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Thursday, December 20, 2007

In the year ahead, a long-heralded revolution in wireless communications will finally come to pass

Just Ahead: A Wider Wireless World
In the year ahead, a long-heralded revolution in wireless communications will finally come to pass. It may throw handset makers and service providers into turmoil, but over time it should be great for consumers. Fast, wireless data will become more widely available, the choice of data devices and mobile handsets will expand, and service just might get cheaper.

The biggest driver of change is an event slated for February, 2009. It is, of all things, the shutdown of analog television broadcasting. The conversion to digital TV will free up space now occupied by UHF channels 52 to 69. A chunk is being turned over to police and fire departments, and the rest will be auctioned off in January, 2008.

A Battle Looms
There are three reasons this spectrum will change the wireless landscape. First, it increases the total bandwidth available for wireless networks. Second, the relatively low frequency—around 700 MHz—penetrates buildings well. That means it will work as an alternative to cable or DSL Internet service to homes as well as for mobile phones. Finally, the Federal Communications Commission will require the buyers of a large piece of the spectrum to give customers much greater freedom in their choice of devices than carriers have traditionally allowed.

The auction is shaping up as a battle between entrenched carriers AT&T (T) and Verizon Wireless (VZ) , and a group of upstarts, most prominently Google (GOOG) . Many of the industry's leading players—with the notable exception of AT&T, Apple (AAPL) , and Microsoft (MSFT) —have joined Google's Open Handset Alliance, which is creating standardized handset software that can run any application users choose. Verizon, long the most locked down of U.S. carriers, promises to open its network in 2008 to any compatible phone running any compatible software. By the end of the year, a wave of openness may render the U.S. wireless business unrecognizable.

Meanwhile, other changes are shaking the industry. Despite management upheavals and investor unhappiness, Sprint Nextel (S) in 2008 will kick off a fast wireless broadband technology called WiMAX. This is suitable for both mobile and residential service. Sprint and startup ClearWire (CLWR) , which has launched a similar technology in some markets, have bought the spectrum they need, so they could get a jump on the bidders in the 700 MHz auction. And Verizon plans trials of a superfast service called LTE.

Gauging the Impact on Choices and Prices
What does all this mean to consumers? For starters, an end to the requirement that customers choose from the limited array of handsets carriers typically offer. U.S. handsets have long lagged at least a year or two behind the most advanced models sold in Europe and Asia. Success for the Open Handset Alliance would make it much easier for consumers to install the programs of their choice and break out of the "walled garden" carriers have maintained. For example, although almost all Verizon handsets have GPS capabilities, the carrier offers only a very limited range of applications that take advantage of it. In an open software environment, anyone could create programs that use location information.

The impact on prices is less clear. In the U.S., carriers subsidize the price of handsets, then extract the money through one- or two-year service contracts they require when you sign up. Increased competition and the availability of more spectrum should put downward pressure on prices, especially for data service. So, on balance, the wireless revolution of 2008-2009 will win a thumbs-up from users.

As in past years, I want to take this occasion to thank you, the readers, for your comments and e-mail and to wish you a happy, healthy, and prosperous New Year.

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