Self interest eases in new mobile era

Date: 22/04/1999

By Simon Taylor

One of the biggest battles between leading telecoms companies has been settled thanks to that rare commodity in the corporate world: enlightened self-interest.

Swedish market leader Ericsson and US technology pioneer Qualcomm resolved their increasingly acrimonious dispute over the operating system for the next generation of mobile phones late last month, paving the way for a common industry standard which should ensure a larger, yet more competitive market for operators in the future.

Third generation mobile phones will offer users services which have not previously been available because of a lack of capacity with the existing technology. These include mobile Internet access, video phone and video conferencing, navigation aids and personal information services.

Amid threats of legal action and familiar warnings of an impending trade war, the two firms accepted a single broad standard for the new technology while allowing operators the choice of three alternative modes depending on the local market.

In return, wealthy Ericsson stumped up €112 million for Qualcomm's low-rent terrestrial mobile phone business and research and development division in California and Colorado. The two firms agreed to licence their know-how in the mobile phone sector to each other, paving the way for the technology to be used as the basis for a new global standard.

The amicable settlement came as a relief, not least to the company executives who were bracing themselves for a long legal battle over intellectual property rights. "A lot of our resources have been spent really going sideways. With this business issue resolved we can now move forward," said Jeff Balk, Qualcomm's vice-president.

The deal sealed the European Telecommunic-ations Standards Institute's (ETSI) decision to adopt the new Code Division Multiple Access (CDMA) standard for its Universal Mobile Telecoms Service (UTMS).

The companies' recognition that they were playing for high financial stakes was key to their success in reaching a deal. Ericsson says the standard will apply to 15% of the 1 billion subscribers expected to sign up to mobile phone technology in the next five years.

As if to reward the parties for the deal, the Finnish telecoms regulator recently awarded the first licences to third generation operators.

Yet despite the breakthrough represented by the Ericsson-Qualcomm deal, sector analysts are sceptical about whether the new technology will continue to deliver the high returns which companies have enjoyed so far from the onwards march of existing mobiles.

A study by London-based consultants Arthur D. Little points out that there is little firm evidence of a strong consumer appetite for the services the new technology can offer.

Although most EU countries pledged to introduce the new standard by 1 January, 2002, trials by operators are still in their infancy, leaving a big question mark over whether the new services could achieve the same levels of market penetration as the current equipment. Industry analysts also warn of the high costs of setting up the infrastructure which is needed to operate the new services.

One sign that the future may not be as bright as the industry's optimists hope are indications that the British government may be disappointed when it sells off its UTMS spectrum. The UK Radiocommunications Agency is hoping to raise €2.26 billion from the sale, but the final figure looks like falling well short of that.

Nevertheless, while the stock market values of telecoms companies are still being buoyed by fantastic growth rates of new subscribers, analysts predict that firms' willingness to go down the road of third-generation services will be an increasingly important element in assessing their financial performance.

Even if there is lower than expected demand for the options offered by the new technology, operators will be able to use the broader bandwidth offered by UTMS to cut the costs of mobile calls even further.

Article forms part of a survey 'Converging technologies', p13-20.