4G Cellular in U.S.

Executive Summary:
4G cellular is an IP-based high speed broadband wireless telecommunication
system, which is the successor of the current 3G network.

By studying its technical features and prospects of commercialization in U.S., we

found out that it not only has numerous technical advantages in terms of superior voice,
first-class real time multimedia and high-data-rate mobile networks, providing brand
new experiences to users, but also has the potential to drive industry growth to another
level.

Along with the strong growth of U.S. telecommunication market, it will provide
opportunities for companies including carriers, chip vendors, infrastructure vendors and
mobile device vendors. As 4G standards were ratified by ITU, the future is bright for 4G.

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 4G Technology
Concepts and features

The standards of wireless telephone and mobile telecommunications have evolved

from the first generation (1G) in 1982 , the second generation (2G) in 1992 to the third
generation (3G) in 2002, and now the era of the fourth generation (4G cellular) is
coming.

In order to understand the fourth generation wireless, we should understand the

earlier generations. The first generation wireless (1G) was basically a kind of analog
cellular just for voice communications. The second generation wireless was based on
digital technology, which could provide text-based data communications, such as e-mail,
but the transfer rate of multimedia, for example video, was very slow. The third
generation wireless could transfer data at a speed of at least 200 kbps, which had the
ability to support multimedia transmission in a reliable and secure way.

The fourth generation wireless communication technology can be called broadband

access and distribution network, with over 2Mb/s non-symmetric data transfer
capability, which could provide 150Mb/s high-quality video services for the high-speed
mobile users. For the first time, three-dimensional images could transmit with high-
quality. Besides providing information, it also could provide positioning, data collection
and remote control function.

The major features of 4G wireless is as follows:

First, it is with ultra-broadband access at the gigabit per second level. The
maximum data transfer rate of 4G could be more than 100Mb/ s, 10,000 times as fast as
mobile phone data transfer rate, 50 times as fast as 3G mobile phone data transfer rate i.

Second, it will provide richer mobile communications services. No matter what

wireless technologies will be used in the 4G communication system, one certain thing is
that 4G communication will provide revolutionary broadband internet access to users,
offering exciting experiences such as real-time video call, online gaming and high-
definition streamed multimedia on handsets with improved information security.

Third, multiple services will be integrated. 4G should be able to integrate different

modes of wireless communications, from indoor wireless LANs and Bluetooth networks,
cellular signals, radio and television to satellite communications. Mobile users can roam
freely from one standard to another standard. A variety of business applications and the

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 interconnection between various system platforms will be more convenient, safe, to
meet different user requirements in a more personalized way.

Fourth, a variety of 4G terminals should be used to take full advantage of 4G

communications services. Many telecommunications operators see the future 4G
communications market potential is huge, they have begun to produce 4G
communication terminal products, such as small high-speed packet communication
terminal and film & television transmission services video terminal. With these
communication terminals, mobile phone users can enjoy high-quality communications
services anytime and anywhere.

Network architecture and key technologies

(1) Network architecture

Figure 1. 4G network architecture

Services
&

WLAN Multimedia access XDS

IPv6 Core
system L
Network

2G Wireless 3G
wireless
4G
wireles

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 In 4G wireless communication system, in order to meet the different business
requirements of different users, a variety of different business systems are connected to
IP-based core network through multimedia access system to form a common, flexible
and scalable platform (see Figure 1). We can see that IP-based network infrastructure
technology allow to roam seamlessly among 2G, 3G, 4G, WLAN and the fixed network ii.

4G mobile systems network architecture can be divided into three layers: the
physical network layer, middleware layer and the application network layer. Physical
layer provides access and routing functions, and middleware layer serves as a bridging
layer to provide QoS (Quality of Service) mapping, address translation, plug and play,
safety management, and active networks. Physical layer and middleware layer provide
open IP interface. Application network layer and middleware layer also provide an open
interface for third parties to develop and deliver new business.

(2)Access system

A pronounced feature of 4G mobile communication access system is that intelligent

multi-mode terminals based on the public platform achieve seamless connectivity and
collaboration in various network systems through a variety of access technologies. So, in
a 4G wireless system, all kinds of specialized access systems are based on a common
platform to communicate in the most optimal way to meet the communication needs of
different users. When the multi-mode terminals access the 4G system, the network will
produce an adaptive bandwidth allocation, and optimized routing to achieve the best
communication results. Currently, the main 4G access technologies include wireless
cellular mobile communication systems (eg 2G, 3G), cordless systems (eg Digital
Enhanced Cordless Telecommunications, DECT), short-range link system (such as
Bluetooth), WLAN systems, fixed wireless access systems, satellite System, the
stratospheric communication (STS), radio and television access systems (such as Digital
Video Broadcasting, DVB, Community Antenna Television, CATV). With the
developments of technology and changes in market demand, new access technologies
will continue to appear.

