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GSM Vs CDMA: Which way to go? - Views on News from Equitymaster
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  • Jan 12, 2007

    GSM Vs CDMA: Which way to go?

    Peek into the past
    From being used as static devices in the time they were launched (in 1945), mobile phones have really come a long way. The journey has, in fact, covered the entire distance from '0G' to '3G'! The first generation mobiles were introduced in the US in October 1983, and it was anticipated that by the year 1990 there would be 0.7 m cell users. The fact was this number turned out to be a whooping 4 m, forcing engineers to think differently, to optimize spectrum usage and thereby enhance the capacity of the existing spectrum. This caused the advent of the second-generation phones. The time has now come where there is a convergence of voice, data and video on the mobile phones which has led to the 3G phones, which have adopted themselves to cater to the ever increasing need for data while being on the move.

    The past few years have also seen a lot of discussions circling the merits and demerits of GSM versus CDMA telecom technologies. In this article, we briefly discuss these technologies, their relative growth rate globally and what significance does this have for the long-term Indian telecom story.

    GSM (Global System for Mobile Communications): This is a second-generation mobile phone system making use of digital call quality for both "signaling and speech channels". However it has retained backward compatibility, which means that although a service provider may upgrade his network (by adopting 3G), the 2G phones of the customers who do not make the switch will work just as well. Another significant feature of the GSM standard is that it is fairly open allowing for inter-operability of equipment, allowing the service provider to source equipments from different vendors. The standard has been widely accepted across the world and is used by over 2 bn people across 212 different countries and territories. Because of the roaming feature offered by the service providers, a customer on the GSM network can remain connected virtually through out the entire world.

    CDMA (Code Division Multiple Access): This is a "spread spectrum" technology, allowing many users to occupy the same time and frequency allocations in a given band/space. As its name implies, CDMA assigns unique codes to each communication to differentiate it from others in the same spectrum. In a world of finite spectrum resources, CDMA enables many more people to share the airwaves at the same time than do alternative technologies.

    Distinction between CDMA and GSM
    Its standard only relates to the air interace - only the radio part of the technology Its standard relates to the specification of the entrie network infrastructure.
    To send data over the spectrum it does not divide the channel by time or frequency instead it encodes the data and utilises the entire spectrum for sending the same (ie spread spectrum) It divides the spectrum into different channels. The data is sent using either TDMA or FDMA, to enhance the usage of the available spectrum. TDMA is more prevalent today than FDMA.
    It is capable of delivering a soft hand off between cell sites for a mobile user The hand off is hard between cell sites for a mobile user
    CDMA2000 is the third generation technology W-CDMA or 3GSM is the third generation technology.
    Requires lesser infra structure to support the same number of users as a GSM network would do. Requires more infrastructure to support the same number of user as would be handeled by a CDMA network.
    Source: Wikipedia

    Key statistics
    Although the CDMA technology is relatively new, it has gained prevalence owing to its efficiency in the coverage of larger subscribers using a relatively smaller infrastructure base. Presently, the number of CDMA users globally stands at 280 m, while the same for GSM subscribers is over 2,000 m. Although the gap is huge, CDMA is fast gaining in popularity owing to its inherent technological advantage. A case in point would be the growth in Africa, wherein of the 23 licenses issued over the past two years, only one was for GSM system while the rest were for CDMA.

    Another key fact about the growth in GSM subscriber base world over is that as against what we widely believe, it is the American market that has been expanding at the fastest rate over the past one year, having recorded a growth of 87% during the period June 2005 to September 2006. However, this is on account of the smaller subscriber base in the country (US has more subscribers hooked to the CDMA technology). In absolute terms, it has been the Asia Pacific market that has recorded the highest growth, adding a whooping 174 m subscribers during the said period. The subscriber base in India during the same period has shown a growth of 75% and its share in the world GSM growth stood at 7.1% while the same is 19.3% for the Asia Pacific region.

    Growth in GSM subscribers since June 2005
    Subscribers (m) in %
    World 474 32
    Africa 57 59
    America 57 55
    Asia pacific 174 31
    Europe:Eastern 91 42
    Europe:Western 23 6
    Middle East 33 41
    USA/Canada 40 87
    Source: GSM World

    The way forward
    Going forward, the global telecom industry is expected to benefit largely from convergence, wherein mobile phones will seamlessly stream voice, data and video. As for India, this shift will still take a longer time. The country is still amongst the lowest penetrated among its developing peers. Also, there is a greater need for mobile service providers to reach across the length and breadth of the country, from having an urban-centric growth till now. Compared to the urban teledensity of nearly 35%, India's villages still have only 2 mobile phones per 100 people (2% penetration). Our meeting with one of the leading telecom service providers makes us to believe that GSM is expect to lead this rise in penetration across the country, as entry costs for subscribers are relatively lower vis-a-vis the CDMA technology. Whatever be the case, the Indian telecom story is likely to remain intact over the medium to long term. This can be gauged from the future plans that the companies have lined up for capacity expansion. Also, with sustained efforts on the part of the regulator to usher in better infrastructure and higher competitive markets by way of regulatory changes and availability of cheaper handsets, the penetration rates are expected to increase further.



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