Last week at the Mobile World Congress in Barcelona, Dick Lynch, Verizon executive Vice President and Chief Technology Officer, announced that Verizon Wireless (a joint venture between Verizon and Vodafone) had chosen Alcatel-Lucent and Ericsson to build their fourth-generation network. Lynch says that the network will be ready by mid-2010. Neither Lynch nor the equipment vendors disclosed the size of the contracts, and Lynch did not provide details about geographic coverage.
Many questions remain about this announcement, which has gained much publicity in the French press, in large part because it means additional revenues for Alcatel-Lucent, which has struggled in the past year. I checked the previous deals entered into by Verizon and Alcatel-Lucent and discovered that back in March 2007, Verizon Wireless and Alcatel jointly announced a $6 billion contract to help Verizon Wireless migrate its networks over a three-year period.
Wondering about the most recent Verizon announcement, I called Alcatel to get more information.
“The announcement made by Verizon Wireless in Barcelona is not related to any contract,” said an Alcatel-Lucent spokesperson. “This is nothing more than Verizon’s announcement of its choice of suppliers for its future LTE network. Regarding the previous $6 billion contract, it goes on as planned, nothing has changed.” The upgrade planned in the 2007 contract is supposed to be finished by 2010 (which is also the date on which the conversion to new LTE network is supposed to be completed, as Lynch stated in in Barcelona). It’s hard figure out the difference between “upgrading” the network and “switching the network to LTE”.
Is it really necessary to upgrade the old network and then to switch it to the new network infrastructure (LTE) at the same time? It would be less expensive to amend the existing contract and switch immediately to LTE. The Verizon announcement seems to be an expensive and inefficient procedure in financial crisis. Or maybe the 2010 date for the completion of the LTE network is too optimistic?
Lynch has indicated in other venues that total capital spending levels will not increase because of the LTE deployment. In other words, some of the ongoing 1X voice and EV-DO capacity expansion spending will be replaced by LTE spending. If Alcatel-Lucent has a greater share of Verizon’s net spending because of the new technology mix, they could experience an increase in revenues.
There is no trick here. The CDMA needs to be upgraded for capacity while LTE is being built.
As most of you will agree, smartphones are driving demand for wireless data is exploding on all 3G networks, Vz’s included. Until a signficant number of these data-hungry devices are moved to LTE, Verizon will have to keep on uprading its CDMA network.
To move smartphone subscribers to LTE, Verizon needs dual-mode LTE/CDMA handsets. Qualcomm is the ONLY company that can make a chipset for such a handset, because no one else has CDMA baseband that meets Vz’s requirements. Qualcomm announced (on Feb 16’09) that it does plan to build such a chipset. This chipset, called the MSM8960 is scheduled to sample in mid-2010. Handset vendors normally take 12 months from the time that an MSM chip is sampled to build a handset. That puts the first dual-mode LTE/CDMA handset in Q3’2011.
So, from now to Q3’2011, Verizon needs to continue adding capacity to their CDMA network, while they build out LTE.