"Switching to Cellular 3rd
Generation Will Cost Cellcom,
Partner, 10 Times More Than
Pele-Phone"
By Eliav Alalof
Until over a year ago, Qualcomm was trading at
a value of a mere "few" billion dollars. But since
then, the coin has dropped. People have
realised the enormous potential of the company
that invented the CDMA cellular
communications standard and has no less than
110 registered patents on it.
The Qualcomm share accordingly took wing.
Today, it is trading at a company value of $93
billion. This is a good enough reason for meeting
with Qualcomm Vice Chairman Dr. Andrew
Viterbi at the company's offices at its Haifa
development centre, obtaining a rare glimpse
into cellular telephony's past and its prosperous
future.
"Globes": Did you believe the cellular
market would post such dizzying growth"?
Dr. Andrew Viterbi: Absolutely not. The
cellular market has grown beyond expectations
but still, if you think about it, 300 million
subscribers are only 5% of the world's
population. There are another 700 million
ordinary telephone lines, and cellular will
undoubtedly overtake linear communications by
2005. It is already happening now in Italy,
Finland and even in Israel. I believe this is only
the beginning.
"You can see that cellular data communications
today is in its infancy, and will leap up the
minute more bandwidth is available. Today, in
the backward GSM system, they can only
handle files of 9.6 Kb, and we, using CDMA, can
transfer 64 Kb. It's a different world".
In Partner, they are talking about a PRS
system that will remit data at 115 Kbps.
"That is fiction. It's all on paper (laughing). We
are already providing GPRS speeds today.
Cellular companies working with GSM (Partner)
and TDMA (Cellcom) will have to increase their
infrastructure, and that means software and
hardware, and of course, replacing the telephone
instruments. That is no trifling matter.
"We will supply speeds of 384 Kbps in mobile
communications, and in stationary cellular
communications we can offer speeds of up to
2.4 Mbps. And this is in existing spectrum
conditions.
"CDMA users in Israel, Asia, the US, and South
America are already advancing to the third
cellular generation. By comparison, those
without CDMA, like NTT Dokomo in Japan, will
have to spend staggering amounts to make this
transition".
At the end of the day, GSM operators will
have more or less the same CDMA-based
technology. So what is Pele-Phone's edge
over Partner and Cellcom?
"Beyond the fact that they will have to spend
more money, they will find it very hard to apply
the technology, because it means instituting a
revolution, whereas Pele-Phone underwent
evolution. For them, it will be a new technology,
and that means quite severe birth pangs. Do you
recall the problems Pele-Phone had when it
launched the Next Pele-Phone network and
shifted from analog to digital? Cellcom and
Partner will have similar problems when they
want to switch to cellular third generation. It's no
trifling matter, that I can assure you".
What is the role of Qualcomm Israel in
developing your products?
"Qualcomm is a pioneer in digital
communications. The Israeli centre, located at
MTM in Haifa, is a research and development
division, and several years ago took part in the
development of a CDMA instrument able to work
on GSM networks. That means the system is
able to interface with different technology, which
actually laid the foundation for cellular third
generation.
"Qualcomm Israel today is examining cellular
third generation equipment. They have two
products, called 'Panda' and 'Koala', and they
simulate the base stations, the channel, the
cellular instrument and what happens on the air
under different weather conditions. That is very
helpful to us in system design".
DSPC of Israel, recently acquired by Intel,
also operated in the CDMA field.
"I don't think they really succeeded in getting off
the ground in that field. They had one CDMA
customer in Japan, which switched to us. Also,
DSPC is a weak company. Companies like
Nokia and Motorola manufactured their own
chips, but recently, they realised that they have
no choice, and Motorola started purchasing
large quantities of chips from us".
You recently hit the headlines with a Buy
recommendation by Paine Webber at a
target price of $1,000. Qualcomm shot up by
1,600% in value only this year, to $100
billion. How do you explain this?
"When I compare us to those start-up
companies with 50 employees that are
picked up for $1 billion and more, I think
our market value is fine. Look, even a
company like DSPC with only 300
employees was purchased for $1.6 billion.
Does that sound reasonable to you?
"Apart from which, among the analysts that
cover our company, 15 give Buy
recommendations and 5 give Hold. So I
think the fact that most analysts feel the
share still has some way up to go speaks for
itself".
So why did you sell $28 million worth of
shares in 1999?
"Look, I am very positive about the share.
But I have personal considerations. I,
personally, don't want to put all my eggs in
one basket. Apart from which I still have a
good few million in Qualcomm shares that I
have not sold, so that is all right".
Published by Israel's Business Arena on
February 14, 2000
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