Monday, December 24, 2007

Two facets of San Diego's healthy economy

Two reports came out last week that suggest (at least to me) that the San Diego high-tech economy is doing better now that housing affordability is getting back to more normal levels.

The first story was covered by Tuesday’s U-T, which noted that the median sale price of a San Diego County home had dropped to $440,000 in November, off 15% from the peak of $517,500 exactly two years earlier. An accompanying graph shows that prices had returned almost exactly where they were in March 2004 in nominal dollars (actually lower after adjusting for inflation). Rather than gloat, the Voice of San Diego’s resident housing bear used the occasion to predict even further price drops.

Both the U-T and VoSD speculated about how to interpret the much more rapid price drop today versus 15 years ago. In the 1990s, middle class machinists and other General Dynamics and Rohr workers were getting laid off as California paid the peace dividend. Some dumped their houses quickly to follow their jobs to Arizona or Colorado, but the rest hung on, hoping prices would return to their 1991 peak.

Economists have long observed that real estate prices are rapidly marked to the market on the way up, but are “sticky” on the way down — as homeowners hold their house off the market rather than accept a lower price than their reference price. That’s why I graduated form Point Loma High. My parents moved out of San Diego in December 1963, but couldn’t sell their house due to an aerospace recession so they rented it out; by the time prices had come back in spring 1967, my parents were looking to move back to San Diego — so we went back to our home in Point Loma.

The correction in housing prices (however painful for speculators and highly-leveraged first-time homebuyers) will be healthy for the San Diego high-tech economy. For a while, it looked as though San Diego housing prices were approaching the stratospheric levels of Silicon Valley or New York. The problem is, local wages wouldn’t support such prices — San Diego wages and housing prices have always been lower than Los Angeles. When I moved to Silicon Valley in 2002, San Diego prices were rising to Silicon Valley levels, but now at $440k, they are only slightly more than half the Santa Clara County/San Mateo County average of $800-820k, and thus about the same ratio as during much of the 1980s and 1990s.

As it is, housing costs have been a challenge for the San Diego high-tech economy for more than 20 years. Back in 1983, San Diego was up against Austin to land the Microelectronics and Computer Technology (MCC) R&D consortium, but lost due to quality of life issues — primarily housing costs (there’s no beach in Austin, while the climate is considerably harsher). With MCC, Austin won the second largest concentration of semiconductor R&D and manufacturing in North America.

The second story was that the state Department of Finance Wednesday released its estimates as to the net population changes in California for 2006-2007. Newspapers in San Jose and Los Angeles wrote up stories on their respective population shifts. The U-T website (don’t know about the dead tree version) carried only the AP’s generic California population trend story, which notes California’s population is up 11.5% since 2000, at 37.7 million placing us behind Poland but ahead of Canada. The state’s three largest counties — LA (10.3 million), SD (3.1 million) and OC (3.0 million) — now contain 44% of the entire state population.

All the stories noted that California is gaining population because births exceed deaths, and immigration from foreign countries exceeds the net out-migration by Californians to other states. The stories also noted that the fastest growing county is Riverside County (and the rest of the Inland Empire), up 3.3% from July 2006 to July 2007. Of course, the common denominator for both domestic migration patterns is housing affordability: equity-rich Californians feeling to cheaper parts of the state, or to other states.

Looking at the state’s raw numbers, 38 of California’s 58 counties had a net in-migration. However, the out-migration (led by 114,638 fleeing L.A. county) meant that the state overall lost 88,761 people to the rest of the U.S. But with 9 people coming from overseas for every 4 moving inland, the net effect is that the state continues to grow.

The in-migration estimates for San Diego County made it 4th in the state, with 2,982 new residents from elsewhere in the U.S. It was second overall (after Riverside) in terms of total net immigration (foreign and domestic) with a gain of 16,049.

My guess is that much of the in-migration to San Diego is from elsewhere in California, whether from LA, Orange (21,935 people leaving) or the Bay Area (all but 2 counties losing population). Again, housing affordability must be a key factor. Of course, this doesn’t say anything about jobs, but (except for retirees) people follow jobs and housing.

I don’t know why the U-T didn’t think the numbers were worth studying. Back when I was a beat reporter, we welcomed the chance to take some hard data like this, spice it up with a few quotes to come up with an easy story about the state of the local economy.

Friday, September 14, 2007

Qualcomm’s temporary reprieve

Qualcomm has succeeded in re-opening the pending International Trade Commission ban on imports of Qualcomm chips that the ITC found impinged on Broadcom’s patent. It had seemingly lost the fight for good when the US trade representative refused to override the ITC on August 6.

As reported, the US Court of Appeals for the Federal Circuit agreed to hear Qualcomm’s appeal of the ITC order, and on Tuesday stayed enforcement of the ITC ban on handsets containing Qualcomm’s chips (but not the ban on Qualcomm’s chips). The surprise victory — in time for the Christmas selling season — is the first Qualcomm success since they changed legal counsel a month ago.

Reading the appeals brief (graciously provided by the UT), there were some interesting points:
  • Qualcomm was joined in its appeal by five handset makers (Motorola, Samsung, LG, Kyocera, Sanyo) and two carriers (AT&T and T-Mobile). Verizon was absent because they cut a side deal, but Sprint was conspicuously absent; AFAIK most of the Sanyo phones imported into the US are sold by Sprint. That the GSM carriers are the ones supporting Qualcomm suggests how well they have done in cracking the W-CDMA market.
  • The appeals court’s ruling suggests that they are leaning towards reinstating the Administrative Law Judge’s finding that banned import of Qualcomm’s chips but not phones containing those chips — since the phone makers were not parties to those proceedings and thus not found to have infringed Broadcom’s patent. Broadcom had asked that phones also be banned, and the ITC (unlike the ALJ) agreed with Broadcom.
The one thing that’s not clear from the findings is the status of the Qualcomm work-around to avoid infringing the patent that Broadcom bought in 2002. If Qualcomm were manufacturing chips today that did not infringe on the Broadcom patent, presumably it could import them. So is the work-around not yet ready to ship because (as they reportedly testified) it’s taking 18 months to develop? Or, under the exclusion order, does Qualcomm have the burden of proof to show that their new product is non-infringing?

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Saturday, September 8, 2007

InterDigital sells Apple a 3G license

Apple has licensed InterDigital’s patent portfolio for a rumored $20 million plus royalties. One estimate (reported by Reuters) estimates the deal being worth $56 million ($2 million/quarter) over 7 years.

Of course, Apple’s US iPhone is limited by the Cingular’s 2G (aka “2.5G”) slow EDGE network, so even at the new cheaper price many US buyers are hoping for a HSDPA version. But analysts agree that a European iPhone will require a 3G phone.

Presumably Apple will need a license from Qualcomm’s larger patent portfolio. One way would be to use Qualcomm’s 3G chipset. The existing iPhone has an Infineon GSM/EDGE chip, but thus far Infineon has not been a factor in HSDPA/USDPA RF chips. Other than Qualcomm, thus far the main suppliers of WCDMA chips are Nokia and Ericsson — but it’s not clear how either side of the deal would feel about selling using such chips for a competing product.

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Tuesday, September 4, 2007

Cricket-eating MetroPCS

As rumored at the time of their April IPO, MetroPCS is today offering to buy San Diego-based Leap Wireless, operator of the Cricket mobile phone service.

