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While LTE and WiMax hype builds, era of 3G still just beginning

As LTE and WiMax battle for 4G hype in the press, the era of 3G data connections is just now beginning, presenting carriers with a number of unanswered revenue questions.

As proponents of WiMax and LTE begin to battle for 4G dominance, the era of 3G wireless is really just beginning, and analysts predict it will be a long one, as telecoms sort out new monetization strategies.

"3G networks will be driving major revenues of these operators for at least the next 10 years, as 3G technologies will serve as the fill-gap technologies once 4G technologies are rolled out," said Gemma Tedesco, a senior analyst with In-Stat. Recently, Tedesco published a report which predicted that  3G technologies (GSM, EDGE and GPRS) will account for more than 55% of the total 4.8 billion worldwide wireless subscriptions in 2013.  

But even with 4G, particularly LTE, being firmly on the horizon, carriers will have plenty of issues to occupy their time.

For one, monetization of wireless services in general has become a thornier problem, according to Tom Nolle, president of CIMI Corp. If it isn't solved, the impetus to spend billions to upgrade networks to 4G might not materialize.

"If you think about it, if $30 per month is all customers want to pay, let them pay for what they're getting now," Nolle said. "If I'm investing in 4G, I have to replace every piece of equipment in my network, and if the willingness to pay stays at $30, we're not going to upgrade."

A new generation of more sophisticated devices, like the Apple iPhone, is contributing to this problem. Just as wireline voice revenues were increasingly commoditized and then decimated by VoIP, many wireless services once solely the domain of service providers can now be sold directly to consumers by third parties, leaving the telecoms with only the basic Internet access revenues. For example, while carriers used to get a significant cut of downloadable games, users can now buy them directly from the iTunes store or download them from websites on a BlackBerry.

Making the handset more than a handset

Even mobile voice revenues are endangered by a coming wave of mobile VoIP providers.

So as these traditional revenue streams -- voice, text and picture messaging, add-on services like ringtones -- dry up, carriers are looking at increasingly experimental, and untested, ways to stay profitable.

"What the operators are realizing is that if they can make the handset something more than just what the user relies on to make and receive calls, they can charge for services on that," Nolle said.

That means making the cell phone an integral part of people's personal lives and tapping into social networking and location-based services, as well as developing new advertisement and marketing monetization strategies, a segment Google is looking to capitalize on with its open Android devices.

3G upgrades continue

While service providers sort out just exactly how they will make money in the future, they continue to upgrade from 2G to 3G technologies, giving themselves breathing room before the major infrastructure investments need to be made.

"Many large GSM carriers that have already rolled out WCDMA/HSPA networks are expected to adopt HSPA Evolution prior to adopting LTE," Tedesco said. "HSPA Evolution is primarily a software upgrade to HSDPA/HSUPA, as HSDPA was primarily a software upgrade from WCDMA."

The benefit of following that staged route is not only incrementally higher speeds without the physical infrastructure costs, but also the ability to avoid leasing new spectrum, at least for a few years.

Companies like Verizon, which is jumping from an EV-DO data network to LTE, will not be able to take advantage of that smoother upgrade path. As a result, to tap into faster speeds, they have had to push forward and become early LTE adopters, laying out the capital expenses for a 4G network before they are quite sure how they will eventually monetize it.

In doing so, those companies are setting themselves up as guinea pigs for the world to watch and see how they succeed or stumble in the next era of connectivity.

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