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Technology Stocks : Qualcomm Moderated Thread - please read rules before posting -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (11348)	6/7/2001 12:45:41 PM
From: Drew Williams	Respond to of 197443

e-mail to ALMAR LATOUR of the WSJ ----------------------- I read your article in the print edition of the Wall Street Journal and just saw it posted on Silicon investor Message 15900183 It looks like you got most of this correct. But you did not mention what is to me the most interesting part of the story. A while back the various European governments got together and decided that they would have a uniform technology standard for digital telecommunications (aka 2G). This was called GSM. This was a highly successful policy both for consumers, who got reliable and widely available service, and the mostly European companies who manufactured the handsets and other necessary equipment. To make this happen, these companies got together and cross-licensed their IPR, meaning that any company that had any essential IPR did not have to pay anyone else in the group for their IPR. Outsiders with no essential IPR would, of course, have to separately negotiate and pay royalties to each company with essential IPR. In practice, these royalties (totaling, I am told, in excess of 25%) prevented any company from competing in this market unless they were part of the IPR pool. In the United States, things worked out differently. The government decided that it would let the marketplace decide which digital technology it would adopt, and carriers chose to adopt several different technologies. Here in suburban Philadelphia, I can now choose between CDMA (Verizon and Sprint), GSM (Voicestream), IDEN (Nextel), and TDMA (Cingular) digital networks, in addition to the older analog system. This made life more difficult for people who traveled a lot, because phones made for one digital technology do not work on the others' networks. This is less of a problem now than it used to be, because the network buildout has proceeded and is continuing to proceed, but it is still more of a problem than the single standard European system. One of the things that came out of this was the discovery that Qualcomm's CDMA technical standard had some advantages over the others, including the European GSM system. In short, CDMA is more efficient in using spectrum than any other currently available technology. In fact, every carrier that has announced they are building a 3G network is using a flavor of Qualcomm's CDMA. The Europeans were aghast! Qualcomm does not manufacture either infrastructure or handsets, so Qualcomm was not a member of the IPR cross-licensing group and had no interest in joining. And, Qualcomm was aggressively signing up licensees all over the place -- especially Korea, Japan, and most recently China. What the Europeans saw was the demise of their near monopoly on this business, because they no longer had the barrier of the high royalties to protect them. So they decided to fight back. Instead of simply signing on to Qualcomm's CDMA 2000 program, they decided to throw a spanner into the works by creating W-CDMA. The only justification for created-by-committee W-CDMA is that it is an attempt to work around Qualcomm's IPR. Unfortunately for them, Qualcomm's IPR has been upheld in the courts everywhere it has been challenged, so they will be paying Qualcomm the same royalty whether they implement CDMA2000 or W-CDMA. Additionally, the W-CDMA camp has since found out that getting any flavor of CDMA to work is darned difficult without Qualcomm's help. (Even with Qualcomm's help it is not so easy.) There has been plenty of press lately about problems with the 3G trials in Europe and Japan. Meanwhile in Korea and the United States, CDMA2000 3G networks are moving right along. The Koreans have had one operating for months. Both Sprint and Verizon are upgrading their networks to this standard as I write this. They are doing this in the same spectrum using the same base stations and towers they have been using for their existing 2G networks, as CDMA2000 is both backwards and forwards compatible with these carriers' existing CDMAone networks. For users, the transition will be seamless. Their existing 2G phones will continue to work fine on the upgraded networks, and the newer 3G handsets will work fine on the 2G networks, just minus the 3G bells and whistles. In addition, the total cost of upgrading both Sprint's and Verizon's networks will be less what British Telecom paid for the UK spectrum. Back in Europe, the carriers will be need to build completely new networks in completely new spectrum. This will cost a lot, and they still have not gotten W-CDMA to work properly, so it is going to take a while. I have seen authoritative estimates that push operational dates out 3-5 years. Additionally, this buildout will obviously not happen all over the world at the same time, so people upgrading from GSM to W-CDMA will suffer much more than Americans will in this transition, because there will be much larger holes in the networks for a long time. So maybe allowing the marketplace to decide was the best policy in the long run after all? Wouldn't that be something remarkable for the Wall Street Journal to suggest? By the way, "Go SIXERS!"