Both are “all you can eat” CDMA carriers, and both are adding subscribers at far above the national rate (45% and Leap — a 1998 Qualcomm spinoff — got their first, but its growth was long stalled due to poor timing of buying expensive equipment (with expensive vendor financing) near the peak of the bubble, eventually resulting in recapitalization through bankruptcy. MetroPCS came along in 2002 and has had an uninterrupted run of success over the past five years.

With its concentration on major metro markets, MetroPCS is slightly bigger overall, while Leap has more licenses in more cities. Both have roaming problems — lacking the coverage of a Verizon or even a T-Mobile. But the Leap has partially addressed that by clustering nearby markets (like Albuquerque, Santa Fe, Las Cruces and El Paso or Phoenix-Tuscon), to solve the most likely roaming needs of a subset of customers.

The MetroPCS investor presentation shows the combined markets covered by the two firms, including a strong cluster of licenses in California. Together the two firms would have licenses (if not coverage) in nearly all of the top 25 and top 200 markets.

The two are obviously stronger together, and MetroPCS (ticker: PCS) is bigger than its prey, with a $10 billion market cap vs. $5.5 billion for Leap (ticker: PCS). Other than prior bad blood over alleged patent infringement, executive egos and layoffs at Leap’s San Diego headquarters, it seems like all that’s left is haggling over the price. Red Herring notes that investors bid prices above the offering price in anticipation of a better offer, despite the efforts by Metro’s CEO Robert Linquist to convince the market that the Leap stock price has included an acquisition premium since April.

The only thing that went beyond the normal range of hyperbole is that the merger creates “a fifth national wireless carrier.” As of June 2007, the combined companies would have barely been the sixth largest carrier in the US with 6.2 million subscribers, versus 12.2 million for Alltel and 6.0 million for U.S. Cellular. (Both CDMA carriers). So while MetroLeap might have more licenses, it would have rather thin penetration.

If they pull it off, the more important question may be: what’s the endgame? The one thing protecting MetroLeap from being squashed like a bug is that the big boys can only compete on price by cannibalizing existing revenues, something they are loathe to do. So who would be the next MetroLeap merger? Would either Alltel or U.S. Cellular be willing to shift to a flat-rate model to enable a nationwide attack on the big four? And since the national market has consolidated from six to four carriers (or perhaps 5½ to 3½), can the market really support another national carrier?

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Saturday, August 18, 2007

The forthcoming Qualcomm blog

Qualcomm is running a survey about its website on its website. What was most interesting were the last two questions:
Do you see a need for a message board or a blog on
     ( ) Yes
     ( ) No

If did offer a blog, what type of information would you like to see? (check all that apply)
     [ ] Executive blog
     [ ] QUALCOMM media updates
     [ ] QUALCOMM technology news
     [ ] General technology news
My question is: why? Is Qualcomm working on a blogging policy? Is CEO Paul Jacobs going to start blogging like Sun Microsystems’ CEO, Jonathan Schwartz? What benefit would such a blog bring?

The only executive blog that I find plausible is that of Bob Sutor, the IBM VP for standards and open source. How many employees are in his chain of command? 10? 100?

Conversely, does anyone believe that a CEO writes his own blog? Would this be the best use of time for the CEO of a Fortune 500 company with billions in revenues and 8,500 employees?

Is this hypocritical? I’m a tenured faculty member, managing 0 people, trying to flog a book. Given Paul’s total compensation (not counting stock options) was $2.7 million last year, my opportunity cost must be less than 5% of his.

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Tuesday, August 14, 2007

Throw Lou under the bus

How is Qualcomm going to deal with investor dissatisfaction over its recent legal troubles? Monday its general counsel, Lou Lupin, resigned for unspecified personal reasons.

A graduate of Stanford law, Lupin had been with the company since 1995 and general counsel since October 2000. But after last week’s terrible legal news — not only the final ITC decision but a stringing rebuke over misleading a Federal court — it was clear something had to happen. As the LA Times reported:
“It’s not a big stretch to guess that Lou took the hit,” said Mark McKechnie, a telecommunications equipment analyst with American Technology Research. “Qualcomm was a bit embarrassed the court held against them essentially for misconduct.”
Whether he fell on his sword or was pushed, Lupin’s action gives Qualcomm’s CEO some badly-needed breathing room.

As an added bonus, Qualcomm named a famous interim counsel from its bench: Carol Lam, the famous (and somewhat controversial) former U.S. Attorney for the Southern District of California. Fortunately for Qualcomm, Lam today is best known for being fired by the Bush administration (thus winning sympathy with Bush-hating judges) and not for anything she did or did not do as U.S. Attorney. Every U.S. news story seemed to mention this, as in the UT account:
Carl Tobias, a professor of law at the University of Richmond, said Lam, 48, will be a benefit to Qualcomm because she is well-respected in the legal community. He said many see Lam's ouster as U.S. attorney – part of the Bush administration's controversial firing of eight U.S. attorneys – as a “raw deal.”

“Mostly she enjoys a really good reputation,” he said. “That fact could help improve the confidence of the judges.”
Judicial sentiment notwithstanding, the change of counsel is not going to change Qualcomm’s dependence on enforcement of patents and patent royalties as the cornerstone of its IP-based business model, nor the determination of its various major rivals — Broadcom, Ericsson, Nokia or TI — to reduce or eliminate paying such royalties.

In particular, nothing in the change of counsel (whether with Lam is the interim or permanent replacement) will make Nokia any more willing to negotiate an end to the current standoff, in which it has been shipping CDMA phones without paying Qualcomm royalties for the past 4 months.

While a change in counsel is not a change in management or a change in Qualcomm’s business model, it could change three things: Qualcomm’s legal strategy, how well that strategy is executed, and the advice that the top executives are getting. While Lam isn’t a patent attorney, perhaps she will end the rash of miscalculations (or poorly executed courtroom strategies) that brought the company to this point.

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Sunday, August 12, 2007

Unable to escape the shadow

Qualcomm CEO Paul Jacobs has had a really bad year. The company’s biggest customer, Nokia, stopped paying royalties until it gets a better deal. It keeps losing course cases to Broadcom. And there are rumblings among some investors who say he must go.

In a CNN interview published Friday, Jacobs admitted that he may never escape the shadow of industry legend and Qualcomm co-founder Irwin Jacobs:
Q: You joined the company established by your father in 1990, in your late 20s. Was there ever an issue for you, do you think, about whether or not to join the family firm?

Jacobs: Oh sure. I was trying to make a decision about whether I wanted to be a professor and go into academia or actually go into industry but you know that I decided I loved having the ability to see my ideas turn into products that other people were using, so that led me to go into industry and I figured that, if I was going to do that, Qualcomm was the best place to go.

Q: As you say, your father's an icon, he is a bit of a legend really in the industry, which makes it all the more difficult for you. How or when do you remember that you thought to yourself I am out of his shadow, I am my own person running this company now?

Jacobs: Oh I don't think that I will ever feel that way. I think he will always cast some shadow. I mean he is the person who built the foundation for the business and it is really up to me to take that platform and take it to the next level.
The last line of Moses’ stone tablets notwithstanding, I have been known to envy the successful tech executive who was in the right place at the right time. Perhaps here’s the cure.

