Rethink's Caroline Gabriel on QUALCOMM and Flarion
>> Qualcomm Strengthens its OFDM Hand with Flarion Buy
Caroline Gabriel
Research Director
Rethink Research Associates
WiMAX Trends
August 17, 2005
wimaxtrends.com
We have always seen Qualcomm and Flarion as a perfect match as the world moves towards a fourth wireless generation based on OFDM technology and all-IP. Both are companies that have resisted joining the industry mainstream and have sought to establish their technologies as de facto standards; both have their roots in engineering excellence; and both aim to create an alternative to the upcoming WiMAX 801.16e in the mobile broadband market. Therefore it comes as little surprise that the larger company has agreed to acquire the smaller one this week, though the price was more of a shock – about $600m for a vendor with about $28m of revenue, with a potential further $200m based on performance. This shows the value of strong technology and intellectual property – rather than established revenues - in this sector, especially to Qualcomm, which has built its fortunes on both.
The CDMA giant has been accumulating its own OFDM patents and developments in recent years, recognizing that all the main wireless platforms will migrate over time to an OFDM or hybrid OFDM/CDMA base in order to support ever growing requirements for data rate and bandwidth. It has created its first OFDM-based product, the FLO architecture for mobile broadcasting, on which it is basing its national MediaFLO television delivery network in the US. And it was understood to be interested in acquiring Wi-Lan, one of the major OFDM patent holders in the WiMAX camp.
Flarion is a stronger option for Qualcomm because of its highly respected engineering roots and its cultural similarities. It is a combination that will concern some of the WiMAX community by stepping up the chipmaker’s potential to challenge 802.16 as the carrier option of choice for 4G. Incorporating Flarion’s Flash-OFDM and FlexBand technologies into the Qulacomm arsenal will accelerate its creation of its own OFDM platform and strengthen its ability to keep the CDMA operators and their equipment suppliers loyal with a robust migration path. It will be able to offer them several phases in a ‘3.5G’ CDMA roadmap, including EV-DO Rev A, just rolling out with full IP support; and the planned Scalable Bandwidth update, which will support broad channels where these are available, putting EV-DO on to a more level playing field with broadband wireless networks. In parallel, it will provide an OFDM network that can be run by an operator as a second system for offloading high bandwidth applications such as television (as it has already done with FLO). In addition, the combination of Flash-OFDM and CDMA2000 will span a large variety of spectrum options (though no license-exempt choices as WiMAX has), including the sub-1GHz frequencies coveted by the WiMAX community for their excellent propagation characteristics. Qualcomm owns the national 700MHz license itself, and both CDMA and Flash-OFDM can run in 450MHz, a band of particular value for cost effective coverage of rural areas with sparse population.
Paul Jacobs, Qualcomm’s new CEO, positioned the combined technologies: "With this acquisition, Qualcomm will be in a stronger position to support advanced development in both CDMA and OFDMA technologies. We believe CDMA will provide the most advanced, spectrally efficient wide area wireless networks for the foreseeable future, but with Flarion we can now more effectively support operators who prefer an OFDMA or hybrid OFDM/CDMA track for differentiating their services."
All this could shut the CDMA world off from adopting WiMAX as a parallel system or future migration path to 4G. Even more worrying for 802.16 supporters, and for all mobile chipmakers, is that this is another step in Qualcomm’s bid to dominate not just its CDMA heartland but the whole 3.5G and 4G picture. Broadcom’s recently launched antitrust lawsuit highlighted the fear that Qualcomm engenders in the GSM community, now that its patents are at the base of the W-CDMA 3G platform adopted by that side of the mobile market. GSM chip companies claim Qualcomm will use its intellectual property strength to pressurize equipment makers into buying its W-CDMA chips too. With OFDM patents under its belt too, Qualcomm could stretch its influence and its chip sales still further, and maintain its powerful position even as the market shifts towards OFDM and away from CDMA.
