Despite Qualcomm, Sprint losing Kindle

Earlier this month, Amazon introduced an “international” (i.e. GSM) version of the Kindle 2 that uses AT&T (like the new Barnes & Noble Nook). Now CNET reports they’ve cancelled the CDMA Kindle 2, leaving only the 10" model on the Sprint EV-DO network (for now).

To get it all straight, I had to do some digging. Amazon has thus far released 4 Kindles:

• November 2007: Kindle, with a 600x800 6" screen and Sprint
• February 2009: Kindle 2, with better grayscale and still on Sprint
• October 2009: Kindle 2 International, same as the Kindle 2 but GSM
• May 2009: Kindle DX, with 1200x824 9.7" screen and Sprint

Sprint was clever to partner to get this business, so it’s a shame they’re losing it — particularly since the Kindles began life as Powered by Qualcomm.

The original Kindle was powered by a Qualcomm MSM chip, and according to an iSuppli teardown, the Kindle 2 included a MSM6801A as part of a Novatel Wireless card.

A purported 2008 internal Qualcomm news article credits Qualcomm with working hard to launch the original Kindle:

The device is the result of a two-year collaboration with Qualcomm Enterprise Services, Qualcomm CDMA Technologies, Corporate R&D, Corporate Product Security, the Office of the CTO and Corporate IT.

Amazon was originally introduced to QES through a modem manufacturer who hoped to provide modems for the Kindle. The same company had also worked with QES on the CardioNet project and knew that the wireless connectivity that Amazon envisioned for the Kindle was exactly what QES could deliver.

“The project was a natural fit for QES. We have been delivering end-to-end wireless data services for almost 20 years,” said Susan Hennenfent, Senior Director of Product Development for QES. “Our expertise allows our customers to focus on their businesses while we do what we do best.”

I haven’t seen a teardown on the Kindle 2 International to see whether Qualcomm kept the business or was pushed out of the BOM.

For phones, dual-mode Qualcomm chips have allowed Verizon (and occasionally Sprint) to support global roaming for voice and 3G data. I’m guessing that Amazon decided to switch to GSM rather than pay a premium for the dual-mode chip. Price has been a major concern: the latest Kindle 2 is $259, exactly matching the Nook and a full $100 below the first (CDMA) Kindle 2 when introduced 8 months ago.

End to CDMA iPhone hopes?

Rumors have been extant all year that — after turning down the iPhone back in 2006 — Verizon Wireless was actively negotiating to get the iPhone on its network. (Cynics noted that even the appearance of talking helped both Verizon and Apple against AT&T).

Verizon is locked in a battle for dominance with AT&T, and its ads this month have been making fun of AT&T’s network reliability with a pun (“there’s a map for that”) that also attacks the iPhone.

Now a new ad campaign has the Verizon promoting the Android-based Motorola Droid by attacking the iPhone. As John Murrell of Good Morning Silicon Valley (of the SJ Merc) wrote

This weekend saw the launch of a TV commercial and a Droid teaser site that opens with a scrolling list of direct jabs — “iDon’t have a real keyboard. iDon’t run simultaneous apps. iDon’t take night shots. iDon’t allow open development. iDon’t customize. iDon’t run widgets. iDon’t have interchangeable batteries.” — and finishes with a hard right: “Everything iDon’t, Droid does.”

Murrell suggests:

[T]he direct Droid attack would seem to be more evidence that Verizon has dropped any hopes of landing an iPhone deal itself and has chosen to cast its lot with Google…

although he hedges his bets by noting new rumors of Apple/Verizon cooperation on a CDMA/LTE phone.

It’s pretty clear that Apple won’t develop a CDMA version without Verizon. I believe Sprint has too many problems to be a major launch customer, and it’s already put big eggs in the Palm and Android baskets.

Yes, China Telecom and KDDI (in Japan) together have as many subscribers as Verizon Wireless. However, the iPhone demand in those two countries is much weaker than in the US and Western Europe, so if there isn’t a US CDMA iPhone, then there isn’t going to be one.

CDMA growth in China

The FT this morning has a profile of the innovative management of China Telecom, the CDMA carrier in the PRC.

From what the article says, the Ministry of Information Industry's grand reorg of the Chinese telecommunications services sector — reallocating mobile licenses and consolidating weak operations with strong ones — seems to be having the desired effect. Competition is intensifying and firms are investing heavily in rolling out 3G infrastructure, both depressing profits.

In the reorg, China Telecom inherited the 2G CDMA operations run by Great Wall (a People’s Liberation Army affiliate) that became part of China Unicom. CT has been rolling out EV-DO, but many assumed that with its US technology it would be at a disadvantage compared to China Unicom (with GSM/W-CDMA) and China Mobile (the dominant carrier, using China’s home-grown TD-SCDMA).

However, the FT says that China Telecom has the highest growth of the carriers, jumping from 28m to 44m subscribers. (By comparison, China Mobile has 500m). To quote FT:

Analysts say China Telecom has established itself as the best run of the three telecoms operators.

