Moving the bases: InterDigital sees brave new world in TDD and FDD
Once a broadband fixed wireless player, InterDigital has reinvented itself as a core technology provider. Comparisons to Qualcomm are obvious, but chief operating officer Charles Rip Tilden tells global technology editor John C. Tanner, how InterDigital differs
Wireless Asia: How is InterDigital doing financially since it shifted gears to concentrate on licensing?
Charles Rip Tilden: The company's actually doing quite well. We're in better financial shape, and we've been healthy for a long time, but we're healthier than ever. The balance sheet's in very strong shape with more than $90 million and essentially no debt. We just announced our results for 2001, which was our fourth consecutive year of positive cashflow thanks to the strength of our licensing programs, so things are going in the right direction. We also announced in January additional licensing agreements with NEC and JRC in Japan, which are 3G related and will generate another $75 million in cash guaranteed over the next couple of years. On top of that, from those 3G relationships we'll get ongoing 3G royalties as both companies sell product - not only from NEC and JRC, but also, in terms of 3G licensing, from Panasonic and Sharp, who we signed up as 3G licensees in the latter half of 2001.
How about 2G technology licensing?
The 2G piece is robust, and we have about 25 or 30 licensees there. A year ago, I said I expected we would begin to build momentum in 3G first on the licensing front, and sure enough, a year later, that's exactly what we've done. We're not done yet, but the ball is beginning to roll. We've got four early adopters now on the 3G side, which is encouraging. From a financial standpoint, it means future cashflow, which we can use to fund our growth.
Exactly what sorts of equipment can your technology be used for?
We're building W-CDMA technology for 3G products to be incorporated into mobile devices as well as infrastructure. Handsets, PDAs, laptops, you name it, and the base stations that support them. It's core air interface technology, typically referred to as Layer 1, which is the physical layer of the chip, and Layer 2/3 which is the software protocol stack that drive the ability of a mobile device to send and receive signals, which in 3G will be voice plus data. That's what we're developing - both FDD and TDD.
In fact, one of the differentiators for us is that we're working on the full W-CDMA solution. Very few companies in the industry are developing a full FDD protocol stack as well as the full TDD solution. We're designing both of those pieces of W-CDMA to be integrated seamlessly with each other, which means for you and me, when we pick up a mobile phone and use it in a 3G network, you'll never know the difference whether it's using TDD or FDD. But the operator will know, and he will care, because when you combine the two technologies, you get the most efficient use of spectrum, and that means more users on the network at any given point in time, and better revenue opportunities.
On the FDD side, we're doing base station chips that will operate in macro and micro base stations, and multi-mode GSM/GPRS FDD software. We're demonstrating that now operating on a target platform, which is the Infineon M-GOLD chip, which is going to be their main standardized [baseband] IC in the 3G product market. On the TDD side, we're developing micro and pico base station ASICs, and all the reference designs and software that goes with it, radio network software to control the radio transmission and the behavior of the radio network, and terminal chips - first a bolt-on chip, which will be a tiny little chip designed to bolt on to an FDD GSM chip inside a mobile terminal that will give that device TDD capability as well as FDD GSM/GPRS capability. And then [we're developing] a multi-mode chip that would be TDD fully integrated into one piece of silicon with FDD GSM/GPRS. So we're in the midst right now of completing the core software work here and moving it to product. It's not theoretical - it's real technology that equipment manufacturers can use now to produce TDD products.
Is all of this InterDigital's in-house technology, or is some of the CDMA technology licensed from Qualcomm?
Yes and no. We don't have any special licensing agreement with Qualcomm, but the FDD side is part of our joint work with Infineon, so there's cross-licensing. On the TDD side, it's a different story. We started on that, and worked our way back to FDD. On the TDD side, we're developing the full air interface solution on our own. It's being funded - at least a substantial proportion of it - by Nokia. In fact, by the end of our project with Nokia, Nokia will have invested about $58 million in the development of TDD air interface technology. Our team is doing all of that work, fully outsourced by Nokia, which is unusual for Nokia, but they liked our capability and they asked us to do the TDD development. We are delivering to Nokia TDD software and virtual designs for chips, but not a finished chip - just the software. Nokia can then use it in their products any way they wish, but we retain the ownership and the intellectual property. That gives us the right to use it with others in the industry. And we can deliver it in software form or hardware form.
The FDD work is a joint development project with Infineon. There's a group of engineers from Comneon, which is a full subsidiary of Infineon - and a group of InterDigital engineers working as a team to develop the Layer 2/3 software protocol stack for FDD, which Infineon will then put on their chip. We have the opportunity to sell it as a separate software product independent of Infineon - we can also sell it jointly with Infineon. We also have the opportunity to sell the chips and the software embedded on it, and that's activity that Infineon will undertake. We also get something else out of this relationship, which is access to Infineon's additional library of technologies - GSM, GPRS, Bluetooth, global positioning - all the things one would want in a 3G chip. We have the opportunity, if we choose to, to develop custom chips for custom terminal applications using Infineon's technology and foundry. So it's a full strategic partnership. In that case, there's intellectual property both companies bring to the partnership, and we have a cross-licensing agreement with each other for the software that will go on the chip.