Paul JacobsIt’s hard to see how one could envy Paul Jacobs, who will always be compared to Irwin Jacobs, an impossible act to follow. Yes, it’s tough for the children to measure up (think Ford or Motorola). But even without the nepotism charge, successors to a larger-than-life founder are but a pale imitation (think Apple or HP).

Jacobs fils can’t win. If he does “take it to the next level,” everyone will take Qualcomm’s continuing growth for granted or credit its initial trajectory. If it falters on his watch — whether the problem is maturation or incipient problems not visible at the time of the 2005 handover — shareholders and employees (and perhaps family) will say it was his fault.

On the other hand, Paul Jacobs doesn’t really have an alternative. This is the job he’s been training for for 20 years, and it’s been in the works since mid-2000 (with employees pointing to the (aborted) split between QCT and QTL as a plan to make Jacobs a CEO). There is no graceful way to give up reins of the company, unlike say the founder CEO who decides to become CTO. As Jacobs notes, this is really the only company he can work for in industry: he certainly can’t quit and go work for a competitor. Meanwhile, his older brother Gary been toiling since 1999 as a social entrepreneur, so even that domain would invite comparison.

It’s clear that the only thing Jacobs can do is to tough it out. Since most of the problems seem to be legal, the key thing would be to hire the best patent attorney around, both to retaliate against rivals and to give advice as to how to change the business decisions.

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Monday, August 6, 2007

Strike three for Qualcomm

Qualcomm Monday lost its longshot appeal to overturn the ITC ban on importing QCOM chips that infringe a Broadcom power saving patent. Basically the USTR said she wasn’t going to overturn a decision reached through the normal administrative process, no matter how big the impact.

There’s no way to spin this. Qualcomm lost, it’s bad for Qualcomm, it’s bad for Qualcomm’s future market share, it’s bad for Qualcomm’s patent-based business model, and it’s bad for Qualcomm’s customers. Sure Qualcomm still hopes to appeal the patent validity but that seems even less likely to succeed.

Qualcomm pulled out all the stops, commissioning bigshot economists (The Brattle Group) to say that the ban will cost consumers billions. Now it will be interesting to see if that proves to be true (since both Brattle and Qualcomm will lose credibility if it doesn’t).

About the only good news for the home team is that (after more than a year) Qualcomm finally has a workaround to avoid infringing the patent.

Despite their huge win, it’s hard to believe much in the Broadcom press release, which seems more about threatening Qualcomm’s shareholders and customers (to increase pressure for a settlement) than actually commenting on the legal ruling. Quoting General Counsel David A. Dull, the press release proclaims:
“According to the IEEE Spectrum, Broadcom possesses one of the world’s most powerful semiconductor patent portfolios,” Mr. Dull said.
Let’s see. Since when is a magazine article an authoritative source of how important is a company’s patent portfolio? “One of” could refer to top 20. Even if it was “top 1,” what proportion of the patents relate to mobile phones? And how does this relate to the relevance of Broadcom’s portfolio to Qualcomm’s products, or the relative importance of the Broadcom and Qualcomm 3G patent portfolios?

I could go on. Broadcom still thinks it will get $6/chip from Qualcomm until patent 6,714,983 expires. Qualcomm obviously has no intention of paying — perhaps hoping to find some outside entity to put a reasonable value on the patent.

As best I can tell, the patent in question was invented by employees of Intermec Technologies of Cedar Rapids Iowa more than 12 years ago, and the patents were acquired by Broadcom as part of 150 patents it bought for $24 million from Unova in 2002. (Apparently the Wall Street Journal reported this in June, as did the Seattle Times. It took me longer to write this paragraph than it took me with Google to identify the Cedar Rapids inventor of the patent as working for Intermec and tie those patents to the Broadcom/Unova deal). Buying patents makes Broadcom a savvy investor and a clever patent troll, not an innovative company.

Still, Broadcom is winning under the current rules. Qualcomm was first sued by Broadcom in May 2005, and seems to have consistently underestimated the business consequences ever since. If I were a large institutional shareholder (or a customer like Verizon, Sprint or AT&T), I would ask what Qualcomm has been doing for the past two years. A smart lawyer, R&D manager (or CEO) would have ordered a full re-examination of all Qualcomm products to see if they might infringe any of the Broadcom patents claimed, to make sure that a work-around was forthcoming.

Six months ago, Qualcomm appointed a recently retired U.S. Attorney to be VP and legal counsel. If she can’t change their luck, it would seem as though some more significant management change would be due.

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InterDigital entering the product business

David Mock — author of The Qualcomm Equation — on Tuesday summarized the stock analyst recommendations on InterDigital Communications. InterDigital is one of the larger WCMDA patent holders — along with Qualcomm one of the few companies whose WCDMA business model is about patent royalties.

The difference is that Qualcomm decided not to spin off the chip-making business (after it settled its last patent dispute with Nokia 5 years ago) and thus it has two major divisions: QTL (technology licensing) and QCT (fabless chips for CDMA, cdma2000 and WCDMA).

I had not realized that IDCC’s business model is based on large one-time settlements. Here’s how Mock explains it:
Revenue. On average, analysts look for InterDigital to report $52 million in revenue this quarter, way below the $297 million last year, but that number was inflated with a one-time gain.

Earnings. The average analyst expectations vary wildly but average out to a $0.01-per-share loss for the quarter. …

Significant one-time settlements have anchored the bulk of InterDigital's past revenue.
What was really really fascinating was the S&P summary of IDCC’s financials:





























I do not give stock advice — especially (after riding Iridium all the way down) to myself. So I don’t offer any opinion about the IDCC prospects, only the observation as someone who studies the telecom industry (and mobile phone patents) that the IDCC revenues and profits are among the most variable (some would say erratic) in the industry.

Motley Fool’s readers are very bullish on the stock. But from what I’ve seen, the stock has a cult following like a lot of other thinly traded stocks. IDCC is tiny compared to other 3G telecom suppliers. Qualcomm is #317 on the Fortune 500, with Motorola #61; Samsung is #63, Nokia #135 and Motorola #152 on the Forbes Global 2000).

Now IDCC wants to get into the baseband ASIC business for 2G and 3G phones — making IDCC’s business model an exact copy of Qualcomm’s. (I suppose the Qualcomm loyalists would say “a pale imitation of Qualcomm’s.”) While depressing margins, this should smooth out revenues and give somewhat of an insurance policy against patent problems going forward.

But, as Mock points out, that will put them into direct competition with Qualcomm, TI and Broadcom. Even with foundries, I would imagine such chip design is complex, and its three major rivals have a big headstart. As the newcomer, it will be interesting what sort of competitive advantage IDCC will have to offer.

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Saturday, July 28, 2007

Qualcomm: Broadcom doesn’t want to deal

A little bit more came out this week about the Qualcomm-Broadcom impasse, during the Qualcomm quarterly earnings call. Dow Jones reported:
Jacobs, speaking during a conference call to discuss its quarterly report, said Broadcom wants its customers to be exempt from paying Qualcomm licensing fees for a large chunck of its intellectual property portfolio as part of a settlement.

"That is unacceptable," Jacobs said. "We continue to believe the rulings are wrong."

President Steve Altman said that Broadcom is arguing that since it is exempt from licensing fees, it's customers should be, too.

But David Rossman, who heads of up intellectual property litigation for Broadcom, said, "a solution with Qualcomm will not eliminate their licensing program."
Obviously we’re not getting the whole picture about what’s being offered behind the scenes — but clearly Qualcomm believes that settling on the current terms would undercut its business model.