“They are much more of a pragmatic, commercial animal than the political animal of China Unicom,” says Duncan Clark, chairman of BDA, a telecoms consultancy in Beijing.

The article credits the company’s research lab (China Telecom Shanghai Research Institute), and a company-wide innovation initiative that encourages workers to be more innovative in developing and packaging mobile services. The company runs an annual internal innovation contest, while engineers are sent to the provinces to work with regional marketing reps to understand the market.

Obviously it will be a while before China Telecom threatens China Unicom (142 million subscribers), and it seems unlikely to directly challenge China Mobile. Still, Qualcomm (and the global cdma2000 ecosystem) are fortunate to have drawn such an innovative ally in the world’s largest mobile market.

FUD against EV-DO in China

W-CDMA supporters in China are running a campaign of fear, uncertainty and doubt (FUD) against EV-DO efforts there, in a rehash of their strategies from the 2G CDMA wars.

In the great 3G reorg of China last year that created three mobile operators, China Unicom got GSM/W-CDMA, China Telecom got CDMA/cdma2000 and China Mobile got the homegrown TD-SCDMA. On January 7, all three were awarded their 3G licenses after more than five years of delay.

In a story on China Unicom’s plans to sell the iPhone in China, Forbes included some commentary on China’s three-way fight for 3G market share:

Unicom was given a WCDMA (Wideband Code Division Multiple Access ) license. China Mobile, which holds a commanding 74% share of domestic subscribers, obtained TD-SCDMA (Time Division Synchronous Code Division Multiple Access), a homegrown 3G standard based on spread spectrum technology that is different from approaches used in the West). And China Telecom was allowed to develop CDMA 2000 (a hybrid 2.5 or 3G technology which built on code division multiple access, or CDMA, technology used worldwide.
…
Among the three, China Unicom's WCDMA is regarded as the leading 3G approach. What's more, it's the only 3G technology used by the iPhone.

This sort of FUD marketing strategy is a classic technique by a dominant player to marginalize competitors. IBM in the 1970s was credited with inventing the strategy for the tech industry, and of course Microsoft used it against open source software or other rivals in the 1990s.

Perhaps cdma2000 1x is a 2.5G technology ala EDGE. The fights between GSM and CDMA camps over what should count as “3G” caused a fair amount of disagreement.

But certainly EV-DO — as fast as W-CDMA’s HSDPA — is a 3G technology. This year China Telecom has issued a series of tenders for procuring EV-DO equipment. The company is preparing a new round of handset tenders and can brag about superior data performance.

So to say China Telecom is only developing “2.5G” is a lie. The claim about W-CDMA being the leading technology is true from an adoption sense, if not from a standpoint of technological performance.

I wasn’t there, so I don’t know where the reporter got the bad information. The Chinese equipment suppliers are the least likely suspects, since leading firms like Huawei and ZTE provide equipment to all three of the major standards: W-CDMA, cdma2000, and TD-SCDMA.

However, based on the bitterness of the GSM vs. cdmaOne (or W-CDMA vs. cdma2000) fight, the most likely suspects are those who want to commercially weaken cdma2000 and China Telecom. That leaves either rival operators (China Unicom, China Mobile) or foreign W-CDMA equipment providers such as Nokia and Ericsson.

Korea 3G finally shifts to W-CDMA

For 2G, Korea was exclusively cdmaOne, the only country in the world where this was true. Operators quickly got into 3G by offering cdma2000 on their existing frequencies, but the government licenses specified W-CDMA for new 3G frequencies that (IIRC) were compatible with the Japanese selections. As with anything else in Korea, each round of choices was designed to protect (or at least help) the export efforts of Korean companies.

The website Cellular News reported Thursday that in Q4 2008, the total W-CDMA subscribers in Korea finally passed those for cmda2000: 16.5 million vs. 14.9 million. For me, this marks the end of an era for Qualcomm’s original success story in Korea, marred only by the periodic royalty complaints.

CDMA success brings Chinese royalty gripes

Taking a page from their Korean counterparts, in the face of rapidly growing sales, Chinese cellphone manufacturers are airing complaints through local propaganda organs in hopes of lowering their contractually obligated CDMA royalties.

Last year, a reorg of China’s telecommunications industry brought dominant landline provider China Telecom the opportunity to offer 3G mobile services using Qualcomm’s cdma2000. On Wednesday, China’s official Xinhua news service reported good news for Qualcomm and its local licensees:

Under the stimulation of China Telecom's large investment and procurement this year, the growth of China's CDMA cell phone market will be great, said an industrial insider. Competition will heat up as many GSM mobile phone manufacturers are entering the CDMA field, he added.

China's CMDA cell phone market rebounded in the end of 2008 despite gloomy market conditions. According to statistics released by market research firm Sino-MR, sales volume of CDMA handsets topped 1.29 million during December 2008, up 33.6 percent year on year and 183 percent month on month, marking a five-year high.

