06 June 2005

Wireless Subscribers Set to Grow

InStat (via email):
Worldwide, wireless subscriber growth is experiencing robust expansion after several years of slower growth due to the economic downturn of the last few years, reports In-Stat (http://www.in-stat.com). By 2009, the high-tech market research firm forecasts the worldwide wireless market will grow to more than 2.3 billion subscribers. There will be no relief from the ongoing battles for airlink supremacy over the next several years.

"GSM's steady growth through 2007 will turn negative as operators move subscribers to third-generation (3G) WCDMA," says David Chamberlain, In-Stat Senior Analyst. "While the second-generation GSM system (including GPRS & EDGE) will remain the dominant airlink throughout the forecast period, CDMA airlink standards (CDMA & WCDMA) will soon encroach on GSM's numbers. By 2009, WCDMA networks will be providing service for over 40% of the world's CDMA users."

Two points:
  1. Ever notice how confident analysts are of projections over the next four years (rather than the next 1 year)? I understand that sales are assumed to vary as a log of previous years sales, and the log is assumed to regress to the mean in any given sales period, but that's not how sales growth behaves.

    In Butterfly Economics, Paul Ormerod explains how major variations occur in consumer behavior by draing an analogy to ants seeking out a food source: ants respond to signals by each other, that tend to cause tiny variations to snowball into group behavior. Projections involving logs that revert to trend may describe vast, integrated economies like that of North America, but in an industry like cell phones, if demand doesn't grow, capital investment and employment will gradually be redirected and the growth horizons for that industry will shrink.

  2. Another point: while I find the industry growth projections a bit suspect, the bit about the GSM standard headed for decline is rather interesting. GSM is a mandatory EU standard; in North America, GSM competes with CDMA and W-CDMA. D-AMPS is another standard used in North America that is being phased out entirely. According to the Wikipedia articles cited, W-CDMA is widely used in Northeast Asia, albeit under sometimes proprietary standards (e.g., DoCoMo's FOMA, the most popular system in Japan).

    The EU tends to amplify its influence on the wireless world by insisting on cohesive action; all wireless PCSs in the EU are required to conform to a single standard. Other regional markets tend to have standards driven by industrial alliances. At the moment, GSM is extremely widespread, but it plans to shift everyone to the far-faster UMTS soon.

Developing and imposing a universal wireless standard is very hard. Only the EU's ETSI has ever succeeded, with GSM (1991). When developing a format, it had to
  1. Use technology that was readily available to European firms
  2. Use technology that would not impose any sort of dependence on a US-based firm, such as Qualcomm (EU bodies have an extreme ideological antipathy to the USA)
  3. Ensure that this technology can be implemented cheaply, thereby restricting opportunity costs to EU firms and consumers alike
  4. Ensure that this technology can sustain massive future growth in capacity.
  5. Win the cooperation of major EU telecom firms or IT firms
No American body has ever achieved such success, leading in some respects to a stagnation of wireless technology in the United States.

GSM's success had major economic implications that transcend such matters as European domestic private investment, X-efficiencies in the European economy, labor market "flexibility," or other common economic indicators. Had GSM been a poor design, firms like Nokia and Ericsson would have remained interesting, but obscure, technical start-ups. If it had integrated Qualcomm technology, the infant industry protection afforded by the EU and ETSI would have been compromised; revenue streams would go out of the EU, and Qualcomm would have bargaining power against its rivals in the EU common market.

The development of UMTS is an interesting twist. A crash program of development was launched by ETSI in 1992, the same year that all EU member states implemented GMS. UMTS, the EU version of CDMA, was finalized in 1999 and scheduled for implementation in Jan 2002 by the latest (the same time as the euro). While UMTS is definitely European (in fact, it's a derivative of W-CDMA, which was developed by the ETSI to be patent-wise independent of Qualcomm's CDMA), it was pioneered by Hutchison-Whampoa (of Hong Kong), DoCoMo (a former division of NTT; Japanese). The engineering for implementing the technology was very much dominated by NEC, NTT, and Siemens (Germany).

In the USA, the competing standard was CDMA2000. This standard was developed by Qualcomm, and implemented first by KDDI of Japan (2002). I should mention that GMS is big in the USA as well; it's just that non-GMS phones were effectively banned in the EU. In both cases, the principle technology developers are relying on licensing their way to global dominance.

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