Operators' Smooth Transition
Sprint PCS affiliates say adding 3G technology won't cause them pain
By Jeanie Stokes
from the May 21, 2001 issue of Broadband Week
While they face a lot of the financial challenges common to new wireless companies, Sprint PCS's affiliate partners say that migrating to next-generation mobile broadband technology isn't one of them.
Those affiliates, which offer digital wireless service under the Sprint PCS brand in a variety of smaller market territories, say they are on track to begin deploying so-called 3G capabilities and services early next year, with network upgrades beginning in the third quarter of 2001.
"We're waiting on the manufacturers to make the widgets, the nuts and bolts to plug in so we can deploy this nationwide full-force," says Tony Sabatino, chief technology officer at Alamosa PCS, Sprint's largest affiliate. Lucent Technologies, Motorola, Nortel Networks and Qualcomm are providing Sprint's network infrastructure.
The Sprint affiliates' path to 3G is markedly different from other operators who hooked up with AT&T Wireless. Those operators now must follow that company's decision to essentially change from one wireless technology platform--Time Division Multiple Access--to the Global System for Mobile Communications platform AT&T has picked as its path to 3G.
Sprint PCS says its affiliates' cost for upgrading their own networks to 3G capability is expected to be significantly less than for competing operators because of Sprint's 1995 decision to use then largely-unproven code division multiple access, or CDMA, wireless technology.
"CDMA technology gives us significant advantages relative to other technologies," says Bob Mateer, vice president for Sprint's affiliations and private label services. "We don't have to do forklift upgrades. We have card upgrades. The path from CDMA through next couple of generations is very clean."
Affiliate executives expect to spend between $2 and $3 per potential customer--or POP in wireless parlance--to make their networks 3G ready. In contrast, AT&T Wireless plans to overlay its existing TDMA networks with GSM/GPRS and a high-speed 3G technology known as enhanced data rates for global evolution (EDGE). Early indications suggest the overlay costs could be as much as $10 to $30 per covered POP for some affiliates.
With that minimal spending, the Sprint network's capacity for voice transmissions is doubled. "The voice component alone makes sense for us to move forward," says Sabatino at Alamosa, which serves more than 261,000 customers in 12 states encompassing about 9.2 million covered POPs.
In retrospect, the CDMA decision has proved to be the right one, executives say.
"There's no other technology as spectrally efficient as CDMA," says Sabatino. With CDMA, Sprint can do with 1.25 MHz of bandwidth what UMTS, the widely chosen path for European operators, requires 5 MHz to do.
With the implementation of the first phase CDMA2000 1x, potential data speeds increase tenfold, to 144 kbps. Sprint expects to move to speeds of up to 307 kbps by early 2003. Later that year, speeds are expected to reach up to 2.4 Mbps with 3G CDMA2000 1xEV-Data only. In early 2004, speeds will reach 3 Mbps to 5 Mbps with 3G 1xEV-Data and Voice.
The Sprint plan isn't dependent on killer applications to drive customers to 3G technology. Rather, the partners are putting their trust in the lure of increasing data speeds. "Once you deliver at an acceptable speed, common business use and applications will move data usage to the wireless network," says Steve Nielsen, president and chief executive officer at Independent Wireless One Corp., an affiliate serving the northeastern United States.
Sprint also isn't betting the farm on 3G's ability to support applications such as full motion video delivered to the new handsets, which should be ready early next year. Rather, the carrier expects customers to use it for a range of new applications; some that don't require great amounts of data, like getting stock quotes or buying tickets, will be accessed on the handset, Mateer says.
"If you're going to upload or download spreadsheets, send presentations and do a lot of that intensive work, it doesn't get created on your handset. You'll use the handset as a communication tool, plug your laptop or tool into it and now you're connected up just as if you're in the office," Mateer says.
Sprint PCS affiliates control 40 million POPS, representing about 19 percent of the 228 million POPs covered by Sprint's network.
Unlike those of other major wireless providers like AT&T Wireless, Sprint PCS's affiliates haven't had to shell out millions of dollars to secure their own spectrum for the expanded 2.5 G and 3G technologies. They're able to use the $3.4 billion in spectrum Sprint acquired under a lease-type arrangement. The cost of the spectrum is rolled into the 8 percent of net revenue fee they pay to Sprint PCS.
Sprint PCS, which itself plans to begin rolling out 1x services on a limited basis later this year, estimates its cost for introducing high-speed packet data nationwide at $700 million to $800 million, about one-tenth of what the top bidder spent to acquire additional licenses in the government re-auction of PCS spectrum that ended this past January.
Most of the affiliates were thinking 3G as they went to financial markets to raise money for their network buildouts, says Independent Wireless One's Nielson. Independent Wireless One raised $160 million in a private debt placement in February. That includes $15 million set aside for 3G spending in the fourth quarter this year, and should cover additional upgrades.
Airgate PCS Inc., an Atlanta-based partner serving North and South Carolina and Georgia, expects to spend about $20 million to complete the 3G upgrade. Chief financial officer Alan Catherall says the publicly traded company expects to be cash flow positive with a substantial cash cushion after paying all the upgrade costs in the second quarter 2002.
Alameda, which is consolidating several other formerly independent Sprint PCS affiliates, as of March 31 had about $130 million in unused credit facilities.
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