1. To 3G or Not to 3G-A Perspective and Reality Check for Next Generation Cellular Services in the USA David Benson Senior Consultant May 2002

2. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus What is the Current Status of Cellular Technology in the USA? Today, the US has a mixture of first generation analog (voice only) and second generation (2G) digital (voice and limited data) cellular technology 1G cellular uses dedicated end-to-end channels based on circuit switched technology 2G digital cellular, which started to roll-out in the US in 1994, uses time or code divided channels that enable both voice service and wireless data with transmission speeds ranging from 9.6 to 14.4 Kbytes/s

3. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus Current Status (continued) 5 different cellular transmitting interface standards compete in the USA for subscribers : Analog, TDMA, GSM, CDMA and iDEN Voice service is the overwhelmingly dominant function used by cellular subscribers. Wireless data capability is seldom used but that is slowly changing Cellular carriers are currently retrofitting and modifying their 2G digital networks with step phased packet switched technology improvements to enable increases to wireless data performance and always on connections. These phased evolutions are dubbed 2.5G and 2.75G on a planning roadmap to 3G level of performance

4. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus What is 3G? 3G is short for third generation cellular technology and services 3G generally refers to the next generation of high-speed advanced mobile cellular technologies with performance and applications beyond what is available in current US 2G networks 3G will use digital circuit switched transmission standards that will provide wireless mobile Internet access points to cellular and connected portable intelligence devices including notebooks/laptops, PDAs and handheld PCs

5. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus What is 3G (continued) 3G will be based on high-speed wireless packet data transmitting technology that will provide real-time, always connected multimedia applications with streaming audio and video 3G is a global initiative of the International Telecommunications Union (IMT-2000)

6. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus What is 3G? (continued) 3G will be based on two variant competing standards that both use Wideband CDMA transmission technology modes and are eventually supposed to be interoperable Planned 3G services and applications include: E-mail, streaming video clips, streaming audio (MP3), photos, games, position location, banking, news alerts, traffic information, commerce transactions, Internet access and of course, gambling and porn

7. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus International Telecommunications Union Minimum Specifications for IMT-2000 Third Generation Cellular (3G) Service Capabilities A consistent wireless data rate of 144 Kbytes/s that will allow highly mobile (vehicular) use A continuous wireless data rate of 384 Kbytes/s at pedestrian speed use, which will enable full- motion compressed video A wireless data rate of 2 Mbytes/s or higher for fixed and indoor applications which will enable full Internet access with high-end video receiving capabilities

8. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus 3G “Lite” Evolutionary phases and performance milestone upgrade steps on the roadmap to 3G are known as 2.5 and 2.75 G 2.5/2.75G will also provide wireless connectivity to all shapes and sizes of portable intelligence devices The modifications will provide packet switched higher speed performance for 2G wireless data transmission rates

9. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus 3G Lite (continued) 2.5G improvements for CDMA networks will also significantly increase voice capacity In a misnomer and over-hype of capability, these 2.5G phased improvements to 2G networks are being tagged by some carriers and infrastructure vendors as 3G In reality, using strict interpretation of the ITU level of performance, they are not since average throughput speeds are much lower than the ITU a specified data rate levels for 3G

10. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus 3G Lite (2.5G) Wireless Data Pricing Plans as of May 2002 AT&T Wireless: Dependent upon monthly cellular plan service charge. For example, a $30 per month plan has 5 Mbytes of data included and additional Mbytes are $6 each Cingular: $7 for the first Mbyte and $30 for each additional Mbyte Verizon: $35 per month for 10 Mbytes of data VoiceStream: $5 per Mbyte Sprint PCS: to be determined

11. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus US Cellular Environment is Unique Telecommunications carriers of cellular service in the US operate using 5 different standards: Analog and four digital networks GSM, CDMA, TDMA and iDen. Technical, hardware,cost and spectrum availability issues and problems are raising significant barriers to deployment of next generation networks

12. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus US Cellular Environment (continued) Top 5 based on number of subscribers: Verizon, Cingular, ATT Wireless, Sprint PCS, Nextel GSM major carriers today: VoiceStream and parts of Cingular TDMA major carriers today: ATT Wireless, and most of Cingular CDMA major carriers: Sprint PCS, Verizon, Alltel and US Cellular iDEN major carrier: Nextel

13. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus US Cellular Environment (continued) Both ATT Wireless and Cingular are converting their networks from TDMA to GSM VoiceStream is owned by Deutsche Telecom, Japan’s NTT DoCoMo has a substantial interest in ATT Wireless ($10 Billion) and European telecom giant Vodafone owns about 42% of Verizon.

14. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus US Cellular Carrier 2.5G Deployment Status as of May 2002 AT&T Wireless: “top 20 cities in network now support GPRS” Cingular: “30% of its digital footprint now supports GPRS” Sprint PCS: “the entire network will be 1XRTT capable by this summer” Verizon: “a significant part of its NE digital footprint, several metropolitan Midwest areas, major cities in the South and the SF Bay Area supports 1XRTT Verizon Express 1XRTT service” VoiceStream: GSM network modified for GPRS

15. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus Unrealistic Hype Surrounds Potential 3G Deployment in the US 3G cellular is hyped as a revolutionary technology will bring a whole new world of high speed multimedia communications applications and services to wireless users Industry vendors have made unrealistic statements indicating that deployments by cellular carriers will occur nationwide in the near future with widespread consumer demand and market acceptance of the next generation services —Maximum achievable data transmission rates are not what users will get on a routine daily basis

16. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus The Reality Hype fueled high expectations of 3G service and performance will be disappointed There is no nascent massive demand for 3G services The next generation of cellular services will be EVOLUTIONARY, not revolutionary Phased 2.5G and 2.75G service improvements will occur first and will be around for quite awhile Competing standards will prevent interoperability and nationwide roaming will be difficult Coverage will continue to be an issue in non-urban areas

17. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus The Reality (continued) Before any 3G deployment in the US will occur, multiple technical and market issues need to be resolved Among the issues: infrastructure modification costs, standards compatibility, interoperability, roaming, service costs, hardware costs, battery problems,frequency spectrum inadequacy No compelling service application has been identified to spur consumer demand for 3G

18. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus Summary: So What’s the Answer for the USA-3G or Not? There is not any single or clear answer to the question —For the near term: almost but not really —For the long term: full capability, continuous level of performance 3G networks will not be achievable until after 2005 There is no compelling rationale for deploying near term 3rd Generation networks in the US until spectrum insufficiency, cost, technical and consumer demand issues are solved 3G products and applications that customers will want to pay for are yet to be developed —2.5G and 2.75 G networks and services will suffice for the time being

19. © 2002 by SRI Consulting Business Intelligence. All rights reserved. bringing futures into focus Some Final Observations and Opinions WCDMA 3G in the USA (AT&T Wireless/Cingular) will not occur in any significant level of deployment until after the spectrum auctions in 2005 CDMA 2000 2.5 and 2.75G wireless data technology (SprintPCS/Verizon) will out perform GPRS/EDGE networks and will see widespread deployment and successful market acceptance if costs to subscribers are kept at reasonable rates