KPN's E-Plus To Launch Four New I-Mode Handsets Tuesday March 11, 6:12 am ET
HANOVER, Germany -(Dow Jones)- Royal KPN NV's German unit E-Plus will add four new I-mode enabled mobile phone models to its existing range over the coming months, the German wireless operator said Tuesday at the CeBIT technology fair.
Japan's NEC Corp. will launch the N31i handset with integrated camera on the German market in the summer. The phone also allows users to send multimedia messages.
Mitsubishi Corp. will launch its first European i-mode handset, the M21i, next month.
Nokia Corp. will launch an i-mode browser compatible 3650 handset in Germany in April.
Siemens AG will have an i-mode compatible version of its S55 mobile phone in the shops before summer.
The new phones mean E-Plus' customers can choose between seven handsets. E- Plus is Germany's third-largest wireless operator, with some 7.3 million customers.
I-mode is a wireless data service created by Japan's NTT DoCoMo Inc. (J.NTX).
The service, which enables access to news, stock prices, weather forecasts and entertainment through mobile phones, is available in the Netherlands, Germany, Belgium, France, Taiwan and Japan, where it boasts some 36 million subscribers.
Breakthrough Ideas (3-12-03 edition) written by Don Mosher on SI
[This excerpt is from my original draft. It is not included in the RTW Special Report on Qualcomm. Instead, portions of it were combined with contributions from Matt Tomkins and Dave Young in "A World Ruler Report: Qualcomm," in the November 2002 RTW Report. I believe that the monthly RTW Report and weekly RTW Newsletter generally offers analysis that is more analytical, objective, quantitative, disciplined, and insightful than mine. I recommend that you visit their web site to see for yourself.] http://www.rtwreport.com/
World Ruler Criteria: The Strategic Framework
Technology:
What is Qualcomm's technology? Third-generation spread spectrum for mobile wireless.
What problem is the technology solving? Having originally solved the problem of frequency reuse, Qualcomm now solves the 3G-needs for evolutionary increase in voice capacity, the data-optimized transmission of packet-date, and the harmonization of modes, bands, and networks to create a seamless global network.
Does the technology offer a compelling value proposition to customers? For the carrier as customer, Qualcomm offers a first-mover's set of discontinuous technology innovations and a set of successfully commercialized complete standardized solutions that, taken together, serve as a stable, evolving, and expanding, platform for mobile-wireless-voice, mobile-wireless-data-applications, and mobile-wireless-Internet that is spectrally efficient, better differentiated, less expensive, and plunging off the cliff of costs of the price/performance ratio. Thus, the value proposition not only meets operator's fundamental needs and priorities, but it also attracts new subscribers, reduces churn, drives handset replacements sales, fosters a consumer electronics' model, reduces cost of acquiring subscribers, drives data ARPU, and enables application development, distribution, management, and billing. In addition, QCOM has a predictable and reliable platform roadmap along sustainable trajectories within its spread-spectrum ASIC technology.
For the value web as customer, Qualcomm offers win-win opportunities to profit from the advance of its star-node's platform that not only offers a complete standardized solution that is economically crucial to the value web, but also adds the most value to the web's total economic proposition as it continues to shape the industry's future.
For the end-user, Qualcomm offers the commitment to continue developing complete standardized solution that meet the criteria for a whole product so that you can easily and seamlessly form the worldwide connections, always on, always with you, that you most vitally need, ardently desire, and simply must have.
Is it riding the next wave in technology? It rides the wave of distributed computing in two ways. First, it hollows out the traditional computer by an innovation in mobility, which permits the individual to have both computing and communication functions always on, always with you. Second, it distributes the function of computers and the Internet to a new worldwide audience of have-nots as their first-time educational introduction to its marvels and wonders.
How does the technology compare to the existing architecture? My comparisons are made, first, between 2G or 3G and, second, among forms of 3G mobile wireless architectures. First, the essential spread-spectrum architecture of third-generation mobile wireless is a sustaining evolution of Qualcomm's originally discontinuous 2G spread-spectrum architecture that leapfrogged TDMA/GSM. Second, Qualcomm's 3G platform contains two additional discontinuous architectures not expected in the long-delayed UMTS platform: (a) data-optimized high data rate architecture, and (b) simplified ZIF-architecture that permitted tightly integrated multimode harmonization. Over time, Qualcomm's mobile wireless complete standardized solutions are a disruptive technology for copper wire line's traditional telephony.
