone (which some had fancifully labelled the “GPhone”).


“Consumers deserve more competition and innovation than they have in today’s wireless world.”

- Eric Schmidt, Google Chairman & CEO

The move by Google is a bold bid to change how the wireless industry operates. Carriers have traditionally controlled the development of applications for their own phones, negotiating with individual handset manufacturers the models and features that would ultimately serve their customer base. Google’s strategy is to create more web-enabled phones in the customer market, and thus create more opportunities for the company to sell ads on mobile phones. Google will likely negotiate revenue-sharing agreements with carriers for the ads being delivered to the phones, and possibly share in monthly service revenues as under the Apple-AT&T relationship.

On November 30^th, Google announced that it would also be participating in the upcoming 700 MHz Wireless spectrum auction (elaborated on in Section 3 below), opening the possibility that it could itself become a direct player in the wireless industry. It is reported to be running trials on an advanced wireless network at its Mountainview, California headquarters.¹² Whatever the outcome of these initiatives, it underscores the level of commitment Google has to expanding the availability of high-speed mobile Internet access to consumers, and to broaden the range of wireless applications from what is currently on offer.

2.3 Verizon and Open Networks

Following on the heels of the Google announcement, Verizon – the second largest carrier in the US by subscribers – stunned the industry when it announced on November 28^th that it would be opening its wireless network to allow its customers to use phones and mobile devices that were purchased elsewhere. While maintaining its traditional service, the company will offer a separate service plan for “non-Verizon” phones, presumably at different pricing. Lowell McAdam, CEO of Verizon Wireless, indicated that the company would be meeting with handset manufacturers and programmers in the first quarter of 2008, with a view to opening its network by the summer.

For a company with a reputation of being highly protective of its traditional business, this is a significant departure. As recently as September, Verizon had filed a petition with the federal courts challenging the FCC’s rules on openness for the upcoming 700 MHz wireless spectrum auction (see Section 3.3 below) as “arbitrary,” “capricious,” and generally unfair government meddling in the marketplace.¹³
Market observers were initially sceptical as to how “open” the Verizon network would be. For one thing, as the network is based on CDMA technology, it limits the number of phones that will be compatible (i.e., no GSM). Further, Verizon reserved the right to control which CDMA handsets would be able to connect to the network, following testing at Verizon labs relative to a set of standards that had yet to be defined. Many of these concerns were somewhat allayed, however, when Verizon pledged its belated support to Google’s Android initiative on December 3^rd.

3. THE 700 MHZ SPECTRUM AUCTION

3.1 Spectrum Basics

O

“I am committed to ensuring that the fruits of wireless innovation swiftly pass into the hands of consumers”

- FCC Chairman

Kevin J. Martin
ne of the key events spurring so much attention and activity in the US wireless industry this past year is the upcoming FCC 700 MHz wireless spectrum auction. Spawned by a US House of Representatives vote in February 2006 – mandating broadcasters to vacate the 700 MHz airwaves that have accommodated analog television broadcasts for UHF channels 52 through 69, and in turn to switch to an exclusively digital television (DTV) format by February 17^th, 2009 – the auction is creating other kinds of waves that are only beginning to reverberate throughout the industry.¹⁴
Divided into two broad swaths, the lower end of this spectrum (48 MHz, which covered UHF channels 52-59 in the past) is already occupied by Aloha Partners (which plans to use it for its HiWire Mobile TV offering) and Qualcomm (which currently enables its MediaFLO Mobile TV network). The upper end of the spectrum (60 MHz, or UHF channels 60-69) has a portion (24 MHz) reserved for public safety services, but the remainder (the so-called “C Block” of spectrum) is to be auctioned off under the supervision of the FCC on January 24^th, 2008. According to estimates provided by the Congressional Budget Office, the auction (officially dubbed “Auction 73”) is projected to result in proceeds of $10-15 billion, which has been nominally targeted to aid the national conversion to digital television. Other analysts have pegged the potential auction proceeds as high as $30 billion.

