Qualcomm Inc (QCOM)

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The wireless hot seat
By Kevin Fitchard

May 9, 2005 12:00 AM

http://telephonyonline.com/mag/telecom_wireless_hot_seat/

Ten years ago, the wireless industry was embarking on a bold new technology path, and the dominant mantra of the industry was digital networks. Technologies like CMDA, TDMA and TDMA's standardized relative GSM shot off on their own divergent development tangents, and for five years carriers occupied themselves with building out ubiquitous networks based on these second-generation technologies and turning wireless into the communications juggernaut it is today.

But after half a decade of this single-minded focus, something odd happened. New acronyms started appearing. At trade shows, barely a few seconds could pass without the letters 3G passing someone's lips. CDMA begat CDMA 1X, which begat CDMA2000. GSM begat GPRS and EDGE. And before long, the GSM community was talking about their own version of CDMA, codified in the standard for UMTS. The industry had caught the wireless data bug, and what followed was a rapid acceleration in the pace of technological innovation, driven by the promise of vast new revenue streams from the mass consumption of over-the-air bits.

While it took a while for the first actual 3G networks to appear — and carriers are still waiting for those revenue streams — it hasn't slowed the pace of innovation. In fact, carriers seem to be leap-frogging each other in deployments, and many are already committing themselves to technologies two or three steps removed from their current networks. Sprint has already said it will deploy the next revision of CDMA2000 EV-DO (evolution-data optimized) and end-to-end VoIP even though its first EV-DO network has yet to appear. And Cingular is talking up its high-speed downlink packet access (HSDPA) upgrade, even though it isn't scheduled to launch its national UMTS network until 2006, and even HSDPA's presumed successor, high-speed uplink packet access, is starting to make its way into the company vernacular.

Few would argue that the industry is now entrenched in a period of rapid technological innovation — one that many wireless experts say the sector hasn't seen since the transition from analog to digital. The push has been particularly apparent in the U.S. After years of being the last major developed market to launch new technology, North American carriers are catching up to their Asian and European counterparts, driven by fierce competition between CDMA and GSM operators. The crunch has also put pressure on vendors that are resisting the temptation to ramp up their development cycles for chipsets, base stations and handsets, which consistently lag behind the rest of industry in time to market. Despite those impediments, the cycle shows no signs of slowing, at least until the evolutionary paths of the current phase of 3G technology reach their ends.

“We're definitely in a period of technology acceleration,” said Chris Pearson, president of 3G Americas. “Standardization is moving faster, and we're seeing there is a definite need to build these data networks out as quickly as possible. Basically, we're in the middle of a technology flurry.”

The wireless industry, like any other industry, follows the typical S-curve pattern of supply and demand until something radical happens that results in a complete shift in that curve itself, said Perry LaForge, executive director of the CDMA Development Group. One of those radical shifts occurred in 1994, when the industry began its amazingly rapid shift to digital, LaForge said.

“All of the sudden, the PCS auction took place,” he said. “Carriers who bought the PCS spectrum had no analog service to speak of, and their launch over the digital-only bands forced everyone to migrate their networks to digital.”

Today's race to 3G follows the same trajectory, LaForge said. The difference is the race now involves fewer carriers, and the camps have centered around two distinct technologies. Just as Verizon's move to EV-DO forced Sprint to re-evaluate its plans for competing technology CDMA2000 evolution data/voice (EV-DV), it also prompted Cingular to commit not only to a UMTS rollout but also HSDPA, with download speeds expected to rival EV-DO. From LaForge's perspective, CDMA2000 deserves the credit. In areas where major CDMA and GSM operators go head-to-head, most notably the U.S. and Japan, the pressure to outpace the competition has been far more acute, while in single-technology markets like Europe, carriers are content to pit their UMTS networks against one another.

“The competition between NTT DoCoMo [which runs UMTS] and KDDI [CDMA2000] has pushed a lot of innovation of video and location-based services,” LaForge said. “That model will replicate itself here in the U.S.”

While much of the emphasis in the competitive landscape seems to be on technology, carriers are saying the focus is quickly centering on the deliverable services that those technologies enable. Just as the war between UMTS and CDMA-2000 in Japan has become a battle over the providing the best video application, carriers in the U.S. are no longer focusing on a technology's theoretical bandwidth, but on the services they can deliver with that technology. Issues of latency, spectral efficiency and service quality are becoming far more significant as network capabilities broach broadband speeds.