State of the Market:
Where is the TALC in this category? The mobile wireless category is in the chasm between its second- and third-generations.
What approach is required for this position in the TALC? The chasm can only be crossed by a bowling alley strategy focused on meeting the specific needs and priorities of carriers and countries within regional geographies. In general, this relies on augmenting the whole product by offering complete standardized solutions within the basic and expanded Qualcomm platform. The pressing needs are to expand voice capacity, to introduce compelling data solutions, and to harmonize competing standards to grow the overall size of the market. Perhaps, the development of advanced wireless data applications is the single most pressing need because it is a necessary fulcrum to drive data ARPUs and prove the viability of mobile data-packet networks. Qualcomm offers BREW as its solution and as a new source of income. Taken together, a set of end-to-end complete standardized solution for third-generation mobile wireless can ignite a tornado in which all carriers, countries, and regions of the world unite in mass under Qualcomm's embracing banner of a single harmonized third-generation spread-spectrum global mobile wireless network of networks.
Competitive Position:
GAP Analysis:
Does the company have a leadership position in the market? Qualcomm has a leadership position as the innovator of spread spectrum for wireless mobile and the commercializer of CDMA. It has a two-year lead in the rollout of 3G mobile wireless solutions. As yet, it does not have worldwide mindshare or brand leadership, but that tide is turning.
What is it that differentiates the company's product from the competition? CDMA2000 1X doubles voice capacity and offers higher data throughput for lower costs per bit and cost less to install and operate. It is currently available, including an E-911 solution that offers a raft of position locations services. Its high data rate product, 1xEV-DO maximizes optimum data throughputs through the use of an architecture and advanced coding procedures that is both unexcelled as an innovative technology and without any competing products announced or planned. The first members of the MSM6xxx products, including the crucial multimode GSM/GPRS/UMTS MSM6200 [with the high tier MSM6250 announced to segment this market] have sampled early, at least two-three quarters ahead of Nokia's chipset, and production qualities are expected in the second half of 2003. As important, the Qualcomm WCDMA chipset solves interoperability problem in the UMTS standard; plus, and it solves both WCDMA and E-911 position location problems. Qualcomm's ASICs are differentiated by being tightly integrated within a ZIF architectural simplification that permitted tight integration, reduced board-size and BOM, conserved power, and ensured simplified interoperability by using protocol converters and radioOne tranceivers. The MSM6300 overlays 1X atop GSM MAP. The MSM6500 introduces a high data rate solution to the world phone. The MSM6600 introduces a world phone that harmonizes all networks. The 7xxx family of chips, with handset receiver diversity, along with the Selectable Mode Vocoder in the 6xxx family, will redouble the already doubled voice capacity introduced with CDMA2000 1X.
Finally, Qualcomm has strategic architectural control of the proprietary fundamental architecture of spread spectrum. The mature, stable, reliable, predictable, evolving, and expanding multimode multimedia platform of ASICS has the advantage not only of being first-mover commercially but also is more advanced in performance and augmented multimedia features.. Both licensing/royalties and its first-mover advantage in ASICs generate a cash flow that will keep competitors forever playing catch-up to Qualcomm's mastery of R&D and marketing of CDMA networks. In addition, its $1 billion dollar a year cash flow further enables this knowledge company to leverage it CDMA advantage into mobile wireless push-to-talk, vehicle or asset tracking, telematics/telemetry, or data application markets and to broaden its scope across the larger wireless fixed or satellite markets, or into software encryption, compression, voice recognition, and digital imaging markets.
What were the primary factors involved with achieving its position? 1. Superior and unequaled spread spectrum technology. 2. First-mover advantage in spread spectrum ASICs, which are now in their 9th generation. 3. Execution by its engineers in transforming breakthrough ideas into superior products, which are continually incrementally improved and augmented as each new family of ASICs emerges. 4. Customer relationships predicated on creating win-win solutions, which were particularly important when playing its Asia cards that permitted countries to secure a place in selling products into their home markets.
