Verizon's 4G wireless move may signal consolidation ahead

Some analysts -- but not all -- foresee a buyout deal involving Verizon Wireless

Last week's decision by Verizon Wireless to choose LTE as its fourth-generation mobile technology, for rollout early in the next decade, may lead to a different kind of change down the road -- one involving the ownership of the wireless carrier.

Long Term Evolution is an emerging high-speed infrastructure that is a step further along the evolutionary path followed by existing GSM technology. Adopting LTE as its 4G choice marks a big shift by Verizon Wireless, which currently uses both CDMA and EV-DO technology in its networks.

Going with LTE should lead to the deployment of consistent architectures in the future by Verizon Wireless and Vodafone Group PLC, which operates GSM-based networks on four continents and shares ownership of Verizon Wireless with Verizon Communications Inc. Both Verizon Wireless and Vodafone plan to test LTE at the same time, starting next year.

But a common next-generation infrastructure may be merely the first thing that Vodafone and Verizon Communications agree on, said analyst Jack Gold of J.Gold Associates LLC in Northboro, Mass. Gold thinks it will renew their appetites for something that has never made sense before now: a buyout of one company's ownership stake in Verizon Wireless by the other.

"It would make no sense for Vodafone to own both a GSM and a CDMA network," Gold said. "Now it's much more attractive for the two entities to become one."

A buyout deal also might help Verizon Wireless and Vodafone keep up with what Gold sees as growing consolidation in the global cellular industry. He said that he expects to see just three to five major mobile operators worldwide within a few years.

Technology itself will help drive the consolidation trend, according to Gold. He said that because LTE and the other technologies promoted as 4G are all IP-based, roaming from one carrier to another will be more like moving between different Internet service providers than going from one mobile operator's "walled garden" to another's.

The agreement on a network path would make a buyout deal involving Verizon Wireless more likely, agreed Tad Neeley, a partner at investment firm Gemini Partners Inc. who specializes in wireless technology. Neeley said he thinks that ultimately, Verizon Communications would be willing to let go of its wireless arm for the right price.

But IDC analyst Godfrey Chua has a different opinion on the likelihood of a buyout. Globalization may well lead to fewer mobile operators, Chua said. But he added that both of the partners in the highly profitable Verizon Wireless know a good thing when they see it.

So neither company is likely to sell its share of the venture, Chua predicted. "Partners often are more willing to let go if things are not going well," he said.

Regardless of what happens on the ownership front, mobile users will benefit as Verizon Wireless and other mobile network operators converge on LTE, according to analyst Jason Kowal at Analysys, a U.K.-based consulting firm. The more carriers that use LTE, the more equipment vendors they will have to choose from, and the lower costs will go, Kowal said.

LTE would also be able to attract more developers and allow portability among more networks, Kowal added. "For anyone who travels internationally, this is a huge issue," he said.

Not that any of this will happen overnight, the analysts all warned. It isn't even guaranteed that Verizon -- which also plans to open its networks to devices and applications it doesn't offer -- will actually end up using LTE, according to Gold.

"There's no LTE system up and running anywhere in the world," he noted. "This is all still on the drawing board."

Copyright © 2007 IDG Communications, Inc.

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