4G hype: Time for a reality check

August 18, 2009: 10:00 AM ET

Wireless carriers tout a new wave of wireless technology but it will be years before most consumers benefit -- and before carriers make money.

4G Phone: Samsung's Mondi device operates on WiMax networks. Image: Samsung

4G Phone: Samsung's Mondi device operates on WiMax networks. Image: Samsung

Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone (VOD), last week announced it had completed data "calls" using its flavor of so-called 4G technology, a new generation of radio upgrades that promises to improve the throughput  and capacity of wireless phone networks.

Rival Sprint Nextel (S) immediately responded with a flurry of news releases touting its 4G network, which uses a competing technical standard.  In proclaiming its ability to deliver peak downlink speeds of 10 Mbps, one release gushed: "At these speeds, Sprint 4G breathes new life into wireless Internet."

Um, wasn't that what 3G was supposed to do?

Okay, that was a little harsh. But some analysts say the wireless carriers and their suppliers are hyping 4G technologies way before the services --and devices--are ready for prime time.

Indeed, many carriers globally still are building out their third-generation networks, and are only now starting to see returns on their investments, which included substantial payments for additional spectrum licenses.

3G all over again?

"Yay, Verizon made a test call on LTE," deadpans Jane Zweig, CEO of the Shosteck Group, a telecommunications consulting firm. LTE stands for Long Term Evolution, and it is the technology Verizon and many other incumbent phone operators are using to transition to yet another generation of broadband networks.

Zweig, whose firm has predicted that global wireless giant Vodafone won't make a return on its 3G investment (including spectrum) until 2013, sees 4G as a replay of 3G: a long, painful slog that will take many years to get up and running--and many more after that to produce financial gains for the carriers.

"Let's replay 3G," she says. "Where are the devices? What is it that people are going to do?  How much is the build out going cost? What's the resturn on investment. Is this a vendor dream or a carrier's nightmare?"

The carriers' 3G experience in the U.S. and abroad certainly offer clues as to how long it will take for 4G to become pervasive (and useful) to consumers.

When carriers started rolling out 3G systems in the early part of the decade--Japan's NTT DoCoMo (DCM) in 2001 became the first operator of a 3G network; Verizon followed two years later as the first major carrier in the U.S. to offer 3G--there was a lot of excitement (ample press releases, white papers and briefings by breathless executives) but not a lot for consumers to do with the network.

Some road warriors procured wireless data cards to hook their laptops up to the new network, but the first wave of 3G phones didn't offer much of a multimedia experience.

If you build it...

A few executives at U.S. wireless operators admitted at the time that 3G mainly allowed them to handle high volumes of voice calls at peak times. Not exactly what the futuristic data network was intended for.

Along came Apple's (AAPL)  iPhone: More than five years after 3G launched in the U.S. consumers finally had a device that showed them the power of mobile broadband networks. (Ironically the first iPhone ran on AT&Ts (T) less robust EDGE network, sometimes referred to as a 2.5G network.)

Other 3G devices started hitting stores, and today there's a real consumer case for 3G: almost a decade after carriers pledged billions of dollars to acquire wireless spectrum and build out networks. And, still, as Zweig and other analysts point out, 3G coverage in the U.S. remains spotty and service problems persist.

Will 4G help? Many operators (and the vendors that hope to sell them expensive new gear) are already touting 4G as the solution to issues of data overload they are now facing as consumers spend a growing amount of time downloading applications and doing heavy-duty computing on their mobile devices.

But as with 3G, fully formed 4G systems--the networks, the devices, the applications--are years away. Telecom executives like to quote the 1989 movie Field of Dreams: "If you build it, they will come." They'll come, alright, just not any time soon.

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About This Author
Stephanie Mehta
Stephanie Mehta
Deputy Managing Editor , Fortune

Stephanie N. Mehta is the deputy managing editor at Fortune, overseeing technology coverage for Fortune. She also is a co-chair of the annual Brainstorm Tech conference, an annual gathering of tech and media thinkers. Previously, Mehta spent seven years as a tech writer at Fortune covering the telecom and media industries. She also has worked for the Wall Street Journal and the Virginian-Pilot in Norfolk, Va.

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