CDMA: Qualcomm Guns for Wireless Crown

Year 2002 has become crucial for Qualcomm, with India and China opening up

their markets in a big way for CDMA. China Unicom is planning to deploy 15

million lines in the very first year of operations while Reliance Communications

is planning to deploy 5 million lines in an equal timeframe. Success in these

markets will pave the way for the future of Qualcomm as the two countries

together comprise nearly a third of world’s population. These are also the two

fastest growing cellular markets in the world today.

The US Advantage



In India, the CDMA movement has gathered momentum with the incumbent

carriers, BSNL and MTNL deploying CDMA-based systems in both rural and urban

areas. At present, all basic service providers, except Bharti Telenet, have

deployed CDMA-based systems. Qualcomm’s investment of $200 million in India

reiterates the fact that India is one of the most important markets (adding 0.25

million wireless subscribers every month). Jeff Jacobs, president, global

development, Qualcomm, says, "The potential in India is to get after 300

million users as we believe that today they can afford a wireless phone."

In India, Qualcomm has moved on a pattern similar to Brazil. The company has

taken a stake in Vesper, the Brazilian carrier and Reliance, the Indian carrier. However, in Brazil, the company is also on the board of Vesper whereas the same is not the case with Reliance. In China, the company has moved with a different strategy. There, Qualcomm has adopted the royalty model whereby it collects variable royalty from Chinese manufacturers on the handset.

In Korea, where CDMA is the dominant wireless technology, Qualcomm is

encouraging manufacturers to launch feature-enriched phones as it will help

subscribers to move toward data applications rather than plain voice. Cellphones

with GPS, MP3 and digital camera can be seen operational with CDMA2000 1X

systems. The effort is paying off, as 63 percent of all new phones are CDMA2000

1X activated.

The US and South Korea are strong CDMA forts, and Qualcomm has used the fact

to mobilize a whole lot of other countries to join the CDMA bandwagon, in spite

of the technology being four to five years behind GSM. The company is also

planning to make inroads in Indonesia in 2002. In this very year, the company is

also planning to enter Thailand, New Zealand, Malaysia, and Vietnam.

450-MHz Trick



Europe has traditionally been a GSM-dominated region, with the 900-MHz band

being blocked by various regulatory bodies there for GSM. So, here Qualcomm has

moved with a 450-MHz band strategy and has been successful in installing the

first CDMA system in Romania, in the region. The company has also got success in

Russia where CDMA has been approved as an official standard in the 450-MHz band.

In Europe, Qualcomm says, GSM operators can also opt for WCDMA route to jump on

to the 3G bandwagon, though that is expected to happen in 2003-04 in the 2.1 GHz

band. With WCDMA, Qualcomm plans to enter Europe more aggressively. Movements on

the Africa front have been very slow for Qualcomm because of economic and

political considerations.

Having made inroads in most of the regions across the world, the company is

planning to sell around 85-95 million CDMA handsets, thus bringing the

cumulative number of handsets close to the 200-million mark in 2002, according

to Jacobs. And with Europe moving to WCDMA in 2003-04, he hopes to see a

substantial increase in the number.

3G Superiority



The technological superiority of CDMA is quite compelling on the 3G front.

3G systems on the CDMA front are already operational and the commercial launch

is expected during the Football World Cup in Korea. On the other hand, 3G

systems on the GSM front still face a question mark. Also, service providers are

struggling with 2.5 G technologies like GPRS, which have not taken off because

of lack of applications and problems with the handsets. In comparison, a

high-performance and cost-effective Internet access solution like CDMA 2000

1xEV-DO can yield speed in the range of 2.4 Mbps which is far more than what

supported by GSM systems.

CDMA 2000 1xEV-DO is being claimed to be the next enabling technology for

growth. The technology also promises to open up a host of bandwidth-hungry

applications that will handle pictures, movies, and audios. Applications like

Bluetooth, Wireless LAN and Global Positioning Systems will turn the handset

into a powerful computer.

According to Dr Irwin Mark Jacobs, chairman and CEO, Qualcomm, "CDMA

provides the highest capacity, utilizes the spectrum efficiently, and provides

the highest quality of voice and data communications."

Applications Focus



Qualcomm views applications to be key drivers for growth in the wireless

Internet space and is looking at the Indian software market very aggressively

for applications like gaming, entertainment, messaging, navigation, and

financial services. The company has earmarked a venture fund of $500 million for

the wireless Internet space.

The company has to its advantage a common platform for developing data

application on the wireless. The platform, called Binary Runtime Environment for

Wireless (BREW), can act as a catalyst as developers can write applications that

can providing additional average revenue per user (ARPU) for carriers. These

platform will give subscribers the choice of choosing and downloading the

wireless software that suits their preferences.

R&D Spread



Qualcomm primarily being an R&D company, has the advantage that it can

focus mainly on product development. This allows it to keep working on newer

technologies and come out with efficient and high-quality voice and data

capability systems. With 15 percent of its total revenue being reinvested in

R&D, the company has been able to achieve many firsts to its credit, both on

the infrastructure and the terminal fronts. Due to its success in R&D, the

company is also called a ‘patent manufacturing company’ by analysts. Till

date, Qualcomm has over a 1,000 US patents in its kitty, with many more still

pending with the authorities.

The approach is simple–develop more chips quickly, less expensively, and

with high reliability, so that they can be sold successfully to manufacturers

who are planning to use such chips. As of now, the royalty from chips contribute

around 51 percent of Qualcomm’s revenues. In future, it expected that chips,

along with software applications based on the BREW platform, would generate

maximum revenues for the company.

With the trend toward having one gadget in future, the company is working on

multi-mode and multi-frequency band phones, which will help consumers roam

nationally as well as internationally. Sure, Qualcomm seems to have made the

right moves for



securing a vantage point in the future wireless space, but all will depend at
what cost and with what ease-of-use will it be able to come out with its

devices.

