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Guest Column

CDMA – Now A Truly Global Standard

Columnist:
Subodh Karnard
Senior Industry Analyst
Frost and Sullivan

The year 1999 has already brought about a number of positives for the wireless industry. Motorola, one of the pioneers in the industry showed a remarkable recovery in terms of its financial profitability and growth prospects. Nokia, one of the most prolific manufacturers of subscriber equipment displayed yet another magnificent financial quarter. The same was the case with players such as Lucent and Nortel Networks, who continued to demonstrate steady profitability and positive future prospects. Cellular subscriber growth remained robust, according to Frost & Sullivan estimates a total of 22 million new subscribers were added in 1Q 1999, which if projected for full twelve months of the year will yield a total global cellular subscriber base of 345 million. Finally, there are very encouraging signs from the emerging markets. During the year, there have been continued signs of economic recoveries in various key markets in Asia and Latin America, which is a very positive sign especially for the cellular industry going forward.

All of these positive events were however shadowed by a milestone agreement between Ericsson and Qualcomm. Frost and Sullivan believe this agreement is one of most monumental deals in the history of the industry. Although CDMA has made impressive progress over the past four years, there is clearly no better achievement for the technology than Ericsson’s endorsement. Ericsson, has over the years built itself as one of the leaders in the cellular industry, and the company’s support for CDMA will open up a number of positive opportunities.

CDMA has indeed come a very long way from its first commercial launch in late 1995. Some of the recent numbers released by the CDG suggested a worldwide subscriber base of 22 million subscribers in 1998, in a short span of just over three years. Even more recent numbers released in 1Q 1999 show a subscriber base of 30 million subscribers globally. At these rates it would be reasonable to assume a CDMA subscriber base of over 160 million by the year-end 2001. That implies a 25 percent market share of the global cellular subscriber base by 2001, an outstanding achievement considering that only four years back CDMA was launched admist an array of skepticism about its actual commercial feasibility.

Many factors can be attributed to CDMA’s outstanding success in the commercial marketplace. Chief among these would be its technological proficiency. Historically bandwidth has been, and continues to remain a valuable but very scarce resource. Any technology that can effectively utilize this limited bandwidth is bound to attract followers. It is no secret that CDMA today can offer a 12x capacity gain over analog systems. The implications of this robust capacity are many and inter-related. Operators deploying CDMA networks do not have to incur large incremental investments in infrastructure to accommodate subscriber growth. This is a vital competitive tool for an operator especially ones that offer services to densely populated urban centers. Over the long term a CDMA operator is likely to have lower capital expenditures, which would eventually be transferred to subscribers in the form of lower service prices. As the cycle goes, lower service prices are only expected to drive up usage and thereby enhance the top-line as well as bottom line growth for operators. A point to note, however is that deploying a particular technology by it-self may not drive financial success for the operator, it would certainly be a major competitive tool in addition to the operator’s sales, customer-service and marketing programs.

So having come so far so quickly, what does the future hold for CDMA? The future of CDMA in our opinion will essentially expand in three important directions: continued high subscriber growth in existing markets; adoption, penetration and growth in new markets; and finally, an unprecedented expansion in applications and usage brought in by the deployment of 3G networks.

Continued High Subscriber Growth in Existing Markets CDMA has a presence in some of the most attractive cellular markets in the world including the U.S, Canada, South Korea and Japan. Despite a strong installed subscriber base, subscriber growth in these markets continues to be robust. By virtue of carriers such as Sprint PCS and Bell Mobility, CDMA is well on target to achieve a region-wide footprint across North America. As DDI and IDO continue their deployment, CDMA’s presence has been growing impressively in Japan. Finally, CDMA without a doubt is a de-facto digital cellular standard in South Korea. The Korean economy is in a very rapid recovery mode, and that should augur well with cellular subscriber growth and usage in coming years. Continued growth in key existing markets will thus be a key factor propelling CDMA’s market expansion in the immediate future. Rapid addition of new subscribers will drive up sales volumes for network and subscriber equipment, and thus offer increasing economies of scale.

Adoption, Penetration and Growth in New Markets Adoption, penetration and growth in new markets will be another direction of growth for the CDMA market. Countries such as Mexico, Brazil, Australia, and New Zealand, which have more recently embraced CDMA, form a key component of the market growth going forward. Similarly CDMA’s expansion in China has been encouraging, as has been the progress made in the fixed wireless arena in countries such as India, Russia and other parts of Eastern Europe. Similarly market expansion in countries such as Thailand, Singapore, Philippines and Chile effectively forms a paradigm for rapid market growth and globalization in coming years for CDMA.

Unprecedented Expansion in Applications and Usage The world is changing. The proliferation of the Internet and data communications has changed people’s lives. Over the next 2-5 year period, wireless will perhaps emerge as one of the most potent tools to access and use the Internet. As 3G systems make their transition from simulated trials to real world commercial applications, we shall witness an unprecedented broadening of cellular applications leading to higher cellular airtime and usage. Deployment of 3G systems in the form of cdma2000 will thus expand the CDMA market both horizontally across a larger subscriber base and vertically in terms of wider applications beyond conventional voice.

In conclusion, the past four years have been positively eventful for the CDMA market. A lot has been achieved. With a global presence and a subscriber base that exceeds 30 million subscribers, CDMA has indeed emerged as a truly global standard for digital cellular communications. With increasing globalization, innovation, higher volumes and greater economies of scale, the CDMA market has tremendous potential to sustain the enormous growth it has enjoyed thus far. It is no wonder a lot has been achieved, but the best is surely yet to come!


(8/1/1999)

 


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