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3/31/99 - QUALCOMM AND ERICSSON BURY THE HATCHET; WHO WON AND WAS THIS A 2G OR 3G ISSUE?
Mar. 31, 1999 (PCS WEEK, Vol. 10, No. 13 via COMTEX) -- For years, the struggle between Qualcomm Inc. [QCOM] and L.M.
Ericsson AB [ERICY] had been the wireless industry's own version of the Cold War. More recently, there had been hints that a
peace plan was in the works, and the TransAtlantic Business Dialogue (TABD) compromise was a clear sign that the wall was
starting to crumble (see PCS WEEK, Feb. 24). Still, there was a surprising quality to the announcement that the two companies
have agreed to settle their differences, and it's somehow difficult to imagine a world without Qualcomm and Ericsson at each others'
throats. But that's where we are now, after a groundbreaking couple of weeks that could make huge changes in the shape of the
industry, and could even impact global trade policy.
To review, the International Telecommunication Union (ITU) essentially surrendered to the multi-standard vision agreed to by
members of TABD-including Qualcomm and Ericsson (see PCS WEEK, March 24). Within days, the two companies announced
their own agreement. Qualcomm and Ericsson agreed to support one CDMA standard with three modes, and to clear the way for
licensing of their intellectual property for further development of the standard-the very issue that had led ITU to threaten to drop all
CDMA-based standards from consideration, leaving TDMA-based technologies more or less alone on the field.
Furthermore, the two companies agreed to cross-license their CDMA patents, and to terminate their pending litigation. Perhaps
most importantly, Ericsson agreed to buy Qualcomm's infrastructure division for an amount that was unspecified but is generally
believed to be immense. Some unconfirmed press reports claimed the figure was $250 million. Overall, the changes promise to
rewrite the rules for third generation (3G) wireless, but also have more immediate effects. In particular, the deal gets Ericsson into
the current CDMA market, someplace it very much needed to be, whatever the cost.
...3G's Great, But We Need Something Now!
While Qualcomm CEO Irwin Jacobs praised Ericsson's entry into the CDMA market, saying the Swedish giant's global strength will
help IS-95 technology reach new markets, it seems clear that Ericsson needs CDMA more than CDMA needs Ericsson. The
former industry leader has suffered badly in recent months, and one reason is that it is the only major vendor that does not support
the CDMA market. While the infrastructure division has been one of Qualcomm's least successful operations, the purchase gives
Ericsson a quick boost in expertise and R&D talent, which is why it is widely believed Ericsson paid much more than the division's
financial performance might suggest.
Qualcomm kept its handset division, however. After the Ericsson deal, and amid persistent rumors that Siemens AG [SMAWY]
was interested in purchasing Qualcomm's handset business to get back into the North American market, the fact that Qualcomm
still owns its handset operation suggests that the company is eager to stay in the manufacturing business to some extent. When
asked about Qualcomm's future at the New York news conference announcing the deal, Jacobs said Qualcomm intends to
continue working to commercialize new CDMA innovations. The handset division will help it do that, and Jacobs played down the
effect the lack of an infrastructure division will have on that capability. "We will continue to develop the ASIC chips," he said, "and if
you think about it more and more of the specialized capabilities and new features are really what you build into the ASICs and the
software that surrounds those ASICs."
However, without Qualcomm's handset operations, Ericsson will need more time to get its own CDMA handset capability up to
speed. Ericsson CEO Sven-Christer Nilsson, also speaking at the New York conference, said Ericsson will "aggressively pursue"
the CDMA handset business, and will have a CDMA handset on the market "next year." Of course sooner would be better for
Ericsson, and it would be particularly nice if the company managed to get its brand name on a CDMA handset in time to capture
some of the fourth quarter sales rush. When asked whether Ericsson would OEM a Qualcomm handset, or purchase Qualcomm
chips for an early run of phones in order to make a fourth quarter intro, Nilsson gave the impression that the idea was not a new one
to him, but he had nothing firm to say about it.
...Some 3G Questions Resolved, But Issues Remain
The deal's longer-term 3G aspects will effect much more than just Ericsson. Between the ITU's decision in Fortaleza and the
commitment by Qualcomm and Ericsson to license their intellectual property on a "fair and reasonable basis free from unfair
discrimination" in keeping with ITU's patent policy, the overall shape of the 3G standards universe seems more or less set. But
appearances could turn out to be deceiving in this case.
The current state of affairs has given the CDMA community much of what it was pushing for in the previous debate over
harmonization between cdma2000 and W-CDMA. The two standards essentially survive as the multi-carrier and single carrier
frequency division duplex modes of the tripartite CDMA standard. The time division duplex mode is described as essentially an
in-building application. All three modes will support both GSM MAP and ANSI-41, the GSM and CDMA communities' network
standards of choice. That alone removes a massive barrier between CDMA vendors and GSM operators looking for a smooth
upgrade path to 3G. However, the ITU framework is just that. It does not specify parameters and the CDMA Development Group
(CDG), for one, still wants further harmonization between modes. "It's hard to find things that I'd be upset about [with the deal] said
CDG President Perry LaForge. "It's a great acknowledgement of what we've been able to achieve," he added, referring in particular
to the support for both GSM MAP and ANSI-41. However, he noted, "The next step is for us to finish some of the harmonization of
parameters." Now that Ericsson has a stake in the success of CDMA technology, LaForge said, "That, I think, will allow us to
achieve further harmonization."
Perhaps not surprisingly, LaForge disagreed with the interpretation of the TDMA boosters at the Universal Wireless
Communications Consortium (UWCC) that the ITU framework enshrines UWC- 136 as part of a set of multiple standards. UWCC
was very pleased with the progress at ITU, saying it will benefit both TDMA as a standard, and provide choice for wireless
consumers.
FCC Chairman William Kennard praised the Ericsson/Qualcomm deal, saying it "clears the way for finalizing the development of
standards for IMT-2000 systems."
The North American GSM Alliance also welcomed the agreement, saying it "should remove a major hurdle in the development and
deployment of third generation wireless technologies." Obliquely addressing the parameter harmonization question, GSM Alliance
Chairman Don Warkentin said "the GSM Alliance will be diligent in ensuring that technical parameters continue to enable the
advantages of multiple technologies."
When you consider that, along with the fact that the Ericsson/Qualcomm standards pact does not necessarily resolve all the trade
issues 3G has engendered between the United States and Europe, it seems there may still be some room for conflict over 3G. Just
as the fall of communism produced some overly optimistic views of the future, it's tempting to assume that all the wireless
industry's problems are solved. However, don't be surprised if the players are keeping their nuclear arsenals tuned up just in case.
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