Firm’s Technology Could Herald New Generation of Cellular Phones
When comic strip hero Dick Tracy needed to call the police chief, he never bothered rifling through his pockets for loose change. The famous detective simply pushed a few buttons on his two-way wrist radio and, voila , he had headquarters on the line.
The comic strip’s creators could not have known just how sophisticated telephone communications would become in the 1990s. But a young San Diego telecommunications company is developing technology that some say will herald a new generation of cellular telephones that could make Dick Tracy-like communication affordable to the masses.
Pacific Communication Sciences in Sorrento Valley is working on a digital voice processor that could allow cellular service providers to squeeze more conversations onto the already crowded cellular radio waves and thereby bring down the cost of owning and using portable and mobile phones.
The 70-employee company, founded in 1987, is by no means the only one working on digital technology. But it achieved a major coup earlier this month when it landed a $2-million contract with Uniden America, the U.S. subsidiary of Uniden Japan, one of the world’s largest cellular phone manufacturers. The contract calls for Pacific Communication Sciences to create an integrated circuit-based voice processor that will go inside Uniden’s new digital cellular phone.
If successful, the contract could give Pacific Communication Sciences a strategic connection to industry leader Uniden and lead to millions of dollars in business, either from licensing its technology or manufacturing components, said Michael L. Lubin, executive vice president and co-founder.
The technological leap the cellular phone may soon take would improve service, increase capacity and eventually make the expensive device affordable to a much broader market, engineers and industry analysts say. The advance involves a digital voice-processing technology that is much more efficient than the analog-based system now used in cellular phones.
“Digital is the wave of the future,” said telecommunications analyst Fred Moran of Moran & Associates in Greenwich, Conn. “The costs (of cellular phones and service) would come down even without it, but, with digital, they will be able to provide services to everyone. Eventually, they’ll all be digital.”
The $2.5-billion cellular telephone industry nationwide is expected to expand substantially when the price of owning and operating a cellular phone comes down. The number of cellular phone subscribers, now estimated at about 3.5 million nationwide, is expected to grow to as many as 20 million by 1995, according to a study by Herschel Shosteck Associates in Silver Spring, Md.
The development of digital technology is key to being able to put that many people on the system, Shosteck said. Any company that wants to stay in the cellular industry is looking toward the digital revolution, he said. But the number of companies with the technical competence to make that transition is surprisingly small, he added.
“You have an analogy with what happened to long-distance and international rates when (U.S.) Sprint came onto the market with optic fiber cable,” Shosteck said. “Today, people use the long-distance network 10 times more, and carriers have had a fourfold increase in revenue.”
As a result of the new technology, cellular phone users in major metropolitan areas will be less likely to get busy signals when trying to make a cellular call during peak hours. The new telephones, which eventually will require a complete revamping of the costly cellular ground systems now in place, could be available for sale as early as 1991.
“I think what you’re seeing is the first step toward true personal communications, meaning that your telephone can accompany you wherever you want to go,” said David Lyon, president of Pacific Communication Sciences. “What market researchers tell us is that once any of the system manufacturers add digital, almost all of the (cellular phone service providers) will demand to add this capacity. It will have an avalanche effect.”
For now, the cost of cellular phone service is beyond the reach of most people. Local providers charge their customers 40 cents a minute during weekday peak hours. That rate, combined with a $35-a-month service charge, means a typical customer ends up paying more than $100 a month.
The price of cellular phones, however, has dropped significantly. In 1983, the lowest-priced phone cost $2,600, Shosteck said. Six years later, the same phone costs about $525.
Cutting the high cost of cellular phones was one of the challenges that spurred five ex-M/A-COM Linkabit engineers to found Pacific Communication Sciences in April, 1987. When M/A-COM’s telecommunications division decided to sell off a satellite project the engineers had helped develop from scratch, they decided to leave and start their own business.
“When it became clear we didn’t know where our future was going, we decided we wanted a little more control over our destiny,” Lyon said.
The five founders put in about $1.5 million of their own money and since have raised about $8 million in venture capital to get the business off the ground. Advancing previous innovations at M/A-COM Linkabit, the company soon established a reputation as a leader in quality voice-compression technology, a key aspect of digital communication.
That technology went into the creation of Clarity, a digital communication system made by Pacific Communication Sciences that cuts the costs of interoffice communications for corporations with overseas offices.
The company’s technology also won for the company a soon-to-be-announced contract with the U.S. government to create a scrambling system that would make public safety radio channels invulnerable to eavesdropping.
Pacific Communication Sciences’ revenue is now running at an annualized rate of $6 million, mostly from sales of Clarity, Lubin said. The company projects its 1990 revenue at $8 million to $10 million.
The Uniden contract, announced Jan. 3, represents just a fraction of Pacific Communication’s existing business, but could mean millions of dollars in future sales, Lubin said. Heading the Uniden project is George M. Peponides, an electrical engineer who joined the company after working at Hughes Network Systems for five years.
The contract is strictly for research and development, and the terms and conditions of supplying the digital components that may be developed have yet to be worked out, Lubin said. But, according to Tom Kawada, executive vice president of Uniden America, the company will probably buy the rights to the digital component from Pacific Communication Sciences and manufacture it at Uniden’s Ft. Worth plant.
The new phone, which will first be created for the car phone market, will be more expensive to manufacture than current models, but those costs probably will not be passed on to the consumer, Kawada said, adding: “It’s kind of a funny market. Right now, we sell our phones to the service providers for $450. But they typically sell them for $299. The telephone company gives rebates to the retailer.”