CAP Analysis:
Is the company's position defensible: Qualcomm competitive position is sustained by its strategic architectural control. It is both the innovator and commercializer of the industry's third-generation spread spectrum air interface architecture. Over 2000 U.S. patents and several times as many foreign patents protect its intellectual property. A round of patent-challenges in courts here and abroad have left its claims and patents intact as essential to all forms of mobile wireless spread spectrum. Over 100 telecommunications companies, including all of its direct competitors, have licensed it 3G patents and agreed to pay royalties. These legal contracts confirm it proprietary ownership and demonstrate the significant and substantial economic value of its intellectual property. Mobile wireless carriers face high switching costs, but end-users face moderate switching costs, which are limited to the cost of handsets, any contractual commitments with a carrier, search and transaction costs, or loss of nonreplicable desirable services or features. Lock-in arises when customers, like wireless mobile carriers, make significant investments in durable or complementary assets or in sticky features, like brand-specific training or databases, that require time, money, or hassle to change. Thus, reducing customer's switching costs when you want them to switch to CDMA2000 becomes important, because it is an antidote to lock-in. This is why Qualcomm introduced a multimode strategy that minimizes customer switching costs by harmonizing diverse networks that were formerly incompatible because they used different access modes or bands of spectrum. Because the local handset and local base stations house the brains, which are tightly integrated MSMs and CSMs, Qualcomm simultaneously offers both the best performing and the lowest cost solution. By enlarging the market through harmonization, Qualcomm hopes to gain market share in both GSM and WCDMA markets. Also, minimizing switching costs is the reason that GSM1x makes use of all the back-end operations and features of the in place GSM-MAP, as well as why the use of the MSM6300 permits a set-by-step overlay of crowded cells that most need increased voice capacity. This distributes the costs of switching over time as it increases both subscriber-capacity and ARPUs from the overlaid cell. Over time, it reduces operational and infrastructure costs because universal frequency reuse simplifies network operation and RAN design. Qualcomm's complete standardized solution for GSM/GPRS/UMTS specifically offers a long-term antidote for GSM/WCDMA incompatibilities and for E-911 and position location services. And, better yet its harmonizing multimode and multimedia platform drives network effects that increase economies of demand-side, supply-side, and experience-curve scale that continue to reduce costs and increases margins. However, Qualcomm expects that whomever controls the proprietary standardized solution that adds the most value should be fairly rewarded by its royalty contracts. Total switching costs consist of the costs the customer bears, plus the costs of the new supplier. When a carrier changes its air interface, the carrier-as-a-new-customer of an alternative airlink bears the cost any durable equipment that was owned, but now must be purchased and replaced, plus the cost of any specific operational training of its personnel. In addition, the total switching costs would include the costs that, say, Qualcomm (or a rival) bears as the new supplier who helps place the carrier's end-users into an equivalent position on a new network. This means it is in best interest of both the operator-customer and Qualcomm to reduce the costs of switching. However, what is crucial for the investor to understand is that the intrinsic qualities of a technology are the essential elements that a system architect uses to craft and build a significant difference into the total cost of switching. Over time, it costs less to move to a better information system, but costs more to move to a relatively inferior technology. This is so because "intrinsic qualities of fitness" can be faithfully and operationally translated directly into specific and specified competitive advantages. Strong and sustainable competitive advantages, which are derived from these intrinsic qualities that establish fitness, drive sales, margins, and profits, which translate over the long-term into economic intrinsic value when the set of advantages generated by intrinsic qualities become recognized by investors in an auction market of stocks. Thus, the increased technical and economic value in the new supplier's solutions offsets and amortizes the customer's initial switching costs over time. The ratio of fitness between competitors' whole solutions determines the potential size of the customer's switching costs, new margins, and future profits. Hence, breakthrough ideas are the engines of economic growth.
