CDMA May Be Better for Africa, But GSM Winning Numbers Game

CDMA is a better choice for African operators for many reasons, Hearmon told us: (1) The technology serves both entry-level voice-centric markets and high-end voice and broadband data markets. (2) It serves sparsely-populated (coverage-limited) rural areas and dense urban centers most economically. Coverage is key in rural Africa, he said: CDMA can provide better coverage with fewer cell sites using 800 MHz and 450 MHz, meaning less capital outlay.

CDMA2000 can offer triple-play packages of voice, broadband data and multimedia more economically than GSM or WiMax, Hearmon said, calling GSM “an old technology, with few enhancements anticipated.” CDMA, a 3G technology, is being enhanced with improvements that will boost circuit-switched CDMA2000 1X networks’ capacity, helping to lower voice call costs, he said.

“There are plenty of reasons why a CDMA network is technically superior to a GSM network, particularly in regions such as Africa,” Strategy Analytics analyst Sara Harris told us. Among other things, the technology offers more efficient use of spectrum, lower radiation emissions and better battery power, she said.

The debate over which technology is better “should have finished” 5 years ago, said GSMA Chief Govt. & Regulatory Affairs Officer Tom Phillips. Each camp always will have advocates, but markets ultimately decide, he said. Because the technologies are so similar, other considerations figure in markets’ choices, he told us.

GSM has outpaced CDMA for several reasons. It’s on an open standard whose intellectual property rights are owned by a variety of companies that allow others into the market, Phillips said. European countries and govts. collectively decided to standardize markets around GSM global roaming. By the time GSM hit Africa, it had clear economies of scale. Operators seeking the most cost effective solution with the widest coverage at the lowest cost turned to GSM.

GSM also led because its handsets, now costing around $20, undercut CDMA’s, Phillips said. And the technology is more attractive than CDMA due to flexibility: The standards allow easy movement among earlier and newer standards such as 2.5G or 3G. Emerging markets often include not only poor people needing basic services but wealthier people seeking products like those developed countries have. But Hearmon cited a Sept. Yankee Group report that CDMA2000 entry-level handsets are approaching the price of GSM handsets and offer greater value. And inward and outward roaming are simpler and more widely available with GSM, with handsets more readily available, Harris said.

Phillips disputed Hearmon’s claim that CDMA is a better deal for Africans. The 2 technologies are merely different ways of encoding a signal moving between stations, he said. The only way to make it more economical is to use another frequency or make the gear available more cheaply, he said. GSM has 1/3 of the world as customers, CDMA 1/10th. “Mobile is a volume game,” Phillips said.

GSMA data show 153.8 million GSM connections in Africa, to CDMA’s 33,000. That figure is disputed by Hearmon, who claims 3.6 million “real individual subscribers” in sub- Saharan Africa alone. “If you do what the GSM world does you can double or treble this,” he said: “They count SIM cards as subscribers. I have five.”

Lobbying and the ‘Fear Factor’

Despite GSM’s heavier firepower, both technologies are lobbying “very, very hard” for favor, Harris said. Hearmon wants regulators to make available “fallow 800 MHz spectrum” and to see calling rates cut and taxes on handsets reduced. Phillips voiced concern that some govts. keep misconstruing the role of mobile communications, viewing them as a luxury for the elite. That leads to public policy -- such as taxes on handsets -- hampering rollout to poorer communities, he said. Some regulators treat mobile communications as a utility, not a high-growth private investment environment.

Other bottlenecks exist, Phillips said. International services such as connections and gateways create high costs for the mobile industry via lack of competition. Skills gaps in regulatory bodies can lead to over-reliance on court systems to decide disputes. Many countries appear to have unstable regulatory environments, creating uncertainty for operators and investors. Rather than mandate one technology over the other, govts. should create a policy and regulatory environment that lets the market pick the best technology, and ensure a level playing field for all comers, he said.

CDMA technology’s African future seems bleak, analysts said. “GSM’s ubiquity means that new operators looking to set up networks are heavily influenced by a ‘fear factor,’ opting for the tried and trusted GSM rather than CDMA which is used by far, far fewer operators,” Harris said.

Fear is spreading, even among established CDMA players. In Brazil, Vivo is shifting to GSM from an established CDMA base “partly because it feared being the last CDMA customer in the country,” Harris said. Unfortunately, govts. “are as affected by the fear factor as operators, and no one wants to be the single country left using a unique technology in the region, with the potential implications for cross-border travel and trade,” she said.

African markets have so much growth potential CDMA will keep growing as a “minor technology” for several years, said ABI Research analyst Shailendra Pandey. But even investment in GSM, starting in 2008, will be bypassed by outlays in wideband CDMA (WCDMA), he said. African nations choose GSM because it allows an easier transition from 2G to next-gen GSM technologies, rather than moving from CDMA to CDMA2000. CDMA uptake may grow the next 5 years, Pandey said, but it “will never be in a position to challenge GSM.”