Do you see your position in the market as an alternative to Qualcomm?
Well, our business models are fairly similar. Obviously Qualcomm's much larger than we are. We have a lot of admiration for them. Heck, I'd love to capture just a fraction of Qualcomm's market value. But there are some differences too, and one of the main differences is we're developing TDD technology that Qualcomm does not have, and which we believe, as the 3G market matures, will become very attractive because it's designed to provide very efficient asymmetric transmission of data. In most wireless applications, wireless data will be asymmetric, and that's exactly what TDD does beautifully. So that differentiates us - that and the fact that we've designed FDD and TDD that operates seamlessly.
One of the things we've learned is that it's a far more interesting and attractive value proposition to an equipment producer to offer product solutions, not just require licensing. So I think one of the value propositions that we have is the fact that we can bring technology that will enable their products to get to market faster, and we help them keep their costs down by delivering finished solutions that they can plug in to their products.
Is your TDD technology based on the UTRA TDD standard under IMT-2000?
Yes. In fact, under the program funded by Nokia, we are developing is UTRA TDD, typically referred to as wideband TDD - that's the TDD that is designed to operate in that 5 MHz band unpaired in virtually 90% of the licenses that have been granted.
InterDigital also recently joined the TD-SCDMA Forum. How big a leap is that from UTRA TDD?
About 70% to 75% of the core technology that we're developing for wideband TDD also applies to TD-SCDMA, which is sometimes also referred to as narrowband TDD or low chip rate TDD. So our capability to deliver a TD-SCDMA solution is quite strong. One of the reasons we joined the TD-SCDMA Forum is because we believe there's a market opportunity for it, perhaps in China, that we want to go after.
How similar are UTRA TDD and TDS-CDMA?
The similarities come in the actual software blocks. What we've done is develop TDD-based core technology that you can utilize in exactly the same way in both a wideband or narrowband TDD application. At the edges of those technologies, there are some pieces that are not similar, and obviously we would complete those on the TD-SCDMA side as we sign up customers for that. But the similarities fall in the core technologies - the algorithms that apply to the transmission of data in an asymmetric fashion.
By "narrowband" and "wideband" TDD, are you referring to the width of the carrier?
Yes. Wideband is designed for the 5 MHz [wide] band. Narrowband TDD is designed for a much narrower band, around 1.25 MHz
In terms of coverage, the industry's focus on FDD is understandable, but do you think TDD has been unfairly neglected in the meantime?
There's actually been quite a lot of work done in the standards bodies to define the TDD standard, both the narrowband and wideband flavor. In fact, InterDigital's been vigorously engaged in helping to define those standards since the whole process began several years ago. At last count, more than 300 of our contributions were in the TDD standard. But there's still a little bit more to do [for TDD], while the FDD side is virtually done.
[FDD] happened first for a very simple reason - the licenses which have been granted all contain paired bands, and the carriers are spending the largest portion of their money for 3G licenses getting access to those paired bands. As I mentioned earlier, for most of those licenses, and a significant number in Asia, there's some unpaired spectrum to go with it. Because the first application for 3G is going to be voice, followed by other symmetric kinds of applications, then followed by wireless data, carriers are understandably focused first on those paired bands.
At the same time, though, aren't TDD cells much more suitable for more personalized services, which the industry is also interested in?
That's a very good point. Our expectation is, you're going to start with [FDD] macro cells, which could cover a city, suburbs, and maybe some outlying areas. As the number of 3G users grow in a particular cell in dense population areas, where there's more and more demand - especially for wireless data applications - the operators will then build out micro cells which would cover an urban area, and then pico cells, which could be in-building and maybe set up around some buildings. As that happens, you're going to need technologies that can serve that infrastructure in a more efficient way. TDD will be ideal for micro and pico applications, while FDD will be more suitable for macro and some micro applications. That's another reason why FDD is likely to be deployed first, because macro cellular structure is something that operators clearly understand already, and as they refit their networks for 3G, they're going to want a broad geographic area in which they can begin to generate revenue. Then they'll build down to micro and pico cells.
When do you expect TDD products to be commercially available?
We'll be ready to do technology trials early next year. We're already demonstrating the technology operating across a processing unit and an RF board. By the first or second quarter of next year, we'll be prepared to do technology trials in the field. In our lab, we're already incorporating the technology into chip designs. After technology trials, you're going to want to go to full field trials, which we expect would be later in 2003, which ultimately means probably in mid-2004 to late 2004, we're going to see finished chips that will go into handsets and base stations.
Considering the slow rollouts of 3G and the subsequent demand, it seems InterDigital's timing might be spot on.
Yeah, we feel like we've got a good plan for the transition period that the whole industry is in from 2G to 3G built upon a solid foundation of 2G licensing and now a growing number of 3G licensees who are now committing to payments that will last over the next decade. It's also encouraging from another standpoint, because when you get an NEC, or a Panasonic, or a Sharp to take a thorough look at your patent portfolio, and say: "Yes, your technology in 3G is real, and I'm going to be using it in my products because I'm building to the standard" - that's a very important validation. And other equipment producers in the industry obviously take notice. So InterDigital, being in relative terms a small company, can walk with the giants by virtue of the strength of our technology.
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