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FEBRUARY 22, 2005
By Andy Reinhardt A Telecom Show's No-Show: Gloom At the 2005 3GSM mobile-phone trade show in Cannes, a sense of optimism has finally returned, thanks to several promising developments
The annual mobile-phone show in Cannes, France was jammed with people, products, and jaw-dropping technology demos. And for the beleaguered telecom industry, it marked a welcome return to optimism. For the last four years, the 3GSM mobile-phone trade show in Cannes has felt more gloomy than glittering. Sure, it featured costumed booth bunnies and nightly parties in giant tents erected on the beach. Restaurants were filled with dealmakers. And the leading lights of the industry did their best to talk up a future world of wireless voice, data, and video services. But even as the champagne flowed aboard yachts moored in the harbor, workers back home were getting pink slips, and investors were short-selling wireless stocks. Not this year. With attendance up 50%, to 45,000 people, the 2005 Cannes show was bursting with energy and excitement. From speedy new third-generation (3G) networks coming online across the globe to the dazzling array of new multimedia handsets now reaching market to a ferment of innovative services and software applications on display in every corner of the show, this year's 3GSM signified a return to hopefulness for wireless. It was an appropriate swansong for Cannes, which bid goodbye to 3GSM this year: In 2006, the conference will move to larger digs in Barcelona. MORE AND BETTER. It's not hard to understand why the industry has outgrown Cannes. Some 1.3 billion people across the globe now use mobile phones, and 650 million handsets were sold in 2004 alone. That's about 3.5 times the number of PCs sold last year, making mobile phones far and away the largest-selling electronic products in the world. And though growth rates are lower than they were in the 1990s, plenty of upside remains: The No.1 maker of handsets, Helsinki-based Nokia (NOK ), estimates the number of mobile users will more than double by 2010, to 3 billion. Two major trends are behind such growth, and both were in ample evidence in Cannes. One is the increasing penetration of phones in the developing world, which is expected to account for nearly all the customer growth over the next five years. The other is the increasing sophistication in phones and networks, which should entice existing owners in the slower-growth developed world to trade in their old handsets for whizzy new models that pack more power than a five-year-old desktop PC. The biggest news at the show was the arrival in Europe -- at last -- of long-awaited 3G services. Some 45 operators around the world now run networks using the W-CDMA digital-cellular standard, which is a successor to the GSM standard used in most of the world other than Korea, half of Japan and the U.S., and select other countries. At yearend 2004, 16 million people were using this flavor of 3G, and by yearend 2005, Nokia predicts the number will have surged to 70 million. DELVING INTO DATA. On the other side of the tech fence, San Diego-based Qualcomm (QCOM ) figures 130 million people are using advanced versions of its 3G technology, dubbed CDMA2000, on 70 networks around the world. Qualcomm profits no matter which kind of 3G is used because it owns key patents that underlie both versions. The speed of the 3G rollout in 2004, after so many years of delay, has surprised and delighted an industry accustomed recently to disappointment. Even Nokia now admits that it figured 3G wouldn't really take off in the mass market until 2006. However, customers are signing up, in part, because carriers are offering attractive prices for voice services over 3G. They're able to do so because voice over 3G costs less than one-fifth as much as on older second-generation digital systems. But customers are increasingly dipping their toes into wireless data services, as well, from downloadable games that use the Java programming language to digital movie clips and videoconferencing. Nokia figures that by 2008, the worldwide mobile-services business will top $825 billion -- a quarter of that from data. The biggest opportunities: $82 billion in person-to-person messaging and $82 billion in digital entertainment and media. FASTER ALTERNATIVES. Still, 3G may never turn into the roaring moneymaker it was expected to be during the tech bubble's heady days. For one thing, the speed of data connections now available on most networks is far slower than predicted. Instead of zippy data downloads of 1 megabit per second or above, many users are seeing less than 200 kilobits per second. Some consumers even report speeds as slow at 80 Kbps, barely four times faster than previous-generation services. This small of a speed differential calls into the question whether the hundreds of billions service providers spent to roll out 3G were worth it. Naturally, wireless equipment sellers are already preaching a new solution: Even before 3G networks are fully deployed, gearmakers are promoting improved technology called HS-DPA (high speed downlink packet access) that's meant to boost data speeds by up to 10 times. At the same time, operators all over the world are looking closely at radically different technologies for wireless communication, including the emerging WiMax system, which is heavily backed by chipmaker Intel (INTC ). The first standards-compliant WiMax products are expected before the end of this year, and in 2006, Intel aims to roll out chips that add WiMax to laptop PCs. The first version of WiMax, which can blast data at theoretical speeds up to 70 megabits per second over distances up to 30 miles, works only when the laptop is stationary -- sort of like Wi-Fi on steroids. But a later version expected a few years later will let users move around, as they can today with both types of 3G. The key battleground in the future will be whether mobile WiMax can catch up with 3G plus HS-DPA, or whether the game will be over and won by the time mobile WiMax reaches market.
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