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Monday, February 24, 2003 9:42:29 AM
Feb 23, 2003 (The San Diego Union-Tribune - Knight Ridder/Tribune Business News via COMTEX) -- The Qualcomm chief executive was practically heckled two years ago when he predicted that next-generation wireless services in Europe would be delayed until as late as 2005.
At the time, many said Jacobs was just trying to undermine a competing wireless standard with his pessimistic prediction. San Diego-based Qualcomm was aggressively pushing its next-generation wireless technology called CDMA2000, short for code division multiple access, and European carriers and technology companies were committed to the competing WCDMA.
A late-comer to the wireless industry, Qualcomm invented CDMA and collects royalties on its use. As the world began to move toward next-generation wireless services which includes Internet access and streaming video Qualcomm hoped to increase its market share with CDMA2000.
But in 2001, most industry watchers thought that was unlikely. The thinking was that WCDMA, short for wideband code division multiple access, would dwarf CDMA2000 in usage just as an earlier European standard had limited the reach of Qualcomm's technology at the beginning of the wireless revolution.
What a difference two years can make.
CDMA2000 has been launched by 34 wireless companies and has 32 million subscribers. WCDMA, on the other hand, is available in just two markets and has 160,000 customers. The disparity has led some industry insiders to say that CDMA2000 may become the de facto next generation, or 3G, standard.
In an interview with Dow Jones Newswires last week at a global telecom conference in Cannes, executives of equipment maker Lucent said WCDMA is facing an increasingly tough fight against CDMA2000.
"The whole world is kind of at a crossroads" on 3G standards, said Cindy Christy, chief operating officer of Lucent's mobility group. Lucent makes equipment used in wireless networks such as base stations, which link mobile phones with conventional phone networks.
Lucent's forecasts for the wireless industry in 2005 increasingly show WCDMA losing ground to its rival, Christy said. A year ago Lucent expected WCDMA to win 48 percent of a $51 billion market for wireless equipment and related services in 2005. Christy said that estimate now seems unlikely because CDMA2000 is building momentum in such countries as China, India and Japan.
Of course, Lucent is hardly unbiased. The company, which is doing well in the CDMA2000 market, has been unable to make any meaningful inroads in selling WCDMA equipment. Companies such as Nokia and Ericsson have both begun selling WCDMA network equipment as carriers start to build the next-generation networks.
But both European vendors have predicted that 80 to 85 percent of world subscribers will ultimately be served by WCDMA and its predecessor, Global System for Mobile Communications, or GSM, a European standard that has achieved global success.
Tony Thornley, Qualcomm's president and chief operating officer, said that in the short run CDMA2000 will continue to dominate because of its head start.
By the end of 2003, Thornley estimated that there should be 2 million to 3 million WCDMA subscribers globally. By the end of 2004, Qualcomm projects there will be 13 million WCDMA subscribers compared with about 200 million CDMA2000 subscribers.
"A year ago, people were saying GSM has 80 percent of the market so WCMDA will have 80 percent of the market," Thornley said, adding that many realize that is no longer the case. Thornly did acknowledge that as WCDMA deployments take off, it may eventually outpace CDMA2000.
Greg Teets, an financial analyst who covers Qualcomm and other wireless companies for A.G. Edwards, said ultimately WCDMA will have the dominant position.
"In the long term, it is still a WCDMA story," Teets said. "But it may not be an 80-20 split between WCDMA and CDMA2000. It may be more like 70-30 split or even a 60-40 split."
The path that the industry takes will likely come down to the technology choices made by operators in places such as China and South America, which are almost like virgin territory in the wireless standards wars.
The other factor is how well carriers that have already deployed CDMA2000 networks fare against their competitors. Qualcomm has long argued that CDMA2000 gives wireless companies a competitive advantage because it is cheaper to deploy and can support next-generation services, such as sending video clips via a cell phone.
If CDMA2000 companies do well with wireless Internet services, it could put pressure on their GSM counterparts who haven't managed to deploy networks that support higher-speed services, Lucent executives said.
In the United States, Verizon and Sprint PCS have launched next-generation CDMA2000 service. AT&T Wireless, Cingular and T-Mobile, which use GSM now, have launched data services that are seen as the halfway point to WCDMA networks.
AT&T has said it plans to roll out WCDMA service in four markets by the end of 2004.
"It will pretty much depend on CDMA operators making a commercial success of the technology advantage that they have today," said John Leonard, the strategy director for Lucent's mobility group.
But the real trick is that Qualcomm stands to benefit no matter which third- generation standard is deployed, Teets said. In the past, many observers predicted that Qualcomm would lose out if WCDMA was the dominant standard.
Conventional wisdom was that Qualcomm did not have as strong a patent position in WCDMA as it did in CDMA2000 and so would not be able to charge the same royalty rate. A large part of Qualcomm's revenue comes from the royalties it receives when a company uses its patented technology.
In recent years, Qualcomm has put to rest many of the doubts about its patent position for WCDMA by signing licensing agreements with most of the major wireless manufacturers including such GSM stalwarts as Nokia.
Qualcomm doesn't care which 3G wireless standard is deployed, Thornley said.
The key is to get next-generation networks launched as quickly as possible because while Qualcomm collects royalties on WCDMA, it makes nothing on GSM. In addition, Qualcomm makes WCDMA chips that are used in cell phones, which will also boost its bottom line as the standard takes off.
"Our overall position is that we are working very hard to offer both versions of the standard," Thornley said.
By Jennifer Davies To see more of The San Diego Union-Tribune, or to subscribe to the newspaper, go to http://www.uniontrib.com(c) 2003, The San Diego Union-Tribune. Distributed by Knight Ridder/Tribune
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Daniel Nieves
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