This could provide a highly competitive platform for WiMAX. Flash-OFDM was often a step ahead of 802.16e, for instance with its plans to have a laptop card by the end of this year and a handset a year later, but it failed to gain the large vendor support to make it a mainstream option. It has several high profile operator trials, such as those with T-Mobile in the Netherlands and Vodafone in Japan, which are very good for credibility, but its only big OEM is Siemens, and that deal is specific to the 450MHz band. Now, with Qualcomm’s R&D budget, engineering resources and market contacts, it has the chance to accelerate its roadmap and gain real influence, potentially as a threat to WiMAX.
On the other hand, though, Qualcomm’s move could increase support for 802.16 in some quarters. Vendors and operators that wish to support a platform that does not involve heavy royalties to Qualcomm may make a firmer commitment to WiMAX than they have done before. This reaction will be particularly clear in Korea, ironically the country that originally made Qualcomm’s fortune when it was, itself, the brave young pretender in the market. The support of Korean operators and Samsung was critical to CDMA’s early adoption, but recently these influential companies have looked to reduce their royalty burden to western companies in general, and Qualcomm in particular. First they switched allegiance from Qualcomm’s Brew software download platform to the homegrown alternative WIPI, and now they are launching their pre-WiMAX mobile broadband network, Wi-Bro, a year ahead of the rest of the world, limiting their need to keep expanding their CDMA systems for the full range of high bandwidth applications.
And Qualcomm will be looking for intellectual property dominance as well as strong chip sales in the OFDM market as it evolves, protecting itself from the price pressures of basing a business only on silicon. Steve Altman, Qualcomm's president, said: "The acquisition of Flarion establishes Qualcomm as a pre-eminent developer of emerging OFDMA technologies, enhances our internal OFDMA developments and, when combined with our existing portfolio, results in our owning an industry leading OFDMA intellectual property portfolio."
Under the terms of the acquisition, Qualcomm said it will issue about $267m in stock, assume existing Flarion options and warrants of about $128m, and pay a total of $205m in cash. Qualcomm also said it would take a hit of around three cents per share in its fiscal year ending September 2006 due to the transaction.
In February, Flarion upgraded its technology with the ‘Flexband’ enhancement, targeted at wireless triple play with data rates 2-3 times higher than previous Flash-OFDM systems, and a claim to support hundreds of users per base station consuming 1Gbyte of data per month, at a cost to the operator of just $10 per month.
According to Flarion, a single 1.25MHz Flexband carrier sector will deliver peak data rates of 5.3Mbps downstream and 1.8Mbps upstream, with 2.5Mbps of real throughput, up to 6Mbps at 5GHz. In a fully supported 5MHz Flexband multi-carrier system, voice calls increase to 186 per sector and data rates increase to 15.9Mbps peak and 6Mbps sustainable, supporting over 600 subscribers consuming 1GByte of data per month. Base stations support three signals per sector and three sectors per box. Flexband also improves coverage at the edge of the cell by three to four times (up to 800Kbps), according to the company.
The improved performance is achieved by using a new system called BeaconTone. This monitors interference between the sub-signals into which OFDM splits a wideband radio signal in order to transmit more quickly and cleanly. It then chooses the best possible transmission path in real time. (Current Flash-OFDM users will need a software upgrade, and those who purchased base stations before mid-2004 will require “minor hardware updates”.)
About the Author: Caroline Gabriel is Research Director of Rethink Research Associates and Editor of WiMAX Watch, a newsletter providing in-depth analysis of the WiMAX market. She is a featured columnist for Trendsmedia's WiMAX Trends, and is a leading industry analyst on wireless and wireless broadband technologies. She recently authored WiMAX Business Models 2004-2007: How to Make Money in WiMAX, published in the US/Canada by Trendsmedia. For further information, email info@trendsmedia.com -- Copyright © 2005 by Rethink Research. <<
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