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Thursday, July 26, 2007

We’re #1! We’re #1!

Finally some good news for Qualcomm. As Information Week reports:
Its legal troubles notwithstanding, Qualcomm has supplanted Texas Instruments(TXN) as the world’s leading supplier of integrated circuits for mobile devices, according to data from market research firm iSuppli.

This reshuffling marks the end of, or at least a pause in, Texas Instruments' long reign at the top of the mobile semiconductor market. The first quarter of 2007, according to iSuppli senior analyst Francis Sideco, “marks the first time that TI has not occupied the leadership position in this area since iSuppli began tracking handset market share in 2004.”
iSuppli credits Qualcomm’s monopoly on EV-DO chips (where TI is not currently supplying product) as well as its W-CDMA chips. Of course, TI’s CDMA line traces back to its 2000 acquisition of San Diego-based Dot Wireless for nearly $500 million.

So this is certainly good news for TI. At some point I do need to figure out one discrepancy: everyone has been listing TI as tops in the mobile phone IC market. However, ARM-licensed microprocessors are in more than 80% of all mobile phones being sold (one figure has it above 95%), so who could have more market share than that? So yes, TI is a licensee of ARM and today some of its most popular products are the OMAP application processors containing both a C55x DSP and an ARM9 core.

TI’s own claims are:
  • today the company has the majority of market share in GSM/GPRS mobile devices.
  • Additionally, more than half of 3G WCDMA handsets use TI basebands, and
  • even more use OMAP applications processors.

There’s a double counting problem here: obviously one company could have a majority share for the baseband processor and another majority for the application processor (unless it’s a dual-core processor). There’s even a potential triple counting of share between an IP licensee like ARM, a fabless semiconductor company like Qualcomm and a foundry (like IBM or TSMC used by Qualcomm); it’s only double counting (ARM and TI) for TI which makes its own chips.

Graphic: courtesy Fujitsu.

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Thursday, July 19, 2007

Broadcom cracks CDMA front

In their fight against Qualcomm, Broadcom scored an amazing victory today. They got Verizon Wireless to pay a $6/unit royalty up to $200 million every phone Verizon sells using Qualcomm chips.

Qualcomm turned down a similar deal three weeks ago because it could cost $2 billion. Instead, Qualcomm was reportedly hoping for a $100 million fee plus a future cross-license. (The Bloomberg article claims Qualcomm offered a royalty-free cross-license, which would be dramatically out of character for either Qualcomm or the industry).

For six patents, Broadcom could be making more per CDMA phone than Qualcomm makes (~ 5% of the price) for more than 1,500 patents. Of course, Verizon gives Broadcom another $200 million with which to sue Qualcomm (or perhaps even file more patents that block Qualcomm). (We do not know whether Verizon still has to pay the royalties if Broadcom’s patent claims are somehow dismissed or settled.)

If the Americans bought 143 million new phones last year, then Verizon’s 26% share would sell the 33 million phones in about a year before royalties were paid up. (It might take a little longer because royalties are capped at $50 million/quarter).

I’m guessing that Verizon — in a neck-and-neck market share war with the iPhone-equipped AT&T (27% share) — feels this would be a bad time to let its number #1 rival gain an advantage in new handsets and thus customer additions. This shows how much Verizon is willing to pay for certainty. It also means that Verizon no longer has a reason to support Qualcomm’s appeal of the ITC decision.

This is a very dangerous time for Qualcomm: if it loses the ability to charge royalties for firms that hold any 3G or GSM IPR, then it would probably lose the majority of its patent royalties (and as much as half of its net income). Nokia, Broadcom and others are hoping this will happen, and right now Qualcomm’s enemies are more powerful than its allies. For a decade, Qualcomm’s IP business model has counted on having the facts and IP law on its side, but the last year or two has reversed that trend.

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Tuesday, July 10, 2007

Writing a book backwards

Normally it’s a good idea to write a book front to back. But it seems like right now, I’m writing the book backwards.Escher Hands

The working title for our book remains Digitizing Communications: From MIT to Qualcomm. Since Caroline & I first discussed doing the book 2½ years ago, the outline for the main chapters has been chronological: it starts with Claude Shannon, eventually gets to Linkabit, talks about the early Linkabit spinoffs, a chapter dedicated to Qualcomm and then the 1990s telecom boom. We will then have some wrapup chapters generalizing about the cluster, and a final chapter looking forward.

In the Fall of 2000, I started writing my various Qualcomm cases. The first one, “Qualcomm in China,” was written to teach political risk in my Fall 2000 UCI international business class. It was eventually published in two parts by the Asian Case Research Journaland the University of Western Ontario. That’s where Dave Mock got the China story for his book The Qualcomm Equation.

Then I wrote a second series of cases (“Qualcomm 2000,” “Qualcomm 2001” and “Qualcomm 2002”) for teaching standards competition to another UCI MBA class; those ended up with the European Case Clearinghouse in 2002.

Meanwhile, Caroline was working on her dissertation, cataloguing the hundreds of wireless startup companies in San Diego from 1980-2003. We presented a paper from her dissertation at a 2003 conference in Denmark, a paper that now and again gets us calls from interested parties (and was also cited by Mock). Other material from her dissertation bears on the spinoff chapters, since (AFAIK) Caroline has the only complete database of some 240 startups (plus 100 branches of other companies) founded in the region.

When writing her dissertation, Caroline found — as has anyone who’s studied the San Diego telecom industry knows — that all roads lead to Linkabit. We wrote a paper on Linkabit in 2005 that we presented in June 2006 at the Babson entrepreneurship conference.

Sabbatical in hand, last summer I sat down to write up the Linkabit chapter for the book. As I wrote it, I tried to figure out what Andy Viterbi (S.B.,S.M. ’57) and Irwin Jacobs (ScD ’59) and starting Linkabit in October 1968. Like a thread on a knit sweater, I gave a tug and it kept unravelling. Six months later, I had a chapter on MIT and another chapter on information theory in NASA communications (which led to talks at MIT and NASA, respectively), but no Linkabit chapter.

Now I’m working on Chapter 1, about Claude Shannon and the birth of information theory. Hopefully I will finish the chapter in the next week, and then can start writing the book the way it was meant to be read: front to back.

Graphic: M.L. Escher, “Drawing Hands” (1948)

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Friday, June 22, 2007

BREW in Europe, too

At its annual BREW developers conference, Qualcomm this week announced that the Chinese firm Hutchison will be rolling out BREW with its operator 3, which has licenses in the U.K., Italy and elsewhere.

Thus far, BREW’s major operators have been Verizon (US), KDDI (Japan) and KTF (Korea), and China Unicom (China). In the US, Verizon Wireless rebrands the service as Get It Now®. BREW is also supported by two of the smaller US CDMA carriers, Alltel and US Cellular, but not the #2 US CDMA carrier (Sprint).

Launch DateCarrierCountryTechnologyOverall
2001KTFKoreaCDMA13 million 
2002Verizon WirelessUSCDMA61 millionGet It Now®


29 millionEZapuri
2003VIVOBrazilGSM30 millionEscritório Móvel Brew
2003China UnicomChinaCDMA150 millionU-Magic
TBD3UK and 9 other countries3GSM13 million 

Qualcomm has a previous deal with O2 — a competing UK carrier — but that’s only for uiOne, the BREW-derived interface that carriers like because it allows a common look-and-feel for a carrier’s handsets. So if 3 allows European subscribers to download BREW applications, it could mark the first major Qualcomm revenue source in Western Europe.