3.2 Strategic Value

Why all the fuss? For one thing, this band of spectrum is notable for its “broadcast-attractive physics,” such as its ability to penetrate walls and other obstacles. For another, estimates for building a nation-wide 1900 MHz PCS network are around $4 billion, whereas a similar 700 MHz spectrum-based network is in the neighbourhood of $2 billion (cell towers on the latter can cover twice as many square miles).¹⁵

3.3 New Player Influences the Rules

Perhaps matching the significance of the auction itself has been the involvement of a new player to the wireless game, Google, and its influence on the process governing the auction. In a filing with the FCC on July 9^th, Google advocated four types of “open” platforms as the basis for involving itself in the auction:

• 
  Open Applications: consumers should be able to download and utilize any software applications, content or services they desire;
  
• 
  Open Devices: consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;
  
• 
  Open Services: third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis; and
  
• 
  Open Networks: third parties (e.g., ISP’s) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.
  

In such matters, you may not get what you want but perhaps you get what you need. On July 31^st, the FCC responded by modifying the auction rules to address the first of these two conditions: winners of the auction would be required to provide a platform that is “more open to devices and applications.” This ultimately proved sufficient to Google and, on November 30^th, the Company formally announced its intention to participate in the 700 MHz auction, maintaining its previous commitment to a minimum bid of $4.6 billion.

3.4 Who’s In? Who’s Out?

O

n December 18^th, the FCC released a list of the 266 prospective bidders. Of these, 96 applications were deemed “accepted for filing.” The remainder were labelled “incomplete,” and applicants were required to resubmit and include more information. All were also required to submit an up-front payment by January 4^th, 2008.
Who’s in? Some familiar names include AT&T, Echostar Communications, MetroPCS Wireless, Qualcomm and Verizon Wireless (in a joint venture with Vodafone). Newer kids on the block include Google, Cablevision Systems Corp. and Microsoft co-founder Paul Allen’s Vulcan Spectrum.¹⁶
Who’s out? Sprint Nextel – the third largest US wireless carrier – declined to participate, having made its bet on WiMax technology, which occupies a different range of spectrum. Notable by their absence, too, are major cable operators like Comcast and Time Warner Cable, squelching rumours of “quadruple-play” market offerings for these companies that would bundle high-speed data, telephony, TV and wireless.

4. EMERGING SEGMENTS & SERVICES

4.1 MVNO’s

The industry has always treated MVNO’s (mobile virtual network operators) with some scepticism. These are mobile operators that do not own their own spectrum and usually do not have their own network infrastructure. Instead, MVNO’s establish business relationships with existing wireless carriers to buy minutes of use (MOU) for sale to their own customers.

The highest profile of these in the American market is Virgin Mobile USA, a joint offering by Richard Branson’s Virgin Group and Sprint founded in 2002. For the first six months of 2007, it realized a net profit of $26 million on revenues of $667 million. In October, the company went public and raised $412.5 million, the proceeds of which are to pay down debt and possibly buy out Sprint’s 16.7% stake.
The market, however, is littered with more failure than success. Preceded by ESPN Mobile’s disappearance in 2006, the past year has seen Disney pull the plug on its mobile play and Amp’d filed for bankruptcy in June. Notwithstanding these market failures, new entrants are still coming to market, and some analysts point to “kajeet” as a possibly the first successful tween MVNO.

4.2 Mobile Advertising

Indications are that the market for mobile advertising is still very much in the early stages. Research shops like Gartner peg the global market for ads on mobile devices at $11 billion by 2011; Strategy Analytics sees an even higher target of $14.4 billion. Others, however, think it will take at least 5 years to reach $10 billion in revenues. ¹⁷

