Down to the Wireless : Stakes High as Rivals Race to Provide Next Generation of Cellular Gear

After years of posturing and rhetoric, a high-stakes battle over standards for a new generation of wireless communications services is finally moving to the marketplace.

In one corner is San Diego-based Qualcomm Inc., which together with partners Sony Corp., Northern Telecom Inc. and others is betting that a revolutionary digital technology will dramatically increase the capacity and quality of mobile calls--and facilitate a host of new services over telephone handsets.

Arrayed against them are AT&T; Corp., Ericsson of Sweden, Pacific Bell and other companies promoting less radical but much better-proven digital methods. To the winner will go literally billions of dollars in business as communications companies move both to upgrade their existing cellular systems and to build entirely new wireless networks for so-called personal communications services, or PCS.

After a yearlong delay, the first U.S. wireless service featuring the Qualcomm technology, known as code division multiple access, or CDMA, was rolled out by AirTouch Communications in Los Angeles last week. The service will be offered only to selected business customers at first, but the entire industry will be watching to see how Qualcomm’s controversial technology fares.

Also committed to CDMA are about half of the major telecommunications firms that have paid $7 billion for PCS licenses at a federal auction last year. Those companies include Sprint Corp., Primeco (a joint venture of Nynex Corp., AirTouch, Bell Atlantic Corp. and US West Inc.) and Ameritech Corp. All plan seamless nationwide PCS “footprints” giving callers coast-to-coast service with just one telephone number.

Earlier this month, a San Diego company called Nextwave, whose investors include Qualcomm as well as Japanese and Korean electronics and telecommunications giants, bid more than $4 billion to win the bulk of a special “entrepreneurs block” of PCS licenses auctioned by the Federal Communications Commission. With those in hand, Nextwave will try to blanket 40% of the country with CDMA-based wireless systems.

Yet for all the fanfare and billions of dollars being thrown at CDMA, there are legions of detractors who say Qualcomm’s system is hopelessly complex and will never live up to its billing. Those critics point out that CDMA has never fully proven itself in a large metropolitan setting.

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The only broad-based CDMA cellular system now in operation is in Hong Kong, where the subscriber base of 20,000 is too small to test whether it can work in a major city, said Rakesh Sood, a communications technology analyst at Hambrecht & Quist in San Francisco.

“You have to get to the hundreds-of-thousands-to-1-million range to get an even better flavor for the technology and how well it works,” Sood said.

Qualcomm and its rivals are aiming to solve a common problem: Nearly all urban providers of cellular telephone service have become hostages to their own success. They simply do not have enough space on their assigned airwaves to accommodate the mushrooming demand.

Available to U.S. consumers only since 1983, cellular telephone subscriptions grew to 33.8 million last year, for a one-year gain of 9.6 million users--a staggering 40% jump. Bullish industry analysts such as John B. Ledahl of Dataquest Inc. in San Jose are predicting the user base will triple to 90 million by decade’s end as costs come down and more wireless services are offered.

But symptoms of the maxed-out caller capacity abound: Interference, dropped calls and busy signals increasingly frustrate mobile phone users, particularly in big cities.

To expand capacity, communications companies are racing to develop digital cellular technology, which uses more compact radio wave signals, to replace frequency-hogging analog signals that are difficult to shield from interference. For the new PCS systems, the digital technology will also make it possible to offer new services such as two-way paging and other forms of data communications.

CDMA works by breaking the data stream of a phone call into discrete digital bits and assigning each of them a code that’s identifiable only to the recipient. The coding makes the calls pirate-proof and allows many calls to be sent simultaneously over the same channel, thus promising to increase capacity by six to 20 times over that of existing analog cellular systems.

Qualcomm’s main rival is time division multiple access, or TDMA, a way of sending three voice conversations on one channel by dividing the conversations into discrete segments. The biggest proponent is Ericsson, the global leader in cellular equipment, and a TDMA-based cellular service is already available in several states through AT&T.;

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Then there is GSM, or global system for mobile communications, the European digital standard developed by using a variation of TDMA technology. Pacific Bell Mobile Services will launch the second-ever GSM system in the United States this summer at the Republican National Convention in San Diego.