Carriers have launched some 3G (and 2G) CDMA networks in Eastern Europe, but the only CDMA west of the former Iron Curtain are the tiny Radiomovel Telecommunications in Portugal, and Nordisk Mobiltelefon’s proposed cdma2000 service in the five Nordic countries using the former NMT 450 MHz spectrum.

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Foul tip

If Qualcomm’s count at the ITC (with Broadcom on the mound) is 0-2, then Thursday’s decision by the ITC not to override itself is the equivalent of a foul tip — the count stays unchanged.

In its clutch appeal, Qualcomm got support from the CTIA and the top four US carriers: AT&T (née Cingular), Verizon Wireless, Sprint Nextel and T-Mobile. It also said that its MediaFLO deployment for AT&T and Verizon — the preferred mobile TV solution for 53% of US cell phone subscribers — could be delayed by the ban.

The final possibility is a presidential veto, which (AFAIK) would have to come sometime in early August if it is coming at all.

Mike Dano of the industry’s oldest trade journal, RCR News, mocked the Qualcomm position:
Qualcomm is asking for a presidential veto on the ITC ban. That’s right: Rather than pay Broadcom a simple patent-licensing fee (a payment most other businesses would consider standard), Qualcomm is going to petition the world’s most powerful leader for a veto. I’m sure that President Bush has plenty of time to deal with this situation, seeing as how the immigration thing fell through and all.

Anyway, I guess I can sort of understand Qualcomm’s position: In the interest of its shareholders, the company feels the need to exhaust all options possible. No word yet on whether Qualcomm is going to secede from the United States and form its own independent government where the only valid patents are those developed by Qualcomm—which, to me, is the next logical step if a presidential veto doesn’t work.

I’m sure they will call it “The Confederate States of Qualcomm,” and Paul Jacobs will rule with a gentle, kind hand, much like Aragorn, crowned as King Elessar, ruler of Gondor.
I agree with Dano that it would take some significant prompting for president Bush to intervene. Is he likely to listen to Qualcomm and its allies?

Jacobs ClintonCEO Paul Jacobs’ former bosses — dad Irwin M. Jacobs and co-founder Andrew Viterbi — were known as donors to Democrats, at more than $300k and $50,000 respectively. Irwin Jacobs got his National Medal of Technology from Bill Clinton in 1994.

At this point, Pres. Bush is not running for re-election and his ties to the GOP party machinery weaken by the minute. However, his party and campaigns have strong ties to home state telephone monopoly SBC (er, AT&T), and according the left-leaning Center for Public Integrity, the phone companies and SBC in particular were among the largest Bush donors.

Irwin Jacobs’ counterpart, Broadcom chairman and co-founder Henry Samueli (and his wife Susan) seem to mainly spend their political money on state races, in addition to $75 million spent buying the Stanley Cup.

If Bush backs Qualcomm and most of the industry over Broadcom, is that politics or good policy? Would Clinton have done any different (I think Clinton clearly would have favored Jacobs, particularly as a lame duck). Conversely, if the European Commission backs most of its telecom manufacturers — and Broadcom — over Qualcomm, is that politics or good policy?)

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Wednesday, June 20, 2007

China's 3G plans

In February 2001, I made my first (and thus far only) visit to China, to research Qualcomm’s efforts in China. The result was an MBA teaching case “Qualcomm in China,” published in two parts by Ivey Business School (A and B) and in a slightly different form by the Asian Case Research Journal (DOI: 10.1142/S0218927502000257 and DOI: 10.1142/S0218927502000269). This case is the basis for the China market entry discussion in the 2005 book The Qualcomm Equation.

[China Mobile dealer]When I finished the visit (and the research), the one thing I was itching to follow up on was China’s plans for its own 3G standard, TD-SCDMA. It was obviously a big issue: direct efforts by the Chinese government to delay 3G deployment and protect access to its market to help Chinese firms develop a national (and nationalistic) technology, to help Chinese firms gain privileged market access and (as with DVDs) pay less in foreign patent royalties.

Also interesting was the role of Siemens. By then, it was already an also-ran in the global mobile phone industry and thus were transferring technology to the Chinese in hopes of gaining market access; since then, they sold their handset business to BenQ (a business that then went bankrupt) and transferred their infrastructure to a joint venture with Nokia.

I really wanted to follow up on this — it was a top goal of mine, since this was obviously the next big standards battle, both in terms of market size and also as a technology policy issue. But I lacked the funds, time and language skills to pursue it, so put it aside to do “someday.”

This week I’m attending DRUID, the main European academic conference on the economics of innovation. I was fortunate to meet Hui Yan (or as they would say in Singapore, YAN Hui), a doctoral student of my friend Prof. Bent Dalum at Aalborg University in Denmark. Hui spent 4 years working for mobile phone companies in China, including Motorola and Nokia.

Hui is doing her dissertation on TD-SCDMA development and policy, focusing on the complex interactions between the Chinese government, domestic operators, domestic manufacturers and foreign manufacturers. At the DRUID conference on Wednesday, she presented a paper summarizing her findings thus far. She describes the long complex path that the Chinese government has taken in nurturing and protecting TD-SCDMA.

Today, China has no 3G service, while more than 450 million subscribers are using 3G in 134 countries worldwide. GSM carrier China Mobile once hoped to roll out WCDMA service in 2004. As with CDMA carriers in Japan and Korea, China Unicom could presumably upgrade from cdmaOne to cdma2000 at any time it wants.

Hui reports that both major carriers would prefer to use the upgrades to their existing technology (presumably because they prefer proven solutions than relying on the unproven new technology.) However, she reports that China’s MII has again delayed 3G another year to 2008 (or later) so that TD-SCDMA will be viable before any 3G licenses are awarded. Writing as from a Chinese perspective, she laments that this “Chinese” technology only has 7% of its patents held by Chinese firms, versus 66% by the three big European manufacturers (Nokia, Ericsson, Siemens).

As with the rest of the world, 3G is being pushed by manufacturers looking to sell multibillion dollar infrastructure upgrades; in this case, this is the shared interest of foreign and domestic manufacturers, even if they prefer different technologies. Meanwhile, absent proven demand for 3G services, the Chinese carriers would prefer to just keep growing their market penetration.

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Tuesday, June 19, 2007

Qualcomm's W-CDMA/cdma2000 chipset

Once upon a time, the Europeans and Japanese that strategically allied to make a common W-CDMA standard in hopes of pre-empting the Americans and dominating the world, but that didn’t happen.

The whole global roaming argument seemed like a nonstarter, as a few people said at the time. Sure, Europeans wander around within the EU and perhaps to Mediterranean beaches, but how many go to the US or Asia? How many Americans travel enough outside North America to care about GSM (W-CDMA) coverage? I can’t imagine it’s more than 5%.

But without a single standard, there was an interest in having dual-mode phones — more from the CDMA subscriber sides than the GSM side, since there are lots of W-CDMA only countries and only a few that are exclusively or dominated by cdma2000. Thus for years, Qualcomm has been planning and now offering MSM chips that support both the W-CDMA and cdma2000 variants of 3G technology.