Reflecting the nascent nature of the industry, where there has been activity is on the acquisitions and venture capital front. In September, Nokia bought Enpocket, a mobile ad platform provider. Earlier in May, AOL purchased Third Screen Media, a mobile ad broker; and Microsoft purchased mobile advertising company ScreenTonic. In June, Nielsen acquired Telephia, a firm that tracks mobile phone usage.
Experimentation in the market continues. Virgin Mobile USA, for example, launched “Sugar Mama,” a program that lets customers earn up to 75 minutes of free airtime in exchange for watching ads or responding to mobile surveys. (PepsiCo, the US Navy and Nintendo have been among the brands participating thus far.)
Amongst Internet players, Yahoo! is showing mobile display ads in 16 countries, working with large European carriers like Vodafone. While Google still does not have the technology to serve SMS and multimedia ads on mobile phones, its Android and Open Handset Alliance initiatives are early steps towards accommodating advertising on mobile devices. Further, Apple’s iPhone – with its touch-screen functionality – is certain to breed new plays in this space.

5. TECHNOLOGY DEVELOPMENTS

5.1 Whither WiMax?

In July, Sprint Nextel and Clearwire Corp. announced their intentions to jointly build a nationwide high-speed wireless network based on WiMax technology. The agreement envisaged the two companies sharing the costs of a network that would reach 100 million people by the end of 2008, with each side providing roaming rights to the other’s customers. Prior to the announcement, Sprint had already committed to spending $5 billion on the network over the next three years.

Market and technology-related speed bumps from that high point have arisen since then. Sprint’s CEO, Gary Forsee, left the company in October. Then, on November 9^th, the two companies announced that the deal was off, citing complexities of the transaction and their inability to reach mutual terms. AT&T also appears poised to abandon WiMax technology in favour of LTE for its preferred 4G technology of choice. (See 5.2 below.)
Sprint nonetheless remains committed to WiMax. It announced recently at the CES trade show in Las Vegas that it is on track to launch commercial services for a WiMax high-speed wireless network at the end of April, following on trials launched December in Chicago, Baltimore and Washington, DC. The service, dubbed “Xohm,” will offer per day, weekly and monthly subscription packages as well as longer-term contracts, but plans would not subsidize the cost of WiMax devices for customers. Other industry players who have invested in WiMax technologies to date include Intel, Motorola and Samsung Electronics.

5.2 LTE and the CDMA/GSM Religious Wars

On par with its attention-grabbing announcement at the end of November to open its cellphone network to other’s phones and mobile devices (see section 2.3 above), Verizon announced a couple of days later that it would be adopting LTE (long term evolution) as the preferred technology path for its 4G approach to wireless broadband. Verizon’s current network is CDMA-based, a technology developed by Qualcomm and popular in South Korea and the US.

The development is significant in that it would effectively negate the GSM vs. CDMA divisions that have marked the US market, bringing Verizon’s CDMA customers closer to technology standards enjoyed by an estimated 2.5 billion cellphone users across the globe. ¹⁸

LTE technology is targeted to achieve download rates of 100 Mbps and upload speeds of 50 Mbps for every 20 MHz of spectrum (equal to, or faster than, existing wireline DSL or cable services), and can handle 200 connections per 5 MHz. Moreover, LTE is fundamentally based on TCP/IP, the core protocol of the Internet, and is thus better equipped to handle IP connections.
Verizon will begin trials in 2008 and expects that LTE products could come on stream as early as 2010. AT&T and T-Mobile have also indicated that they are likely to adopt LTE standards for their 4G networks – leaving Sprint isolated with its competing WiMax technology. Hardware vendors supporting the LTE initiative include Alcatel-Lucent, Nortel Networks, Motorola, Nokia-Siemens and Ericsson.

5.3 Mobile Video Platforms

Market research firm IDC forecasts that 24 million Americans will be watching video on their cellphones by 2010, up from 7 million today.¹⁹ At issue in 2007 has been exactly which platform would prevail in terms of supporting the delivery of this video with US carriers. Competition has largely been between “DVB-H,” a European-backed standard, and Qualcomm’s “MediaFLO.”

