New Phone? It's The Network, Stupid

The iPhone may have reinvented the cell phone, but Apple needs a little help from its networking friends to get by with its new model.

Jason E. Miczek / AP Apple's iPhone

“Devices have shifted from thin, voice-centered products like the Razr,” says Ross Rubin, NPD consumer technology analyst, “to products with larger touch-screens, slide out keyboards, and wireless features like 3G or GPS.”

But functional and fabulous as the iPhone is, it's really the network, stupid.

In spite of the built-in WiFi, the touch-screen that lets users manipulate data and an accelerometer that allows the on-screen image to rotate with the device, the reality is, without a network that allows users to fully realize its capabilities, the iPhone is only achieving a portion of its potential.

What About 3G?

As you walk down the street, talking on your phone, you pass from cell to cell. Those cells are covered by antennae that double as flagpoles or are mounted on buildings in the area. Currently, cellular antennae cover only about a square mile and suffer when asked to push true broadband content, like websites or video.

Enter the 3G high-speed data network. Verizon Communications and Sprint Nextel currently use EV-DO for their 3G wireless networks and AT&T has been aggressively rolling out its own new high-speed network around the country. (Currently, iPhone users are stuck with AT&T's inferior Edge network, which is why the idea of a 3G iPhone is so appealing.) T-Mobile, a unit of Deutsche Telekom and the laggard in the space, just launched its first 3G network earlier this year in New York City.

Meanwhile, the growing demand for multimedia, including live streaming video, music and all manner of Internet content has created a need for even more speed. And that points to 4G, a fourth-generation network designed to provide voice, data and streamed multimedia to users at higher speeds and in more locations. It is, in short, the ubiquitous Internet.

LTE vs. WiMAX

The two biggest winners in the FCC’s recent 700MHz auction—Verizon and AT&T—have already announced they plan to use the spectrum to build out 4G networks using a newer technology called LTE (Long-Term Evolution). The promise of LTE is that users can access content at higher speeds around the world, since many of Europe’s carriers have committed to the technology. “There’s a lot of talk about LTE,” says Nadine Manjaro, sr. analyst for mobile networks at ABI Research. “But at this point, it’s just talk.” LTE is still under development and consumers likely won’t see devices until 2010 at at the earliest.

Go to the website for Sprint Nextel's Xohm service and you'll see a photo of a city with the words, “Imagine a hotspot the size of a city.” The idea, of course, is that Xohm WiMAX enables telecom providers to cover large geographic areas with far fewer antennas. That said, the company has encountered several issues trying to roll out the technology. Aside from Sprint’s current wireless subscriber hemorrhage, the biggest has been that providing service to a large geographic area requires a 40Gbps backhaul at the signal's source—far more than you'll get from a typical T1 connection.

But that hiccup hasn't completely stopped Xohm's march. In fact, Sprint Nextel and Clearwire have gathered some pretty significant partners for their $12 billion WiMAX venture, including Motorola, Nokia, Ericsson, Samsung, Intel, Google, Time Warner's cable unit and Comcast.

The standards for WiMAX equipment have been approved and the network is being built. Sprint Nextel earlier this year began a soft rollout in Chicago, Baltimore and Washington, D.C., and has national expansion plans. Additionally, Intel conducted demonstrations of WiMAX in Las Vegas at the 2008 Consumer Electronics Show and has already begun shipping WiMAX chips to hardware manufacturers.

Whether you believe being first to market will work to Clearwire and Sprint Nextel's advantage, or whether you believe Sprint Nextel is even capable of building out a new, nationwide network, it pays to know that as a general rule, when Intel throws its muscle behind a new technology, there's a very good chance of success.

“Intel is leveraging the channel it has in place for WiFi,” says Manjaro. “That’s an advantage.”

The Foreseeable Future

Last February, at GSMA's Mobile World Congress in Barcelona, the CEO of Vodaphone, Arun Sarin, said he believed WiMAX could find a place in the LTE standard. Just this week, Sean Maloney, Intel’s head of sales and marketing, echoed that sentiment, calling for WiMAX and LTE to combine. The idea that both networks could work together got a lot of people very excited. But Sprint Nextel and Clearwire aren't going to wait two or three years for that to happen and the politics involved would seem to make the necessary cooperation virtually impossible. So for the foreseeable future, the technologies remain separate.

The biggest loser in all this reshuffling would seem to be Qualcomm. After all, Sprint, Verizon and Alltel (which was taken private in 2007 and just bought by Verizon) are all clients that built their current networks based on Qualcomm’s CDMA technology. Sprint’s choice to pursue WiMAX and the decision of Verizon to go with LTE would appear to leave Qualcomm out in the cold. But Manjaro says the company has made some strategic acquisitions of smaller vendors that had patents crucial to the development of LTE. In the wireless world, it pays to think years ahead.

© 2009 CNBC.com