(3) Software system

Currently, 4G wireless communication software system tends to be standardized,

complex and intelligent. The primary task of the software system is to create a common
software platform, so that different communication systems and terminal application
software become interoperable through this platform. Therefore, the establishment
of a uniform software standards and Internet protocols is the key for 4G mobile
communication software systems. Software systems using Web services model will be

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gradually to replace the existing client / server model. New computer languages such as
XML, will be used for future Web-based distributed services. And the software system
will also need to be more reliable and secure to safeguard the normal operation of
communications networks, and data integrity.

(4)Modulation and signal transmission technology

The core technology of the third generation mobile communication system is

CDMA (Code Division Multiple Access), and the 4G system is mainly based on orthogonal
frequency division multiplexing (OFDM) as a core technology. OFDM technology is
characterized by highly scalable network structure, with good noise immunity and
resistance to multi-channel interference, which can provide higher-quality wireless data
technology (high speed, small delay) service and better cost performance. For example,
wireless local loop (WLL), Digital Audio Broadcasting (DAB), etc., are expected to use
OFDM technology.

Technology life cycle position

4G technology is still in the introduction stage of the life cycle. Many people think that
the fourth-generation wireless communication network system is the most complex
technical system in the human history. In the process of implementation the 4G
technology, a number of technical issues should be resolved, such as, no uniform
international standards, huge infrastructure investment to replace existing 3G facilities.
Some experts suggest that it may takes several years to resolve these issues.

Emergent providers

Currently, 4G splits into two major groups: LTE (Long Term Evolution) and WiMax
(Worldwide Interoperability for Microwave Access).

LTE is also considered as 3.9G, with 100Mbps of data download capacity, which is
regarded as the mainstream technology evolution from 3G to 4G.LTE enhances the 3G
air access technology, using OFDM and MIMO(Multiple-Input Multiple-Out-put) wireless
network as the sole standard. In 20MHz of spectrum bandwidth, LTE can provide
downlink 100Mbit/s and uplink 50Mbit / s peak rateiii.

Verizon, the world's largest CDMA operator, already announced in 2007 with the
launch of its fourth-generation LTE mobile broadband network. Equipment will be
provided by Alcatel, Lucent, Ericsson, Motorola, Nokia, and Siemens. Besides Verizon,

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Vodafone, NTT DoCoMo, AT&T and China Mobile and other world's leading
telecommunications operators have decided to adopt LTE technology.

WiMAX, also called 820.16, is an emerging broadband wireless access technology,

which can provide high-speed Internet access, data transmission distances up to 50km.
WiMAX also has a QoS guarantee, high transfer rate, and wide business range. But
WiMax technology cannot support the user to switch seamlessly in high-speed mobile.
People hope to solve this problem by upgrading to 802.16m, but there are still
uncertainties in the progress of this upgrade.

Clearwire, a U.S. company, make great effort to push WiMAX into commercial
application. In the upstream of WiMAX industry, Intel is a strong supporter for the
WiMAX technology. In July 2006, Intel has worked with Motorola to inject $0.9 billion
into Clearwire to promote the popularity of WiMAX technology. Many operators from
the US, Britain, France, Germany, Russia have proposed or being implemented WiMAX
deployment plan. For example, SprintNextel, one of the U.S. top five mobile
communications operators, has provided Wimax network 45 cities including Seattle, Los
Angeles and Chicago. In the long term, the network will cover 100 cities in the United
States with 100 million usersiv.

Undoubtedly, the 4G communication is a globalized technology with worldwide

relevance. Back in the early 1990s, when the construction of the international
information highway was proposed, some experts predict that the “air information
highway” will sooner or later come into being. With the rapid development of Internet,
the dream of information highway has become real. However, limited by the
transmission speed, “air information highway” is still waited to be realized. Hopefully,
with the 4G era coming, “Air information highway” will soon come true. Mobile
communication has been largely achieved interconnection between people and is
heading for the interconnection between human and the Internet. In the future, with
4G, interconnection between human and things and among things will become
common. At that time, the number of mobile user will greatly increase. People can use
mobile communications anytime and anywhere.