Reading the Financial Times last month, I saw a brief (and glowing) review of the Blackberry 8830 “World Edition”, which uses the Qualcomm chips to provide a dual mode capability. It also got a generally positive review by InfoWorld. and from CNET. Someone said that there have been other dual mode phones (presumably by LG, Samsung or Sanyo), but if there have, they have not been visibly marketed in the US.

The original US reviews were with Verizon, but now Sprint is advertising that this phone is “coming soon.” So both companies have an attractive alternative to the claims of AT&T (née Cingular) promoting world phones.

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Friday, June 8, 2007

Qualcomm’s Hail Mary

I know Paul Jacobs didn’t go to Boston College, he’s taller than Doug Flutie, and it’s the wrong religious metaphor. Still, Qualcomm’s strategy for dealing with the ITC decision seems like a “Hail Mary” play.

Thursday’s press release responding to the decisions was posted after business hours. It begins:
Although all of the Commissioners agreed that a disruption in the supply of EV-DO and WCDMA handsets would negatively impact the public interest and public safety, the remedy fashioned by the majority does not protect the public interest or public safety. QUALCOMM will ask the Federal Circuit Court of Appeals to stay enforcement of the ITC's order and ask the President to veto the ITC's decision. QUALCOMM maintains that Broadcom's patent is invalid and not infringed.
Hmmm... If the patent is invalid and not infringed, shouldn’t there be an action in a court of law to win a determination to that effect?

The press release continued:
Having chosen not to develop an EV-DO solution and having failed in the marketplace to generate interest in its WCDMA products, Broadcom brought this litigation against QUALCOMM but has used it as a vehicle to attack the U.S. cellular industry, even though Broadcom has never accused any wireless manufacturers or operators of infringement or any other wrongdoing. The public injury that would result from the remedy imposed by the Commission is grossly disproportionate to any benefit flowing to Broadcom from such broad enforcement of a recently-purchased patent. Broadcom does not make or sell EV-DO chips, and Broadcom's claims that it can supply WCDMA products for the United States have been rebuffed by WCDMA operators in submissions the operators made to the ITC.
Qualcomm lost by a 4-2 vote — 2 commissioners did not favor a ban. Last October, when the ITC administrative law judge ruled against Qualcomm, it praised the judge for not recommending a “downstream” remedy; I can’t verify this, because the judge’s report does not appear to be on the ITC website. Still, the ITC enforces its orders via an import ban, unlike a Federal court that imposes fines or other remedies.

Its press release continues:
QUALCOMM and the U.S. wireless industry will seek an emergency stay from the Federal Circuit and a Presidential veto of the ITC's ruling on several grounds, including that Broadcom's ITC action will harm U.S. consumers, impact public safety and national security and harm the U.S. economy by stunting mobile broadband deployment. By punishing completely innocent cellphone manufacturers and wireless operators that were given no opportunity to contest Broadcom's infringement claims, the ruling also raises serious issues of due process and fairness.
The Verizon and Sprint websites are silent, although CTIA (representing all the carriers) says:
CTIA-The Wireless Association® believes today’s decision by the International Trade Commission will cause enormous undue harm to tens of millions of American wireless consumers, and urges President Bush to veto the ITC importation ban. The ITC decision unnecessarily decreases competition, and denies millions of consumer’s access to innovative wireless broadband products. This decision flies in the face of public policy that encourages the availability of broadband services and products, and could have the unintended effect of impairing the wireless industry’s efforts to improve communications in areas such as public safety. Consumers should not have to pay the price for a legal debate that could be settled by other means.
Whilte the UT reports Sprint Nextel as being focuced on a work-around, it quotes Kyocera Wireless (Qualcomm’s former handset division) as supporting the veto, as does Verizon:
“This is a bad order for the industry, and it's a bad order for wireless consumers,” said Verizon spokeswoman Nancy Stark. “It would freeze innovation.”
Still, this seems like a longshot effort; as one lawyer’s site says, “a presidential veto is extremely rare.”

The UT and others note that Qualcomm is working on a work-around, but it will take time. Since they lost before the judge almost eight months ago, I don’t know why they didn’t start a crash project back then. The UT also says the patent expires in three years, suggesting Qualcomm would like to stall until then.

Meanwhile, Broadcom is just waiting for Qualcomm to settle — presumably one that would give it access to Qualcomm’s portfolio:
We simply want to be adequately compensated for the use of our intellectual property. To that end, we have made it clear to Qualcomm that we are open to discussions regarding the potential for licensing of our patent. The ball is in Qualcomm's court.

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Thursday, June 7, 2007

Broadcom 3, Qualcomm 0

6/7/7 is Broadcom’s lucky day. After winning a December case over one patent before America’s International Trade Commission, Broadcom today convinced the ITC to ban the import of any new cell phones with Qualcomm chips.

Yes, existing models are grandfathered in, but the impact of the ruling is still dire for Qualcomm. The ban will not only prevent LG and Samsung from introducing new CDMA phones in the US, but it will also cause AT&T (or T-Mobile) to rule out any W-CDMA phones with Qualcomm chips.

Needless to say, Broadcom was quite pleased with the ruling, and used it to spin its position that the commodity chip producer was wronged by the company that invented CDMA:
In this case, Qualcomm and its customers have been importing products that use Broadcom's valuable intellectual property without permission. As Broadcom continues to develop cutting edge wired and wireless communications and multimedia products that enable the convergence and communications trends that are touching consumers in their daily lives, we are gratified to know that the results of our investments and hard work will be protected from infringers like Qualcomm.
With a gun to Qualcomm’s head, Reuters reports that “Broadcom Corp. said on Thursday it is open to discussions for Qualcomm Inc. to license its technology patent.” Broadcom’s goal has always been to break Qualcomm’s business model — to get it to budge on its full-royalty-for-all policy. The ITC victory is its best shot ever to do so.

No word on how hard it would be for Qualcomm to invent around the one patent (6,714,983), i.e. produce a non-infringing chip. Last month, Qualcomm also lost a Federal case (litigated on Broadcom’s home turf) over three other patents (6,847,686; 6,389,010; and 5,657,317).

Qualcomm must comply with the ITC order while appealing the original verdict, so now it faces the dilemma of solving the immediate problem vs. continuing to fight in hopes of an eventual win.

No word on what Qualcomm said at its 3:30 p.m press conference, but the stock lost about $2 billion in market cap today. Overall, the stock is down about 9% since its peak last month at slightly over $46.

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Wednesday, June 6, 2007

Robots at NEL

The Navy has been on Point Loma for more than a century. The San Diego Historical Society notes how that Naval Radio Station Point Loma dates to May 1906. During World War II, University of California Division of War Research conducted sonar research out on the point.

[Building 33]In 1945, the Naval Electronics Laboratory was founded on Point Loma. By 1954, as the photo archive demonstrates, Building 33 (right) was already the central “topside” building. NEL was renamed to NELC in 1968, which is what it was called when I first visited the lab’s Building 33 in 1975 as a high school student attending the citywide physics contest.

NELC remained up at the end of the point through 1977, when it disappeared once and for all. (Actually, the buildings, missions and people remained, but it became NOSC in 1977 and SPAWAR Systems Center - San Diego in 1997). For decades, NELC (and NOSC) were big on C3 (command, control, communications). But today the buzzphrase is C4ISR (Command, Control, Communications, Computer, Intelligence, Surveillance and Reconnaissance).