Both Modeo and HiWire were early players on the DVB-H front, but by mid-year US carriers – notably AT&T and Verizon – had opted to go with the MediaFLO solution, effectively establishing Qualcomm’s offering as the de facto standard for mobile video in the American market. Reasons for the decision included: faster channel switching time, low battery power consumption, and support for full-length programming as well as real-time entertainment and information feeds. Verizon now offers eight channels of news, sports, prime time shows and cartoons for an additional $15 per month, and AT&T expects to launch a similar service shortly.

5.4 Femtocell

An emerging technology which is garnering much attention is the “femtocell.” Designed to act as an in-home wireless access point, femtocell devices use a high-speed Internet connection – rather than the wireless network – to convey a call from a handset to the carrier’s switching station, where it is then directed to its destination. For cellphone users, it is an answer to the challenges posed by poor wireless network reception inside their homes or places of work.

US wireless provider T-Mobile recently launched a service – “HotSpot@Home” – in part to address this problem. Its approach is based on WiFi technology, though, and requires special, dedicated handsets that operate over both cellular and WiFi networks. Because WiFi operates on the same frequencies as garage door openers and microwave ovens, quality of service can vary significantly. Further, WiFi has a tendency to drain handset batteries quickly.
Femtocells, in contrast, work with existing cellular handsets and actually conserve phone battery life. Further, since femtocells use dedicated wireless spectrum, there is no interference and call quality is easy to manage. For carriers, the costs of deploying such a system involve not only seeding their network with “femtocell boxes,” but also having the spectrum to accommodate the service. However, carriers can use their existing spectrum to pass calls from the cell phone to the home femtocell box. Alternatively, they can purchase cheap, subprime spectrum – so-called “guard bands,” thin slivers of spectrum squeezed between other airwaves.
Sprint is the first US wireless provider to launch femtocell-based service – dubbed “Airave” – on a commercial basis, in select areas of Denver and Indianapolis. It expected to add Nashville by the end of the year, with a broader rollout nationwide anticipated for 2008. The relative low cost of femtocell deployment lowers the barriers to entry for would-be upstart wireless service providers, and has already attracted the likes of Motorola and Google as investors in the development phase of this emerging technology.

1 CTIA Press Release, 13 November 2007.

2 “Data on High-Speed Services for Internet Access,” FCC, 31 October 2007.

3 IT Facts, 18 December 2007.

4 “US Wireless Data Market: Q2 & 1H 2007 Update,” Chetan Sharma Consulting, August 2007.

5 “US Wireless Data Market: Q2 & 1H 2007 Update,” Chetan Sharma Consulting, August 2007.

6 All figures from Chetan Sharma Consulting, August 2007.

7 Apple, too, would seize on the attention-grabbing moment to announce that it was dropping “computer” from its name and would be simply known as Apple Inc.

8 “iPhone Use Disappoints; Apple Slides,” New York Times, 25 July 2007.

9 “iPhone’s Network Hang-Up,” Business Week, 12 July 2007.

10 “Analyst weighs in on Apple’s rev-share arrangement with AT&T,” AppleInsider, 19 July 2007.

11 “Piper Jaffray: AT&T paying Apple $18 per iPhone per month,” CNet News, 24 October 2007.

12 “Google Has Even Bigger Plans for Mobile Phones,” Wall Street Journal, 16 November 2007.

13 “Verizon Plans Wider Options for Cellphone Users,” New York Times, 28 November 2007.

14 Incidentally, the long march towards this change in broadcast format also prompted Internet entrepreneur Mark Cuban to launch his HDNet television network earlier in September 2001.

15 “700 MHz Explained in 10 Steps,” GigaOM blog, 14 March 2007.

16 Frontline Wireless, a high-speed wireless start-up co-founded by former FCC chair Reed Hunt, has since withdrawn from the auction and, indeed, shut down operations after failing to raise sufficient funds for its potential bid.

17 “Mobile Ads: Not So Fast,” Business Week, 13 December 2007.

18 Chart from “Change Coming to Wireless World,” Wireless Week (15 December 2007)

19 “The Third Screen,” Economist, 19 July 2007.

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