You may already have understood that switching costs for carriers, for instance, in the switch from GSM to UMTS are not the same as the cost of evolving from cdmaOne to CDMA2000 when using traditional cost analysis. This is easy to grasp from estimated infrastructure costs alone, but also you need to understand that Qualcomm's favorable ratio of competitive advantages from the intrinsic qualities inherent in its strategically controlled architecture magnifies that intrinsic value-difference into a probable future of economic increasing returns from increasing returns to scale.
So, the cost of switching from GSM to GSM1X must also take into account the competitive advantages of increased voice capacity and medium data rates, plus, a potential upgrade to data-optimized high data rates, a reliable roadmap to 3G harmonization and the subsequent ability to roam worldwide, and their potential, when combined together, for scale-magnified synergies to properly value the switching costs borne by a carrier. Thus, the total costs born by the carrier-customer and new suppliers varies directly as a function of the ratio of fitness offered by the two rival's value propositions.
Although this is not yet commonly understood, I believe the competitive advantages of Qualcomm's 3G platform make it less expensive in the long run for GSM-carriers to migrate to it than to UMTS. But also, Qualcomm's same competitive advantages simultaneously increase the outsized switching costs for any CDMA carriers who might switch to UMTS. This also implies that TDMA-companies, like AT&T and Cingular, have made disastrous switching choices. This is so because, in a fair competitive market, future growth is determined by the relative degrees of fitness between two competing standards.
If you are willing to grant the premises that Qualcomm's competitive advantage stimulate positive feedback, and after reaching critical mass, that increasing returns inflect and that decreasing returns become a reciprocal function, then the conclusion that the market will tip to Qualcomm's harmonized 3G solutions would logically follow. Qualcomm's win-win WCDMA-solution for European interoperability, however, blunts the lethality of its competitive dominance.
It becomes a no-regrets decision to go with the winner, and no immediate incentive should entice any carrier to select a technology with potential decreasing returns. This implies that Europe will upgrade predominantly on Qualcomm's WCDMA solution, and that GSM/GPRS/EDGE will eventually wither. It is also a no-regrets decision to want a somewhat smaller piece of a very large market rather than a larger share of a small market. This provides the pragmatic rationale for Qualcomm to help Europe survive these troubled macroeconomic times.
However, all of my premises are not yet widely accepted. Consensus formation depends upon dynamic events still to unfold. And the "consensus process" itself is probably an emergent one. For instance, individuals or carriers make local decision that begin to cumulate as clusters of local decisions, not about tipping per se, but, say, about selecting this or that feature or competitive advantage according to what a reference person said about it. These local decisions cumulate, as they grow they cluster and correlate over time until they become a consensus that is communicated widely. Only then does the market appear to suddenly tip overnight.
The tipping phenomenon is an example of an emergent at a next higher level of self-organization. This emergent is self-organized at the level of the complex system, an economy of correlated and communicating markets, but the emergent consensual market outcome arises from a series of individual decisions made by lower level participants--customers, suppliers, complementors, and competitor-partners--about simpler matters.
This is so just as a swarm of bees is an emergent from many individual bees who do not have the capacities to plan and coordinate a switch to a new hive-location in which they are unknowingly participating by making local decisions. Bees use far simpler rules to make everyday run of the mill bee decisions that after achieving critical mass inflect the scale, creating a phase transition from individual to mass action. These mass actions become self- (or hive-mind-) organized within the growing swarm that is traveling to some new destination that no single bee has planned or directs. This self-organizing emergent at a higher level, which demonstrates a suddenly correlated and coordinated mass action, is what makes it appear that the swarm acts as if it contained an "actual hive mind."
The Queen bee, in spite of her lofty title, does not direct the mighty swarm; she is simply the passive captive of the simple rules that prescribe her reproductive duties. Just as the worker bees follow the simple set of rules that are genetically duplicated in each of them. It is only as the forming swarm correlates its cluster of excited and communicating bees into an activated swarm that "spins-in-unison" that suddenly, at the point of phase transition, self-organizes the movement of the Queen and swarm to its new hive.