Business problems

The 4G network is the next innovation in broadband system, designed

predominantly for providing a complete IP solution to mobile data transport versus voice
communication on an "Anytime, Anywhere" basis. It is expected to address
telecommunication dynamics, to resolve remaining problems of 3G systems and to deliver
comprehensive brand new services, especially data products from superior voice to first-

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class real time multimedia to high-data-rate mobile networks, to increase productivity,
reduce costs and improve customer satisfaction.

The 4G cellular system demands huge investment, and will provide great
opportunities for telecommunication carriers, chip vendors, mobile device vendors,
network infrastructure vendor, and software developers.

Carriers

According to CTIA-The Wireless Association, the U.S. wireless penetration rate reached
91% in December 2009, With 285.6 million wireless subscribers. The market shares of
dominant carriers are: Verizon Wireless 31.9%, AT&T Inc. 29.8%, Sprint Nextel
Corporation 15.6%, T-Mobile USA 11.8% and others 10.8%, respectively. Under
circumstances of market saturation and low-level product differentiation, with the
demand of data products on the rise, technological innovation has increasingly become
critical in competition. Although currently the 4G systems in the market are rather
migration for 4G or pre-4G, which do not conform to the 4G standard of the
International Telecommunication Union, Some carriers are still very ambitious to
leapfrog into the 4G era. Sprint Nextel launched its WiMAX system as 4G with its partner
Clearwire Corp. in June 2010, and this system is now accessible to 4O million people in
68 U.S. cities. Verizon started its so-called “4G” LTE network in December 2010, covering
110 million people, and aiming to reach 200 million people in the next eighteen months.
As the cellular technology moving faster than ever, the advent of 4G is pending.

Chip vendors

USB wireless modems will play a pivotal role in 4G cellular broadband data services.
Thus modem vendors such as Novatel, Sierra Wireless, Huawei will benefit from the
emerging market. Qualcomm as the vendor of chips for these devices has an
opportunity to lead in the market, since it has already built a dominant position with a
chipset that has worldwide capabilities (Gobi) in the LTE space. But as 4G cellular
technology evolves, it is predictable that Intel will enter the growing wireless chip
business.

Infrastructure vendors

4G upgrade means huge investment in brand new infrastructures, such as new

antennas, filters, and cell-site equipment. Infrastructure giants such as Alcatel-Lucent,
Ericsson, Nokia-Siemens, Huawei and ZTE will have to compete for its share. The
infrastructure market in U.S. is fragmented. For example, Verizon uses Alcatel-Lucent
and Ericsson as main equipment vendors but in different cities, while also buying

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equipment from Starent Networks and Nokia-Siemens. Furthermore, in response to the
need to upgrade back-end systems to IP-capable networks, IP router and infrastructure
vendors such as Cisco will have opportunities in the 4G business.

Mobile device vendors

Smartphone vendors such as Apple, RIM, HTC, Nokia, Samsung, Motorola, LG and the
others are sure to profit from the 4G business.

With the rapid growth of wireless data, the smartphone segment is also booming.
According to IDC, the smartphone market is projected to rise by 30.7% globally this year,
with a five-year compound annual growth rate (CAGR) of 20.4%, while the market is
going to grow by 45.7% in U.S. in 2010, with a five-year CAGR of 21.4%.

Tablets such as Apple’s iPad, RIM’s BlackBerry Playbook, are changing the landscape
too. IDC predicts that, between the years of 2010 and 2014, the CAGR of tablets market
will be 57.4% globally and 43.0% in the US, respectively.

Software developers

The 4G cellular system is going to provide numerous opportunities and build a new
competitive environment for software developers on different mobile operating
systems. The smartphone operating system is the foundation because it determines on
which platform an application has to be developed and sold. In the U.S., ranked by April
2010 data, Google’ Android has surpassed iPhone OS to be the leader with a market
share of 46%, while the latter has a market share of 38%, followed by RIM OS 9%,webOS
3% and the others 4%.

Since the opening of the apple App store in 2008, applications for mobile devices have
grown into a big market in the last few years. Apple still dominates the market with its
300,000 applications and a record of 7 billion app downloads. Other main app provider
including Google, whose Android market offers more than 65,000 apps, and RIM.

Strengths and Weaknesses

Strengths

(1)The booming U.S. telecommunication market sustains the 4G revolution.