“We do have a competitive environment here in the U.S., but just because we have two different technologies doesn't mean we're focusing on the technology instead of what the customer wants,” said Chris Rinne, chief technology officer for Cingular. “We're not going to launch a new technology just to say, ‘Hey, look what we can do.’ We believe our customers get distinct advantages from the services supported by UMTS and HSDPA.”

Bringing a new cellular technology to market, however, isn't an overnight process. A new technology must make its way through the standards bodies, a process that can take years. Chipsets must be sampled. Those chipsets have to be tested, and vendors have to build and test their base stations around and against those chips. Carriers then start their laboratory and field trials. And finally, the handsets have to ship in volume.

The pressure to keep ahead of the competition has applied new pressures on vendors to get their technology ready, but so far, vendors have resisted the temptation to rush their products. Perhaps the most critical player in the supply chain is Qualcomm. It not only has a key say in the standardization of new CDMA technologies, it is a principal supplier of both CDMA2000 and wideband CDMA (WCDMA) chips. Furthermore, Qualcomm has integrated much of the new multimedia and data functionality into its standard mobile station modem (MSM) chipsets, meaning not just the core technology but the applications themselves are residing on Qualcomm silicon. Not surprisingly, many vendors' development timelines revolve around Qualcomm's sampling and commercial shipment schedules.

Herbert Vanhove, vice president of product marketing for Qualcomm, said the company has done a good job at keeping ahead of the technology curve, sampling chipsets soon after standards have been set and vetting technologies in the labs far ahead of their anticipated release (Its lead-in time has resulted in chipsets that never saw commercial release, such as its EV-DV MSM).

“There are certainly requests from carriers to accelerate technologies,” Vanhove said. “The industry would like to see the process go faster, but we have to go through rigorous testing cycles. The pressure is there, but we can't rush a technology.”

The biggest reason cited, however, for lag between a carrier's deployment announcement and its commercial launch of a technology is the availability of handsets. The lack of EDGE and UMTS handsets held back consumer data services in Europe and in the U.S. Verizon ran its EV-DO service for a year exclusively with data cards, while waiting for the availability of EV-DO handsets. Even though it has three broadband handsets in its portfolio today, only one, the LG device, is widely available.

Eric Updike, Nokia vice president of marketing and strategy for North America, said it's convenient for carriers to blame handset manufacturers for late launches, but there is a reason why handsets are the last piece in the development chain for a new technology. Samples for handset chipsets may come out at relatively the same time as base station chipsets, but handsets can't be tested until there is commercial base station gear available. Furthermore, the terminal business is critically dependent on volume sales of products that have very little shelf life before they become obsolete. A handset vendor must ensure that there will be immediate demand for a large number of its products as soon as they leave the factory floor, Updike said.

“It's a real chick-and-egg problem, and carriers are trying to squeeze the development cycles of both infrastructure and device manufacturers,” Updike said. “Still, at the rapid rate of technology [development] we have today, we have to figure out a way to get these products to market faster. I think we might have to start making some calculated investments on devices for a new technology ahead of any absolute guarantees on volumes.”

If this global flurry in rapid wireless deployments has one concrete result ,that may be the end of Europe and Asia's dominance in innovation. While carriers all over the world are leapfrogging each other in the race to 3G, activity in the U.S. has been particularly pronounced. The days of second- and third-place finishes may soon come to an end.

Two carriers have traditionally led data innovation, NTT DoCoMo in Japan and SK Telecom in South Korea, each launching their WCDMA and CDMA2000 infrastructures far ahead of the global competition. But with the new spate of deployments in the U.S., the balance is shifting.

On the UMTS side, Cingular's aggressive timeline puts it on track to launch a nationwide HSDPA network soon after NTT DoCoMo and likely far ahead of any European carrier. For CDMA, the Koreans are refocusing much of their efforts on UMTS, and the other forerunner in CDMA, Japan's KDDI, was only a year ahead of Verizon in launching EV-DO networks. Competition — between both carriers and technology camps — is the reason most cited for North America's resurgence, but industry experts say competition isn't the only factor. Carriers are becoming more comfortable with their business models and their ability to market and sell data services. Also, the potential markets for data services are far different in Asia and Europe than they are in the U.S., leaving a U.S. carrier far more freedom to experiment with new services than follow the lead of overseas operators.

“Basically throughout the industry, you went to Korea to see a new service launched,” Vanhove said. “They would be the risk-takers. Eventually that service would trickle down to the U.S. But that's starting to change. U.S. carriers are no longer just following Asia's lead. It's clearly catching up.”