Shosteck Group on Flarion & QUALCOMM
>> Sleeping With The Enemy: Flarion Gets Under The Covers With Qualcomm
The Shosteck Email Briefing
Issue #95
September, 2005
The news last month that Qualcomm was to acquire Flarion Networks for over $800 million took the wireless industry by surprise. An acquisition by one of Flarion’s close partners such as Motorola or Siemens seemed more likely, but not by its apparent arch-rival. Qualcomm, the darling of the stock market and pariah of the wireless industry, has pulled off an important coup again, one that could have far reaching implications for the wireless industry.
At first sight Qualcomm and Flarion may seem to make strange bedfellows, yet this coupling seems to make a lot of sense for both parties. Since it was spun-off from Lucent in 2000, Flarion itself has been seen as a potentially maverick, disruptive force. Initially, its proprietary wireless broadband technology, Flash-OFDM (Fast Low-Latency Access with Seamless Handoff-Orthogonal Frequency Division Multiplexing), delivering typical data rates of 1.5Mbps in 1.25MHz spectrum with full mobility was promoted as a potential 3G killer. It has since been positioned as complementary, yet still might be perceived as a potentially potent competitor to Qualcomm’s own CDMA2000 1xEV-DO, 3GPP’s W-CDMA/HSDPA and even the IT industry’s attempt to dominate the future of wireless broadband with WiMAX (802.16).
A good deal, just in time for Flarion?
Despite a run of good fortune, it looks as if this acquisition has come at a good time for Flarion. It had secured a number of high profile trials during 2004 and 2005, including its big breakthrough with its commercial trial for Nextel in North Carolina, T-Mobile in the Netherlands and Vodafone in Japan. It had also formed important partnerships with Motorola on Homeland Security and with Siemens on opportunities in the 450MHz spectrum opening up across the world. It had even secured a couple of commercial 450MHz contracts with Siemens, for Eurotel in the Czech Republic and Digita in Finland.
But the merger of Nextel with Sprint had created some uncertainty about Flarion’s future, especially in North America, as Sprint Nextel appeared to commit to 1xEV-DO, at least in 1.9MHz spectrum. Also, despite the momentum Flarion was enjoying with Siemens in 450MHz opportunities, Qualcomm’s 1xEV-DO still seemed to have the lion’s share of that market too. It looked as if Qualcomm was the 600 pound gorilla that would stomp all over Flarions’s future plans.
However, Sprint and Nextel together have a nationwide pool of 2.5 GHz spectrum in the U.S. Sprint has publicly announced it is trialing WiMAX and IP Wireless on this spectrum. It is possible that Nextel’s positive experience with Flarion’s Flash-OFDM trial, and the Qualcomm acquisition, could mean greater potential for Sprint to deploy Flash-OFDM. If nothing else, it ups the ante.
But despite its apparent change in fortunes there is no doubt Flarion needed a major player to make a real commitment to its proprietary technology. Like any start-up technology vendor, its future was predicated on convincing operators of its ability to scale and to support its products globally, while creating an ecosystem of independent suppliers. What it needed was other device and infrastructure vendors to commit to manufacturing products based on its Flash OFDM technology on a large scale. To this end Flarion had been chasing the standardization route via the IEEE’s 802.20 standard, but ratification of 802.20 was being hijacked by Qualcomm itself. Now this barrier has been removed and standardization of Flash-OFDM should be more rapid, although whether this is in an IEEE or 3GPP standard is not yet certain. Qualcomm is still keeping quiet about its plans.
Through Qualcomm, Flarion’s technology now has the potential to take advantage of first class worldwide field support, sales and marketing, and open access to interoperability labs throughout the world.
An important strategic deal for Qualcomm too
Whether Qualcomm felt threatened at all by Flarion is not clear, but it is clear that taking Flarion out of the market as a competitor simplifies and potentially expands the market for Qualcomm. It may also prove to be the key to opening up the European market for Qualcomm more fully than had previously been the case. But ultimately it seems the deal is more about IPR, a subject Qualcomm knows very well.
