The iPhone 5 will increase demand for 4G … but that’s a good thing because 4G is much more efficient that 2G and 3G for data transmission. Without unlimited data, iPhone 5 users shouldn’t be downloading much more than they did with their iPhone 4S, but the stress on networks should decrease thanks to that increased efficiency.
From that perspective, the more people off the old phones and onto 4G the better, but that requires much more widespread 4G coverage.
There’s a push to blanket the country with 4G, something that takes not only time and money, but wireless spectrum — and that’s available in limited quantity. To put overall coverage (not just the big metropolitan markets) in perspective, there are roughly 300,000 cell towers in the U.S. delivering 2G and 3G coverage, compared to just 50,000 that are capable of 4G LTE. Carriers can use those existing towers for 4G, but they need to be upgraded.
And that’s just infrastructure; it doesn’t solve the spectrum problem.
2G networks are now on the endangered list. To free up wireless spectrum for expanding 4G networks, companies are winding down their 2G services. AT&T has begun to shut down 2G service in New York, with plans for nationwide shutdown by 2017. Sprint announced it is killing its 2G Nextel network by June 30, 2013, using that spectrum to continue 4G rollouts. T-Mobile is now rushing to “repurpose” its 2G service to 4G.
Another option is consolidation. For example, AT&T tried to buy T-Mobile last year, primarily to gain access to its wireless spectrum. When that didn’t work, it ponied up for NextWave Wireless.
What happens to customers who don’t want to upgrade to new phones?
Some people still rock an original iPhone and see no reason to be pushed into an iPhone 5, but without 2G coverage, their first-generation smartphone eventually will be good for playing Angry Birds … and not much else. According to CNET, AT&T is taking a proactive approach to helping the 12% of its customer base currently using 2G phones onto a more modern platform. In other words, carriers eventually might have to buy (or at least discount) new phones for their holdout customers.
One plus for consumers is that there likely will be a sweet spot for those who hold onto their 3G smartphones for a while. As more users transition to 4G models, congestion on 3G networks should diminish, giving better connections and faster speeds.
Of course, this is only likely to last a few years before those 3G networks start shutting down to make room for more 4G (or, inevitably, 5G).
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.