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Verizon's $1B upgrade
With its investment in nationwide high-speed, Verizon changes the wireless Internet landscape.
January 12, 2004: 6:21 PM EST
By Eric Hellweg, CNN/Money contributing columnist

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NEW YORK (CNN/Money) - When Verizon Wireless announced on Jan. 8 that it would invest $1 billion to build out its wireless broadband networks, tech mavens like me gave a shout.

The company's plan to expand its current high-speed wireless networks beyond its first two test markets (San Diego and Washington, D.C.) is great news for travelers who hate having to trudge down to a Starbucks (SBUX: Research, Estimates) when they need wireless access. And if Verizon (VZ: Research, Estimates) plays its cards right, the expansion will be great for the company and its investors. "This is huge," says Scott Ellison, an analyst with IDC. "It's a very impressive announcement."

My colleague and self-professed tech bear Paul LaMonica issued a warning on Thursday (in an unrelated column) to investors buying blindly into the telecommunications upswing.

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I agree with LaMonica but think Verizon's move is even bigger news than Nokia's estimate increase and the general sense that the telecom industry has hit bottom. Let's look at what the new push means for users and the wireless sector.

In October, Verizon started testing its new wireless broadband technology, called 1xEV-DO, in San Diego and Washington. The technology allows anyone who purchases an EV-DO-enabled laptop PC-card modem (which sells for about $249) to wirelessly surf the Internet at download speeds reaching 300 to 500 kilobits per second -- comparable to DSL -- anywhere Verizon has coverage.

Users don't need to find a hotspot; they can simply open their laptops and start surfing, as long as they are in cellular range. It's big for consumers, many of whom are just now discovering wireless Internet capabilities. Unlimited usage of the EV-DO service costs roughly $80 per month. Metered plans are also available.

If Verizon can keep to its rollout plan and cover the nation by the end of 2005, with the major markets covered by this summer, the first industry to feel the effects will likely be the Wi-Fi gang. The Verizon announcement "makes it difficult for the Wi-Fi industry to make money," says Ellison.

"This is a big step forward," says Alan Reiter, president of the Wireless Internet & Mobile Computing consultancy. "How far would you walk for a Wi-Fi hotspot if you could open your notebook and get 1xEV-DO?"

The new technology will also have a pretty dramatic impact on the cellular-industry landscape. For months now, Sprint PCS (PCS: Research, Estimates), AT&T Wireless (AWE: Research, Estimates), and Verizon have duked it out in advertisements about which network is the fastest. With EV-DO, it's no longer open for questioning.

This means the other players will need to turn their marketing messages away from speeds and instead play up customer service or ease of use. "The marketing messages [for the cellular industry] have been the same forever: Keep in touch," says Ellison. "Now they have to differentiate themselves based on their markets and their own individual capabilities."

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Of course, the rollout is a $1 billion gamble for Verizon -- there's no guarantee that the service will take off as well as it did in the two test markets, where a Verizon spokesperson described the reaction as "incredible." Though the advertised download speeds are impressive, upload speeds for the service remain slow: in the 40kbps range.

This would be unacceptable for anyone who regularly sends large files. Also, at $80 month, it's priced out of many people's budgets, especially if the upload speeds keep it from becoming a primary access service. With no other competitor lining up to offer comparable speeds, Verizon has no incentive to cut the price anytime soon.

There's no discounting the "Aha!" factor, however. And I think this is one of those rare technological advances where once you see it, you get it. I think that when the service is rolled out in enough key markets, the viral recommendation engines will kick in, and EV-DO will become a very healthy revenue stream for Verizon.

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