Not precisely on topic but interesting about a competitor (CDMA no less):
Network Defects Imperil Motorola
As Clients Begin Canceling Deals
By JOHN J. KELLER and QUENTIN HARDY
Staff Reporters of THE WALL STREET JOURNAL
Motorola Inc. is struggling to correct defects in its cellular-network equipment and software that are crippling its expansion into new wireless systems and have already led one major customer to cancel its order.
Executives close to the company said PrimeCo Personal Communications L.P. -- the wireless-phone service owned by Bell Atlantic Corp., U S West Inc. and AirTouch Communications -- has canceled its $500 million contract and will replace almost all its Motorola gear with equipment and software from rival supplier Lucent Technologies Inc. PrimeCo's decision could be announced as early as next week, the executives said.
Motorola's problems supplying systems for so-called personal communication services, or PCS, networks could seriously damage its credibility as a leading provider of network equipment and software world-wide. Once the market leader in wireless systems, Motorola's share has fallen dramatically in the last couple of years, to just over 15% of all cellular systems sold and installed world-wide from more than 25%, according to industry executives.
At the same time, rivals such as Lucent, Sweden's Telefon AB L.M. Ericsson and aggressive Northern Telecom Ltd. of Canada have made considerable gains.
The fallout of Motorola's setback with PrimeCo could be huge. The company has $3.5 billion in orders to supply two carriers in the crucial Japanese market with the same kind of gear as PrimeCo was getting. Sprint Corp. -- the nation's largest provider of the new PCS services, an advanced cellular offering -- is also scheduled to receive a giant shipment of equipment and software from Motorola that has been valued at between $700 million and $1.4 billion. Sprint officials weren't available for comment.
Ordering a manufacturer to pull out systems is a rare occurrence in the phone industry, where most suppliers are scrutinized and their equipment rigorously tested before the system is cleared to be "cut over" to handle regular traffic. The phone industry, particularly companies with Bell ties such as PrimeCo, view catastrophic outages as inexcusable. Phone networks rarely go down. Bell networks are engineered to provide greater than 99% reliability, and employ far more fail-safe mechanisms than most computer operations.
Use of CDMA
The Motorola gear uses a new digital-software scheme called CDMA to transmit and route calls in digital code. The CDMA transmission design is considered state-of-the-art and one to which numerous carriers have been moving. But executives said PrimeCo had suffered more than 100 network failures in the last year before moving to pull the plug on Motorola.
A Motorola spokesman declined to comment specifically on the impending PrimeCo cutoff or to address Motorola's problems with equipment and software. He did say that "PrimeCo is a valued customer today, and we expect them to remain a valued customer for the foreseeable future." PrimeCo Vice President of Engineering Limond Grindstaff declined to comment. Lucent officials wouldn't comment. The company already is a large supplier of equipment to PrimeCo.
Like many companies that began supplying the phone industry when it was using simple analog technology, Motorola has had a tough time crossing over into the digital world. In CDMA gear alone, it has already spent more than $1 billion. Unlike big rivals like Lucent, which enjoys the technical backing of Bell Laboratories, Motorola still lacks its own digital switch and software.
Motorola has also failed in its efforts to move the industry toward common standards that would have improved its position in network gear. And it is last among major suppliers in delivering a CDMA phone to the market. Its phones geared toward the European digital market were also late and plagued by software glitches, service providers said. These are stunning reversals for the company that once showed Japan Inc. that it could be licked in the phone wars.
Management Shuffle
Executives said the problems became so severe in the last year that Motorola has shuffled its technical management team at the unit several times. But apparently the turnover has done little good.
The problems with the PrimeCo network were traced to equipment and software in a vital system that directs the cellular phone network system to hand off calls to successive cell sites as a caller moves. Called a centralized base station controller, the system is highly intelligent and serves as the critical connecting system between callers and the cellular network switch. That switch in turn allows callers to interact with other cellular callers as well as those on the regular public phone network.
The executives close to Motorola said things had gotten so bad in 1997 that Motorola had to pay PrimeCo more than $100 million in penalty fees for the breakdowns. Motorola's spokesman wouldn't comment.
In one embarrassing confrontation last summer, then-PrimeCo chief executive Ben Scott met with Motorola's brass, including group chief Jack Scanlon, at Motorola's headquarters outside Chicago. During the meeting, PrimeCo's network in Chicago went down, cutting off phone callers across the Chicago area, said one executive. Motorola's spokesman declined to comment on the episode.
Executives said the seeds for Motorola's current predicament were sown in the late 1980s. Motorola had more radio-frequency expertise than any supplier, a position that helped it tremendously in the early days of cellular-phone service. But by the 1990s, as networks became more sophisticated, Motorola's Achilles' heel was exposed: It lacked big switching systems and software such as Lucent and Nortel. For years Motorola executives have talked about the company's need for greater competence in software, but the PrimeCo problems show that they haven't yet succeeded.
In 1990 Motorola began losing phone-company customers because it lacked big switches that could handle sophisticated metropolitan networks with millions of customers and software for managing traffic, routing calls and digital messages. Companies such as GTE Corp. and Southwestern Bell Corp., now SBC Communications Inc., pulled out Motorola gear and gave their orders to rivals such as AT&T Corp. and its successor Lucent, and Nortel.
In just the last three years Lucent has captured the U.S. leadership position in CDMA gear, where it now has more than 60% of the market. Nortel has built a $3.5 billion-a-year wireless business almost from scratch during the same period.
Motorola still lacks a big switch. It failed a couple of years ago to complete an alliance with Nortel, which would have provided the necessary hardware and software. Nortel simply beefed up its own radio assets instead, and Lucent has refused to marry its flagship 5ESS switch to Motorola gear. Today Motorola still sells a vastly less powerful system from DSC Communications Inc. as its main switch.
Where it can, Motorola bids to supply everything but the switch. However, Motorola's competitors such as Lucent don't have any incentive to work with Motorola on a project, since rivals can supply the entire network on their own, including radios, base-station controllers and switches, executives said. |
