Analysts who follow the telecom industry were surprised when Verizon Wireless recently announced it would offer LTE 4G broadband service in a number of cities. One reason for the shock is that there are still very few handsets designed to work with the blazingly fast 4G connections, which are supposed to bring cable-modem speed to the wireless world. Based on new research the speed of these networks is more modest than advertised. Apple (NASDAQ: AAPL), which is usually a pioneer in consumer electronics, does not even offer a 4G enabled smartphone
Verizon is the second big cellular service provider to enter the 4G market. Sprint-Nextel (NYSE: S) began to build out its network two years ago based on an LTE technology competitor called WiMax. Among the points of competition between the two companies is which of the two technology standards would prevail. That depends to some extent on the plans of AT&T (NYSE: T) and T-Mobile. AT&T, the larger of the two, will use the LTE standard.
Lost in the excitement about 4G is whether anyone will want to use it. Consumers will have to buy a new handset in most cases to use these state-of-the-art networks. Cellular service companies will probably try to charge more for the service because, they will argue, it is better than slower 3G.
Technology adoption is often slow. The high-definition DVD player manufacturers have found that out. The same is true of PC companies which upgrade the power of their chips regularly. A faster PC is only useful to people who need the equivalent of a laptop mainframe. That market is almost certainly small.
The high-speed 4G products have one immediate hurdle. Most cellphones are not larger than a person’s palm. Telecom companies and handset makers argue that consumers will replace PCs with smartphones which have access to ultra-fast connections. That may not be true at all. Screen size, chip power, and the numbers of functions that a laptop or desktop offer may be important. A large number of people use smartphones for multimedia, games, e-mail, and social network participation. Faster networks may not matter to these consumers.
There was a time when PC companies believed that netbooks would drive up their profits. It turned out that many people who bought the machines found that they were under-powered. The industry appears to have ignored that until it was clear that netbook sales would not double every year.
The dawn of 4G service may offer consumers something that they really don’t want because they think they really don’t need it.
Douglas A. McIntyre