Tuesday I went back to Building 33 for the first time in more than 20 years, for the SDTC Military SIG event “Rise of the Machines 2: A Field Trip to the Center of Excellence for Small Robots”. The program focused on the robotics research being done by the Navy and the DoD’s Joint Robotics Program.

In contrast to the Terminator 3 movie evoked by the program title, the Navy speakers emphasized the ongoing human control of the various aerial, land, sea surface and underwater robots. Still, one of the major advancements is to have robots go to a location (or patrol a pattern) without direct human interaction, to improve the labor efficiency so that one driver can manage more than one UAV/AUV. (For robots doing IED disposal, it appears that the robot occupies the attention of at least one operator).

One interesting thing is that the Navy (and the rest of DoD) are using some off-the-shelf commercial platforms for some missions. Some of the land-based robots are based on iRobot products (makers of the Roomba). The mine searching robot (with side-scanning sonar) came from Hyroid — a spinoff of MIT’s Woods Hole Oceanographic Instutite — which makes the Remus AUV that can be yours for only $250K or so.

The computing issues were also in many ways similar. The Navy is putting existing legacy apps into XML wrappers, so that a SOA will allow users to access data from a wide range of sources. No more word-of-mouth (or piece-of-paper) relaying results between different screens.

The communication problems, however, seem very different. Unmanned vehicles at the fringes of a carrier battle group (or a Littoral Combat Ship) go in and out of range of the combat IP network. Once they come in range, they need to authenticate and upload data quickly (before they leave again) rather than spend a few minutes rebuilding perfect routing tables as a commercial product does.

The Navy also faces unique reliability concerns. One speaker noted that the Navy needs to learn from the ad hoc denial of service attack mounted by Russian hackers against Estonia that shut down its Internet access for days, causing considerable economic damage. The attacks should be theoretically impossible if the military ships are not connected to the public Internet, but then again how do sailors get e-mail from back home?

The creation of MilSIG and integration of CommNexus with local Navy research and contractors is being led by SDTC director Vice Admiral Walter R. Davis, USN (Ret). Davis is a former F-4 and F-14 pilot who became a commander of a carrier and then a carrier battle group. It appears he ended his career as the head of the Navy’s communications networks in the office of the Chief of Naval Operations (N6), which seems a fitting position for someone trying to bring the Navy’s communications concerns before the San Diego telecom industry.

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Friday, June 1, 2007

In praise of cheap wide pipes

This weekend I’m in Marina Del Rey (near LAX) at the annual conference of researchers who study the mobile communications industry.

The conference has a very international flair. One session I attended was about the (under) adoption of mobile TV in Korea and the UK. Another was a multi-country study on attitudes towards mobile data adoption.

Given the concerns of the industry for revenue growth, it’s not surprising that mobile data is a big topic here. Why aren’t more users using mobile data? What are the killer applications? What kind of content will create demand and make money? What is the relative mix of short content (e.g. 30 second clips) vs. long content (entire TV shows or movies)?

And what will be the pipes? Will they be the 3G cellular pipes? Or will they be one of the alternatives, such as personal Wi-Fi, business Wi-Fi, Wi-Fi hotspots, municipal Wi-Fi or WiMAX?

Both for transport and for content, there were many concerns about business models because winning business models for wireless data are few and far between. The one exception is that Japan’s DoCoMo (reportedly) collects a 9% charge for billing/invoicing all m-commerce transactions.

[LA GMR panel]Given the location, it was appropriate that the first plenary session focused on video entertainment. The panelists for the session entitled “Mobilizing Digital Hollywood” were:
  • Derek Broes, Senior VP Digital Entertainment, Paramount Pictures (ex-Microsoft)
  • Chris Brunner, VP Mobile Content and Services, Univision, Online — selling TV content
  • Neil McGinness, IMG — mainly selling sports content through deals with various sports leagues
  • Mark Young, Disney, VP Business Development and Strategy
  • Bill Sanders, Sony Pictures Television International, VP Mobile Networks Programming and Digital Product Development (formerly with HBO)
SMS is highly profitable with limited bandwidth, but a key issue for rich multimedia content is the characteristic of the pipe. Among the key issues:
  • The bandwidth for individual users. 3G is now offering a megabit/second, as does Wi-Fi, but fiber to the home is offering tens of mbps.
  • The efficiency of the bandwidth. In an earlier session, Dave Tilson’s paper on mobile TV noted that in one of the UK trials, cellular networks could only support 6 mobile TV users per cell. Sony’s Sanders said that carriers see mobile data like a health club membership: “They want you to pay your monthly fee but not show up too often”
  • Pricing. For single professionals and students, switching from a home-based broadband to a PCMCIA-based broadband (each at $30-$40/month) is realistic. But otherwise, Elizabeth Fife reported that for the US respondents of the Worldwide Mobile Data Service Study, the most popular answer was that users were willing to pay about $5-20/month for mobile data service.
So a lot of the interest is in moving traffic off the cellular network to other sources, such as municipal Wi-Fi or commercial WiMax service. Seamless switching between cellular and Wi-Fi/WiMax is a key concern of most firms in the mobile industry — except of course for the carriers.

Still, both 802.11/802.16 alternatives have problems. The hopes and claims of municipal Wi-Fi systems have not been proven, and most (if not all) are failing to hit their financial and adoption goals.

WiMax has been sponsored by Intel as a direct attempt to bypass Qualcomm and cellular carriers. However, the business models have not yet been proven. I wonder about the capacity — if each antenna only supports 60 concurrent connections, how many antennas do you need to build to cover a city? If you are building cells (with backhaul), how are the economics different than cell phones?

One way to increase capacity is to go Back to the Future: instead of unicast, go to a broadcast (“multicast”) model (i.e., the 1950s TV model). Usually this means moving the traffic off the network to new spectrum: terrestrial VHF or UHF (like MediaFLO) or direct satellite broadcast (as in Korea’s S-DMB). For something like live broadcast of the World Cup, it’s hard to imagine another solution that will offer the economic or spectral efficiency. One of the Hollywood panelists (didn’t see who) specifically praised MediaFLO and its economic efficiency as potentially changing the whole mobile content industry.

There is one other example of mobile video — in its infancy — being like TV of 60 years ago. Particularly in the US, cable TV, direct broadcast satellite and the Internet have fueled a fragmentation of media industry, ending the dominance of the “big three” TV networks that reigned for the first two decades of US television. But as I listened to the presentations today, it was clear that there will be limited capacity for mobile video — just as there were no more than 12 VHF channels in the US (typically 3-6 per metropolitan region) in the 1960s, and only 2-4 TV channels in Japan and most of Europe through the 1980s.

I asked about this in another session. Sanjay Pothen is COO of Metroworldwide, a company responsible for product placement that is trying to do product placement and sponsored content for mobile phones through its Pliq subsidiary.

So, I asked Pothen, is mobile TV going to be like cable and the Internet — a fragmented, niche-oriented market? Or is the limited bandwidth going to mean that mobile only succeeds in mass markets. His reply: “We’re betting on the masses. I’m spending no time on niches.”

In the US, MediaFLO is the mass media pipe for the two largest carriers (Verizon and Cingular) that have 53% of the market. Sprint (not quite 24%) is planning on using WiMax (based on the Korean WiBro) for its next generation broadband. It may be that Sprint has to target unicast niche markets, while the big carriers deliver the mass market content more cheaply.