Unbounded residual uncertainty makes it difficult to forecast the eventual size of the market. Whereas, bounded residual uncertainty, from 20% by extending 2G trend lines, to 80% assuming a 2G-3G reversal of market leadership, to a scenario of winner-takes-all, makes it difficult to forecast any player's share of the total return. Forecasting Qualcomm's share of market also depends on the correct definition of its category. Its category is almost certainly includes mobile wireless voice, but how much of the data application market to include is probably a bounded range, a Level 3 residual uncertainty. Whereas the potential for wireless Internet is probably still Level 4, too early to realistically bound either the market size or share.
If Qualcomm is a star-node, then it will become, at a minimum, an anomalously large hub or, at a maximum, a temporary monopolistic winner-take-all hub within a slowly decaying power distribution curve that permits exceptional anomalous and outsized returns. If Qualcomm proves to be a large hub in a fit-get-rich market, its share will still be anomalous but smaller and proportionate to its favorable ratio of fitness relative to its nearest competitor's less favorable ratio of fitness. A standards contest, in contrast to product contests, usually results in monopolistic returns. However, a harmonizing strategy permits a win-win outcome rather than a zero-sum game. For example, if Nokia stops producing WCDMA chipset, it can adapt by using Qualcomm's multimode ASICs and still reap advantages from a more rapidly baked and larger pie, given the worldwide build out of seamless 3G networks.
You decide when and whether you bet or not. If you bet, then you pick your choice, pay your money, and take your chances with each and all-residual uncertainties until time passes and clarifies one or more of them. If you have made the best possible analysis, you can do better than the average person who does not have your advantaged information. You are forewarned, however, that everyone expects his or her bet to win, but most of us lose. Necessity and chance make an odd couple.
Simply put, Qualcomm's competitive position is not only defensible, but grows continually stronger because of its strategic architectural control of third-generation spread-spectrum technology that meets the criteria of proprietary, but openly licensed, architectural control with high switching costs.
Is the company's strategy consistent with the needs of its customers? Generally, yes. Qualcomm is dedicated to offering end-to-end complete standardized solutions. Such a strategy is generally consistent with meeting customer's needs, with this exception. To the extent that Qualcomm seeks a standardized solution, it imposes some elements of its platform on carriers as pull-through from selecting the platform itself. The emphasis on end-to-end and complete may also include specific elements that an operator hopes to control to gain differentiation as its competitive advantage. For instance, if an operator wanted to develop a suite of business applications internally for differentiation from a competitor who also uses CDMA, then BREW and its BDS might undermine that plan by offering a suite developed by an ISV operating in another region that adequately meets the customer's need. The carrier would control his own selection of choices from the virtual marketplace, but not those of his competitors in a harmonized market. Nonetheless, developing complete standardized solutions also serves a star-node's means of controlling a value web as it grows a large and seamless market, which should benefit all members in direct proportion to their individual value added.
How significant is the potential threat from the Big 4 (IBM, Microsoft, Intel, and Cisco)? Not very, because the Big 4 have integrated learning bases based on technical and functional capabilities that center on computers or linking computers rather than on communications or mobile wireless telecommunications. Intel has already withdrawn from cdmaOne competition, but may introduce a WCDMA chip since it is using one to test it 90-nm technology on SiGe. Microsoft has left the Wireless Knowledge JV with Qualcomm, but also seems to want to make entry into the device market. IBM is a supplier of foundry services. Cisco has WiFi wireless Internet interests that appear to be complementary. Of course, any or all of these companies could combine in a "Project Devil" to attempt to disrupt almost any competitor, but mobile wireless appears to be beyond their chosen scope, and Qualcomm control the RF architecture.
Is there a disruptive threat on the horizon? For a Qualcomm bull, no recognizable threat is in sight. Unfortunately, disruptions are like a knockout punch, you never see it coming. But, for Qualcomm bears or people with better long-range vision or more acute hearing than mine, perhaps, the rockets red glow is on the far horizon or distant drums may be sounding. With Level 3's bounded residual uncertainty, and based upon an expected wireless generational lifetime, I foresee Qualcomm shaping the future of mobile wireless telecommunication for 15-20 years.
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