4G Fiasco
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
T-Mobile has ads out claiming to be the largest 4G network in America. Verizon (NYSE: VZ) claims to have 6 times more 4G coverage than AT&T (NYSE: T) while AT&T claimes to have 2,000 more 4G sites than Verizon. All the while Sprint (NYSE: S) has stopped rolling out their WiMax 4G in order to start deploying LTE 4G. what’s going on here?
The main issue is that no one is keeping the mobile network companies honest; not the regulators and not trade organizations. There is an organization dedicated to determining the standards for what qualifies as 4G, The International Telecommunication Union (ITU), and they have set a standard for 4G that none of the current technologies adhere to. However they have also acknowledged that WiMax and LTE are being used under the term 4G even though they are not technically 4G. This is all a bit confusing to the consumer (especially to my grandmother), on top of the fact that HSPA+ has never been considered 4G, yet AT&T and T-Mobile continue to advertise HSPA+ under the 4G moniker.
Even with relatively few wireless carries in the US we still have a highly fragmented market, with different technologies being rolled out across the country, the only one that is getting hurt from this is the consumer. If you are on Sprint your phone cannot be used on any other carrier. It will not run on Verizon’s 4G network and it will not run at all on AT&T or T-Mobiles network. The situation is similar with every carrier. So on top of the fact that you are tied into a 2 Year contract, even if you wanted to switch carriers after your contract had ended, you would have to buy a new phone from another carrier which would be expensive and possibly involve another two year contract. All of this discourages switching carriers and allows the mobile phone carriers to keep customers they have not earned.
Why does this happen? On the face of it I would think greater interoperability and a common technology platform would be a good thing for both the consumers and the companies. Unfortunately the wireless companies don’t want to innovate if they don’t have to. If they can keep charging you the same while their R&D costs drop due to a lack of innovation they can boost their profits. When they are forced to upgrade their networks, because Sprint rolled out WiMax called it 4G and compared it to how slow the other carriers 3G networks were, the other carriers upgraded in the cheapest manor possible. For AT&T and T-Mobile this meant preforming a relatively small upgrade to their existing wireless networks and then calling it 4G (this is HSPA+ which is not 4G).
Unfortunately for Sprint and Verizon the technology on which their networks are built could not use HSPA+ (Their networks are based on CDMA not GSM) so they had to make a heavier investment. Verizon went straight to LTE, which is the closest thing we will get to 4G in the US. Sprint however made a costly detour to WiMax and has now reversed course announcing that over the next few years they will spend billions to roll out LTE nationwide, this after they spent billions rolling out WiMax, which itself is not fully rolled out nationwide. After AT&T failed to acquire T-Mobile, both companies have announced plans to also roll out LTE nationwide, years later and after AT&T paid T-Mobiles parent company four billion dollars in the failed takeover settlement. These different technologies on different carriers in different parts of the country have resulted in millions of customers who purchased smartphones thinking they were 4G are already obsolete and being replaced in some cases before they were even available nationwide.
So after four or five years of 4G discussion and deployment we are just now seeing a consensus around LTE as our fake 4G of choice. Mobile wireless carriers should learn from this fiasco when we begin in a few years to roll out 5G wireless technologies. Sticking to the guidelines set forth by the ITU would not hurt the wireless companies, or innovation. It would resulted in a more universal technology platform across networks with faster potential speeds. In turn this would have reduced individual R&D costs and improved customer satisfaction.
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