Photo credit: Picture of Derek Broes, Bill Sanders and Marc Young © by Marc Davis of Yahoo, via Flickr.

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Friday, May 25, 2007

BREW developer harnesses The Force

This morning’s breakthrough company is Eyespot, a two-year-old North County firm that has a different take on the YouTube model.

Last summer’s interview of CEO/co-founder Jim Kaskade by UT telecom reporter Kathryn Balint shows a classic “scratch an itch” startup:
Balint: How did Eyespot get started?

Kaskade: David Dudas and I both have families, and we both shoot video with a digital video camcorder. But we were both asking what do you do with the digital video after you've captured it? I hadn't done anything with it, to be honest. I didn't have the time to learn complex editing tools. This is the typical situation of a lot of consumers. So David and I said, “This is a pain point that needs to be addressed. We need to take advantage of the fact that the Internet is becoming the operating system and instead of having an application run on your desktop, you can have a hosted application running on the Internet.”
Eyespot has a two-pronged approach. The website allows editing online, while Eyespot Mobile Share (announced a year ago at Qualcomm’s annual BREW developer conference) allows such editing to be done on BREW-based cell phones (i.e. Verizon and BREW operators in Japan and Korea).

[Star Wars ’77]Today’s big announcement is that Eyespot has been selected by Lucasfilm to provide the tools for Star Wars fan(atic)s to create their own clips based on the 6-part movie saga, whether short parodies or longer mini-movies. Lucasfilm is providing some 250 clips of up to one minute or less that visitors to can combine using the Eyespot web-based software, and then post to the website (linked from a dedicated blog). This is in celebration of the 30th anniversary of the original Star Wars — I still remember waiting outside a Westwood movie theater to see the first (4th) episode) back in 1977.

There are limits, as mentioned in the Wall Street Journal article (but not the press release):
The mash-up project will come with rules, however. While it won't stop anybody from assailing characters or casting them in unexpected lights, Eyespot has set up a program to make sure none of the doctored clips contain nudity, pornography, and the like. As a backup, a team of screeners based in Costa Rica will watch each video before it goes live.
Still, this marks a courageous effort by Lucasfilm to utilize the power of user innovation and confront head-on the threat of BitTorrent, YouTube etc. facing all of Hollywood. The commentary by MaryAnn Johanson shows how big a shift this is for Lucas:
George Lucas, creator of "Star Wars," has never hesitated to protect his intellectual property, which is why some call him “Lucas the Litigator.” …

This is smart, on Lucas's part. He’s trying to take control of the crazy, pop-culture-commenting creativity all the kids are into these days. I predict this will fail, wildly, from Lucas's perspective (though fans will love it). If I may paraphrase what Princess Leia told Grand Moff Tarkin: The more you tighten your grip, Lucas, the more mashups will slip through your fingers.
This sort of deal also helps Eyespot avoid the the GooTube copyright dilemma. It is only the latest deal by Eyespot with licensed content, including Paramount Pictures and the NBA.

Kaskade and co-founder/CTO Dudas seemed to have had both a great vision and executed right on building the key content partners. With both VC and blue-chip angels like Qualcomm CEO Paul Jacobs and Linspire (née Lindows) chairman Michael Robertson, it appears they’ve built a small team that (at least until recently) was working out of a home.

This is the second startup of Kaskade, who in 1998 founded Incep Technologies, a Mira Mesa-based firm that developed IP to improve semiconductor packaging and connections. The company won more than $10 million in VC funding before it was acquired in September 2004 by Molex, Inc., a Fortune 1000 component company.

Graphic credit: Original 1977 Star Wars poster from

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Day 45, Qualcomm held hostage!

Somehow the Nokia-Qualcomm standoff doesn’t seem to be getting the wall-to-wall press that other “crises” get from our modern media. I think this must reflect an intentional decision on the part of the two parties to keep it out of the press and stick to the business at hand, which is to see if there are terms to which both sides can agree.

Obviously Nokia wants to permanently reduce its royalty payments to Qualcomm — and perhaps pick up ammunition for its ongoing fight with InterDigital. And Qualcomm is most concerned with not setting a precedent that will lower payments by other parties and destroy its business model. I’m not sure what’s taking so long, but perhaps they’re negotiating patent-by-patent. (Not clear how many that is — 2½ years ago, they bragged about 1,266 issued patents but the chart is now woefully out of date).

Who’s held hostage? Nokia can’t legally ship its W-CDMA phones to the U.S. without Qualcomm patents, but OTOH Nokia’s attempt to break Qualcomm’s business model has certainly put it in peril.

Sony Ericsson, Nokia’s major ally, was quoted at a Reuters conference last week as saying the negotiation is a really big deal.
“My thinking is that it is going to have quite a big impact on the industry as a whole,” Sony Ericsson’s head Miles Flint said at the Reuters Global Technology, Media and Telecoms Summit in Paris on Wednesday [May 16].

“If it was just a row between those two I think they might have settled it earlier. It goes quite deep,” Flint said, but noted it was difficult to estimate the exact ways it would impact the sector.
Wow. That’s deep.

Despite the lull in public posturing, not all is sweetness and light. TelecomTV quotes some harsh remarks from Nokia’s CEO:
Nokia’s CEO, Olli-Pekka Kallasvuo, upped the ante yet again last week when, speaking at the annual general meeting of shareholders [May 3] in the Finnish mobile handset and telecoms equipment manufacturing company, he said that to do so would be tantamount to handing to Qualcomm “dictatorial reign over the entire wireless industry.”

Mr. Kallasvuo added, “Talks are ongoing, the situation is open, but I have to say agreement cannot be reached before both parties are in accord. It's completely clear that we cannot give one company, in this case Qualcomm, a chance to dictate rules for the whole industry. The issue is not Qualcomm versus Nokia, it's more about Qualcomm versus the rest of the industry.”
The comments seem newsworthy, so that no one else carried these remarks suggests that Nokia intended them only for domestic consumption.

Meanwhile, Qualcomm’s #2 cheerleader is sanguine. In a Fool-ish commentary, Dave Mock wrote Wednesday:
The only real threats to the continued stream of cash flowing in to fund these perks are lawsuits and antitrust complaints pushed by Nokia and Broadcom. Nokia, in particular, is attempting to break the royalty dynasty that Qualcomm has enjoyed for 15 years by refusing to license next-generation technologies on terms similar to its original patent license agreement. Nokia is hoping that it and other equipment manufacturers such as Ericsson and Texas Instruments will be largely relieved of paying royalties to Qualcomm going forward.

But with the $200 million that Qualcomm intends to spend on legal defense this year, the company is going to great lengths to ensure that it can keep giving back to shareholders.
I would think shareholders would be more pleased to hear that Qualcomm is not only spending money on lawyers, but also a €100 million for European venture investments to align small companies to its business — much as Intel Capital invests to grow its market and to keep startups loyal to it rather than rival AMD. $134 million might seem a lot to you or me, but it is only about 20% (or less) of the Qualcomm Ventures funding.

Its first investment, in French startup Streamezzo, seems intended to support its MediaFLO mobile TV service. Streamezzo makes content authoring tools for the Nokia-backed DVB-H, but presumably MediaFLO tools will now be forthcoming.

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