Flarion has developed a technology that has been proven to “mobilize” OFDM – the technology that is used by most, if not all, wireless broadband technologies including WiFi, WiMAX and probably all future iterations of cellular technologies. This expertise and most importantly IPR could prove vital, not only to Qualcomm’s plans to use OFDM in its own future developments of CDMA, but it also may prove to be useful in delaying or controlling development of the rival mobile WiMAX (802.16e) technology.
Qualcomm’s Platinum Multicast solution, and its FLO (Forward Link Only) technology slated for use in its future mobile TV initiative, MediaFLO Inc, both use OFDM and it seems likely that Flarion’s IPR will be put to good use for these developments.
But it is no secret that Intel is the major competitive target for Qualcomm. The huge chip vendor is the driving force behind the WiMAX (802.16) standard, the mobile version of which (802.16e) is possibly being positioned as a 3G killer in its own right. Given the use of OFDM in WiMAX, and that Flarion probably owns IPR in mobilizing OFDM, it may be a trump card for Qualcomm. Designers of mobile WiMAX (802.16e) chips may have a hard time avoiding infringing Qualcomm patents. Thus Qualcomm probably wins either way – whether mobile WiMAX becomes established or not. Royalty payments from key patents is familiar territory for Qualcomm.
But adverse industry response is possible
Cellular operators, however, may now be much more wary of Flarion and Flash-OFDM. Though Qualcomm provides W-CDMA chips and is certainly one of the leaders in providing these chips, Qualcomm’s relationships with GSM operators have often been turbulent.
These operators will be looking for a more favorable IPR licensing regime to allow multiple suppliers to license the technology, with “reasonable” royalty fees on infrastructure and devices. The industry is far from happy about royalties which must be paid to Qualcomm and others.
This move may also serve to polarize the vendor community further. Competitors like Motorola, Siemens, Nokia, Alcatel, and Ericsson, may push back - adopting 802.16e to avoid Qualcomm royalties. It will be especially interesting to see what happens to Flarion’s relationship with Siemens, which has not been too complimentary about Qualcomm in the past and which had appeared locked in battle with Qualcomm over opportunities in 450MHz, especially in Eastern and Central Europe.
Indeed, it may have been the award of the contract to Flarion (and Siemens) for 450MHz deployment in Finland that made up Qualcomm’s mind. Qualcomm clearly had these 450 MHz opportunities on its radar as a means of finally cracking the European market from which it had been excluded for so long. Nevertheless, Qualcomm’s dominance in W-CDMA chips means that it no longer has to fight the battle to join the GSM community – despite considerable resistance.
Sleeping with the Enemy
Not withstanding the obvious benefits of this deal to both companies, there do seem to be some underlying issues which may hamper the integration of these two businesses. For a number of years Qualcomm was seen as the enemy at Flarion, fighting them in standards and in the market place as Flash-OFDM threatened to eclipse CDMA 2000 1xEV-DO for broadband wireless.
Furthermore, despite Qualcomm’s entrepreneurial culture, it is a $6 billion killer whale swallowing a minnow. Will there be tensions between the engineers at Flarion and those at Qualcomm? Corporate cultures are different, though both have an entrepreneurial spirit. Might some of the GSM community’s feelings toward Qualcomm sour some of the customer relationships that Flarion has developed?
String of Pearls
This is the latest in a string of acquisitions for Qualcomm, albeit the largest. In the last twelve months, Qualcomm has acquired two UK based firms: first Trigenix, a 3G user-interface developer, and more recently Elata, a service delivery software vendor. It is not yet clear whether this is part of the U.S. based company’s strategy to penetrate the elusive European market or purely a sign of its intention to diversify. But how effective will these acquisitions be, and what disruption will integration with the enormous mothership have on these fledgling enterprises? Time will tell.
- Eric - |