Pravin Prashant

'We want to put GSM and CDMA-1X on the same chip' (Dr Irwin Mark Jacobs chairman and CEO, Qualcomm)

Dr Irwin Mark Jacobs, chairman and CEO, Qualcomm, was recently in India to

sign an agreement with Reliance Communications for a four percent stake in the

latter. Dr Jacobs has been instrumental in the development and commercialization

of CDMA worldwide. The year 2002 has been good for the company, as Qualcomm made

inroads in India and China, the two largest cellular markets. In an exclusive

interview with VOICE&DATA, Dr Jacobs talked about Qualcomm’s future

strategy, at length. Excerpts:

How do you look at the CDMA technology in comparison to other wireless

technologies?



CDMA provides the highest capacity, highest quality voice and data

communications, and utilizes the spectrum efficiently. GSM- and TDMA-based

technologies have been widely used but with some problems. Thus, many are now

working to use CDMA in the next-generation due to its high quality and spectrum

efficiency. CDMA also supports much higher data rates and thus lowers the per

Mbps cost for the customer.

What is Qualcomm’s vision about CDMA?



Right now, we have got a very good base for continuing to grow CDMA

activities. We intend to expand the number of applications and the number of

people developing new applications, such that these applications can be

downloaded in the phones, allowing more and more usage of data. As people use

data, the system will expand further and CDMA will continue to evolve.

We have the next revolution coming along, which is 1xEV-DO, the 2.4 Mbps

version. Another area of focus is of providing interoperability. For the next

decade, the total number of GSM users will continue to remain large even if

operators switched over to WCDMA or CDMA 2000. So we want telephones that will

provide CDMA 2000 and WCDMA if that is available, GSM where it is available,

thus paving way for multimode, multi-frequency band phones.

What is the status on the next-generation CDMA technology–CDMA2000

1xEV-DO?



We have been operating this standard in San Diego for almost three years

from now and we are beginning the commercial deployment of the technology during

the Football World Cup in Korea and will support high data rates at 2.4 Mbps. So

if one delivers packets at high burst rate, one completes the first application

quickly and moves on to the next application thereby lowering the cost.

What is the investment that Qualcomm does on the R&D front as it is

the main breadwinner for the company? What are the specific areas Qualcomm is

focusing on?



We are making very heavy investments with 15 percent of Qualcomm revenue

going into R&D. The fund is not only utilized for developing technology but

for working on standards. We build the chips that provides all types of

capabilities.

We have currently completed a research whereby phones that will be sold will

have a GPS system as the same chip has a global positioning system receiver

which is being added to the phone at a very small additional cost. It will not

only open up ability to respond but also help in emergencies for knowing the

exact locations and a range of other applications such as downloading of maps

that are specific to the current location and allows one to find the direction

or asking where the nearest fuel station thereby helping commerce. With these

capabilities what we have done is developed a layer of software that is on top

of our chips and is being used by many manufacturers. The layer of software is

called BREW. With BREW, developers in India can develop a whole range of

applications that can be useful for education, business, and games.

We are working in many areas and the one that is most obviously going to be

helpful is the global positioning system. A whole variety of capability is being

added to the chip that is put in the handsets to handle pictures, movies and

audio capabilities. In some of the phones, we are adding Bluetooth and 802.11 in

the same chip. So, the phone will have varied capabilities which will take

another five to six years. There will be evolutions in the technology.

Qualcomm is said to be a ‘patents manufacturing company’. What is the

total number of patents that you have and how many are pending with the patent

authorities?



Qualcomm’s strategy from the very beginning was to be an innovative

company that can come up with new ideas, develop them rapidly, manufacture in

some cases, and in other cases develop the chips and the software whereby others

can manufacture the final product. We have got a very active program in taking

up these new ideas and incorporating them. I think in case of CDMA we have a

well over 1,000 US patents and then these patents are applied for and reissued

in many countries around the world so a large multiple on that will be foreign

patents and we continue to develop many patents ever year.

Qualcomm is said to work in a monopoly environment as it has 90 percent

market share in the industry...



Right now we are not a monopoly as we have licensed over a 100 companies to

manufacture CDMA equipment. These companies are also licensed to make their

chips and manufacture their own software. What Qualcomm does is to work very

hard to develop better chips more quickly, with high reliability and low cost

and then hopefully sell it to many manufacturers who are planning to use our

chips. There will be other competitors who will come along and try to compete

with us and I am sure they would have got some part of the market. We work very

hard and allow others to compete. We only compete better.

How do you want to leverage the India advantage?



Yes, we definitely see an application center or a development center whether

it is Qualcomm-owned or we cooperate with somebody else. The software industry

will make use of wireless Internet and also will be a major source of

applications for use in India as well around the world. So, we want to encourage

that work for the people and try to make it happen even sooner.

Do you believe that even in future chips will continue to be the main

revenue earner for Qualcomm as it contributes around 51 percent of the total

revenues?



Yes, I expect that. If you look at the CDMA part of our business, the

chipsets will be a major revenue source and some of the new software

applications based on BREW will also be an interesting source of revenues as the

use of wireless grows.

On the future of Qualcomm...



I think we are going to continue to be a very exciting company. We have a

very large cash capability of over $2 billion, a strong balance sheet, a pool of

well trained engineers, and a wide pool of patents.

Of late, Qualcomm has been getting competition from non-traditional

companies like Texas Instruments and Intel...



The coming together of wireless communications, computing, and software

applications will attract other capable companies. We thrive on competition and

without competition, one will tend to get a little stale. One has to just

continue to run faster and come up with new ideas.

Pravin Prashant