According the Data monitor, the U.S. wireless telecommunications services market has
enjoyed a compound annual growth rate of 7.7% during 2005-2009, and a robust
growth trend will likely to continue towards 2014, but at a lower CAGR of 4.9%.In other
words, the total revenue of $152.6 billion in 2009 is projected to rise to $213.3 billion by

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the end of 2014, with a total of 285.6 million subscribers will increase to 363.7 million
subscribers during the same period.

(2)Enhanced Quality of Service tends to attract subscribers.

With high speed broadband, high level user customization and highly-diversified new
services,4G cellular will help carriers to enhance Quality of Service ,thus to acquire new
customers and maintaining existing customers.

(3)Data growth drives technology evolution in the industry.

With the proliferation of smartphones, tablets and applications, in 2009, U.S. wireless
data revenue accounted for 27.2% or $41.5 billion of the total service revenue, up
28.5%.Data service was one of the drivers for the technology to evolve from 2G,2.5G to
3G,and now on the verge of 4G.

(4)Full deployment of 3G will enable the migration to 4G.

The U.S. carriers have been upgrading their systems with 3G since 2003.As of June 2010,
the 3G coverage of the four major U.S. carriers ranged from T-Mobile’s 71% to Verizon’s
91%, covering up to 280 million people. The full deployment of 3G has paved the path to
4G, and Verizon and Sprint Nextel have begun migrating to the next generation.

Weaknesses

4G still has a long way to go to be fully embraced by the market.

(1) Cost and affordability might be prohibiting.

The most important challenge facing 4G cellular is cost, including infrastructure,

operating or handset cost, the cost of deploying services, etc. It will be challenging for a
carrier to balance revenue and capital expenditures, by providing affordable 4G
products to attract subscriber to upgrade from the 3G platform, and gain a profit before
feeling the threat of 5G, the next generation. Due to the cost of full deployment of 4G
and its lack of backward compatibility, it is foreseeable that a hybrid wireless
environment of 3G and 4G, even 2G will exist for a long period.

(2) It might take too long to be fully deployed.

Given 4G upgrade‘s “forklift” nature, it will take a long and painstaking process to fully
upgrade to 4G.So 4G will likely be deployed in some populous metropolises at first, just
like what Sprint Nextel and Verizon are doing with their pre-4G systems, but not
available nationally for a considerable period of time. And by the time of its full

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deployment, it probably will reach the end of its life cycle and people will be eager to
welcome 5G at that time.

Technology Recommendation

There is no doubt that 4G is the future of wireless telecommunication. The

meeting held by the International Telecommunication Union (ITU) in November 2010
represented a milestone, as ITU formally ratified 3GPP Release 10 (LTE-Advanced) as a
4G technology, the next step for this technology is to specify the in-depth technical
standards in early 2012 .

LTE is going to set the pace for migration to 4G, with nine commercial launches this
year and eleven more on course. In addition, more than 250 companies are going to
deploy LTE systems, including Greenfield, WiMax, CDMA, and GSM operators. As the
ITU-ratified 4G solution, LTE-Advanced is going to take the lead in changing the
telecommunication industry, not only with new technologies, but also new growth
opportunities.

For investors, many renowned listed companies will benefit from the 4G business.
But since the burn rate of 4G upgrade tend to be high, it would be better to invest in the
winners of both this 3G era and the upcoming 4G era, such as Google and Apple, for
their innovative business model with very strong cash flows.

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i
4G, Retrieved 12/12/2010, 2010, from http://baike.baidu.com/view/27827.htm

ii
On the fourth generation of mobile communication system, Retrieved 12/12/2010, 2010, from

http://www.cctime.com/html/2008-10-14/200810141413083201.htm

iii
LTE, Retrieved 12/12/2010, 2010, from http://baike.baidu.com/view/1084057.htm

iv
WiMAX, Retrieved 12/12/2010, 2010, http://baike.baidu.com/view/26835.htm

v. winners in the new 4G wireless economy retrieved 14/12/2010

http://blogs.forbes.com/investor/2010/10/12/winners-in-the-new-4g-wireless-economy/

vi 4G standard ratified, retrieved 14/12/2010,http://mybroadband.co.za/news/cellular/16825-standard-ratified.html

vii Verizon to Debut Faster, 4G Wireless Network Dec. 5, retrieved 14/12/2010,

http://www.businessweek.com/news/2010-12-01/verizon-to-debut-faster-4g-wireless-network-dec-5.html

viii James Moorman, Standard Poor’s Industry Surveys Telecommunications: Wireless, July 22,2010

ix, Datamonitor ,Wireless Telecommunication Services in the United States, September 2010