There is still no consensus on how this complicated battle will play out. Dataquest’s Ledahl said Qualcomm has already “won the wireless war” and that CDMA will be the basis for nearly half of all next-generation cellular service now on the drawing board.

On the other side of the aisle is Bruce B. Lusignan, professor of electrical engineering and director of the communications satellite planning center at Stanford University, who contends that CDMA technology is actually something of a hoax and will ultimately result in a loss of capacity compared with the gains offered by other digital signaling methods.

“The basic problem is that it does not have anywhere near adequate protection from the fading that the other techniques all have,” said Lusignan, who said his lab has been studying the underlying technology, known as spread spectrum, for 20 years. “That makes it completely inadequate to achieve the type of capacities that they have been advertising.”

The repeated delays in getting the AirTouch CDMA system up and running have supported critics’ contention that Qualcomm has long oversold the potential of CDMA. The company’s stock price has been on a roller coaster for several years as investors try to sort out wildly divergent claims about the highly complex technology.

But Qualcomm remains confident. Company President Harvey P. White dismisses the criticism of Lusignan and “the three or four other naysayers” as “not in the mainstream of what everyone else is doing. Do they think these other carriers who have committed all this money and licenses to CDMA are stupid?”

Qualcomm was founded in 1985 by two former computer science professors, Irwin Jacobs and Andrew Viterbi, who had already built a highly successful satellite communications company called Linkabit.

Qualcomm’s first burst of growth was fueled by its satellite-based truck fleet tracking system, called Omnitracs. It’s also had success with Eudora, its popular Internet software program.

But wireless is clearly the big score: With nearly 5,000 employees already, Qualcomm is hiring 200 new workers a month and says it has 700 openings it can’t fill. The company has formed joint ventures with Sony to manufacture wireless handsets and with Northern Telecom to make “bay stations,” or cells to receive and relay mobile communications.

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Even CDMA’s skeptics acknowledge that Jacobs and Viterbi are bona fide pioneers in the world of digital communications. They developed a digital technology that shielded communications between Strategic Air Command bombers and ground control from eavesdropping, as well as the satellite data-encryption technology now used by satellite cable TV programmers to keep home dish owners from pirating programs.

Linkabit, Qualcomm and the companies they have spawned--former employees have started at least 20 other companies, including Pacific Communication Sciences Inc., with 500 workers, and Comstream, with 450--have played a central role in the creation of about 10,000 telecommunications jobs in San Diego since 1990.

And if CDMA works, the future looks rosy indeed for Qualcomm and its partners. But with wireless network contracts that Dataquest estimates to be worth more than $15 billion in play over the next couple of years, the consequences of failure can hardly be overstated.

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A Capacity for Discourse

Two competing digital technologies are vying for supremacy in the coming generation of wireless communications systems. Both seek to address a crucial problem: how to increase capacity on existing cellular systems and on forthcoming personal communications services networks.

Code Division Multiple Access

CDMA, rather than dividing conversations along narrow individual channels, utilizes a broad channel within which a larger number of simultaneous conversations can occur. Each conversation is assigned a unique and random code known only to the recipient, making it impervious to intruders. Proponents liken the system to a crowded room with 20 conversations going on at once, with listeners able to “tune out” the unwanted noise by means of coding. The system, developed by Qualcomm, purports to offer six to 20 times more capacity than an AMPS system (see below). It is largely unproven in a metropolitan setting. The system was introduced to a small number of business customers by AirTouch last week.

Time Division Multiple Access:

TDMA takes three simultaneous voice conversations, divides them into chunks of digital data, then intersperses them along a single 30-megahertz voice channel--seamlessly reassembling them into individual conversations at the other end. The technology, developed by Ericsson of Sweden, could thus triple the capacity of current analog cellular phone systems based on the American Mobile Phone Standard (AMPS).

Source: Dataquest Inc.