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What the 2G Sunset Means to the Automotive Industry

What the 2G Sunset Means to the Automotive Industry

On the surface, the automotive and wireless communications industries appear to have little in common. But recent announcements by a handful of major wireless carriers generated some concern in the automotive finance market. AT&T was the first to publicly declare plans to phase out all of its 2G GSM wireless service by December 31, 2016. Several other carriers have also announced plans to eventually sunset 2G, though not as aggressively or as quickly at AT&T.

The reason for the push for 2G sunset is simple: wireless carriers are looking to “re-farm” the towers in their network for 3G and 4G service that delivers much faster speeds and larger bandwidth capable of handling video conference, streaming and other large data packets. It all sounds very promising, doesn’t it? There are some downsides to the 2G sunset, however, specifically for the automotive finance industry.

2G (second generation) is the cellular technology behind the vast majority of machine-to-machine (M2M) devices used by business across a wide range of industries. Members of the automotive finance industry — dealers, automotive finance companies, banks, credit unions — also use 2G devices for their vehicle tracking efforts. In fact, as more and more credit-challenged customers purchase vehicles, increasing numbers of dealerships and lenders are installing GPS vehicle tracking devices to reduce the risks and costs associated with subprime auto financing. These devices largely run on — you guessed it — 2G.

And for good reason. As of today, 2G offers the lowest price point for the widest coverage. While slower than 3G and 4G networks, 2G data speeds are more than enough to meet the needs of most GPS vehicle tracking system users. So when the news came that carriers like AT&T plan to retire 2G, many providers and users of GPS vehicle tracking systems voiced their concerns.

Before panic sets in, let’s take a closer look at what the 2G sunset really means for the automotive finance industry. First, it is important to differentiate between the two mobile communication standards used by major carriers today for 2G: GSM and CDMA. GSM is the most common mobile communication standard used throughout the world, making it a popular choice for businesses that need to track assets that move across borders, but its main downside is that 2G GSM devices will be the first to become obsolete. CDMA is adopted by five of the seven top cell phone carriers in the U.S. Compared to GSM, CDMA provides greater coverage in the U.S. and Canada, higher security, more reliability and better quality of services, but its drawback is its lack of coverage outside the U.S. and Canada.

The truth is, the complete demise of 2G is farther than it seems. While AT&T has been vocal about its plans to shut down 2G GSM by the end of 2016, many other wireless carriers have been less hasty or pushy. Sprint and Verizon have all publicly said they will continue to support 2G CDMA, while T-Mobile has also stated their continue support of 2G GSM well into the future —And all wireless carriers, AT&T included, have vowed to work closely with device providers and their end users to ease the transition from 2G to 3G and eventually 4G.

The fact is, demand for 2G remains high. As long as the demand is there, wireless carriers will continue to support 2G. But that doesn’t mean the automotive finance industry should just sit back and ignore this topic all together, either. While 2G will be around for a good long while, now is the time to start planning a migration strategy that will minimize the impact on your business operations and bottom line. The first step in your strategy development is to talk to your solutions provider to understand their future roadmap and migration strategy.

Be sure you’re asking your provider the right questions about your current wireless carrier and technology, and how long the carrier plans to support that technology. Find out if your provider plans to take a phased approach that eases your transition to next-generation cellular technology to ensure you continue to enjoy wide coverage without dramatically increasing your costs. And beware of the provider who pushes you to jump ship to 3G right away — before the costs come down and the service is widely available.

Be sure to ask your provider to clearly explain all the wireless technologies available to you, as well as the advantages and disadvantages of each. Your provider should be able to help you identify the right technology for your needs, and develop a practical plan for moving you toward newer technologies.

At Spireon, we’re collaborating closely with major wireless carriers to offer flexible solutions that protect current 2G investments while paving the way for a seamless migration to next-generation networks through its leading brand GoldStar GPS. Contact Spireon today to discuss your migration strategy and talk about our GPS tracking solutions.