However, the report ended with a complaint about the royalty rates

Insiders with China Telecom consider China an important market for CDMA business and expect Qualcomm to realize the market condition and give more supportive pricing. Qualcomm refused to comment.

When in 2000 Irwin Jacobs negotiated government permission for CDMA to be used in China, Qualcomm granted Chinese manufacturers the best rates in the world — around 2.65% as opposed to 5% for other makers. (Qualcomm neither discloses nor confirms its royalty rates).

In fact, this deal has brought continued griping by Korean manufacturers paying list price. The Korea Times has run one-sided stories since 2004 airing selective leaking by the unhappy manufacturers. For example, it ran a March 2004 story (no longer on their website) entitled “Qualcomm's Royalty Policy Angers Korean Chip Makers”:

U.S. chipmaker Qualcomm’s royalty policy has angered Korean manufacturers of code division multiple access (CDMA) phones as it charges lower rates to China than to Korea.

A local CDMA phone maker contends that Qualcomm gives a “subsidy” to Chinese exporters as it collects as low as 5 percent of handset prices in royalties from them. But the rate is 5.75 percent for Korean makers.

Korean cell phone producers, which pay a fixed 5.75 percent for export and 5.25 percent for local sales to the San Diego-headquartered firm, shoulder higher royalty burdens in both domestic and global markets.

According to a contract between Qualcomm and one of China’s leading handset manufacturers, which The Korea Times obtained exclusively, the royalty rates are 2.65 percent for local sales and 7 percent for offshore shipments.

However, the contract says the export royalty will be cut to as low as 5 percent after the three years immediately following the license effective date.

The deduction ranges from 5 percent to 6.5 percent, depending on quarterly export volume, but the Chinese firm is entitled to enjoy the low rates “if more than 100,000 such subscriber units (handsets) are sold in the applicable calendar (year)” in overseas markets.

The KT report said that Chinese manufacturers signed a 10-year agreement in “early 2001,” which would mean these deals will be expiring in 2011.

A review of Qualcomm’s 2001 press releases reveals this May 21, 2001 announcement:

Qualcomm Incorporated … today announced that it has signed a commercial license with ZTE Corporation, a leading manufacturer of telecommunications equipment in China. Under the terms of the royalty-bearing license agreement, Qualcomm has granted ZTE a license under Qualcomm's CDMA patent portfolio to develop, manufacture and sell cdmaOne™ and third-generation (3G) CDMA2000 1x/1xEV network equipment. The license grants ZTE the right to use Qualcomm's technology and integrated circuits to make and sell cdmaOne and CDMA2000 equipment in China and worldwide. ZTE becomes the first company in the People's Republic of China to enter into a commercial license with Qualcomm.

Additional manufacturers signed licenses in July and November, with the latter including Huawei. Another 17 Chinese firms signed in January 2002.

The Xinhua story seems designed to help Chinese manufacturers (or China Telecom) pressure Qualcomm to lower royalties on the current deals, or at least when the licenses come up for renewal in two years.

Interestingly, there is no complaining about the GSM royalty rate, which is also secret. One report estimated the rate at 2-10%. However, data from the various Sendo-related lawsuits put the number more like 10-13%, suggesting that single-digit GSM royalties are only available to firms with big enough patent portfolios to negotiate a cross-license. Thus far, only a few Chinese manufacturers have enough patents to possibly put them in the latter category.

The LG-Samsung store

Once upon a time, Verizon Wireless was America’s largest cellphone carrier. Today it remains a close second to AT&T — 26.2% vs. 27.5% of America’s 265 million subscribers.

Wandering by the mall Saturday, it struck me that Verizon has become the country’s largest sales agent for two Korean cellphone makers — Samsung and LG.

A decade ago, CDMA phones (then with Sprint PCS or AirTouch), were mostly made by Qualcomm. Soon Motorola started making CDMA phones, and were joined by a number of Japanese makers like Sharp and Kyocera (after it bought out Qualcomm’s handset business in 1999) who adapted the designs they made for the two Japanese CDMA carriers, KDD and IDO (who later merged to form KDDI).

At two Verizon booths on Saturday, there were a handful of smartphones from Palm, Motorola and some Windows Mobile clients. But almost everything else was either from Samsung (#2 in the world) or LG (#5).

Of course, the reason that these two Korean makers are dominating CDMA phone sales is the 1991 decision of Korean industry to adopt CDMA, later ratified by the Korean government. Korean carriers went live with CDMA in 1996, at almost exactly the same time as Hong Kong and the U.S. were also rolling out their first 2G CDMA systems.

Of the top 5 handset makers, Nokia once gave up on CDMA and has recently made a token effort to renter the market. #3 Motorola has all sorts of problems with its mobile phone operations, and its weakness in CDMA phones is just a reflection of its larger problems. #4 Sony Ericsson — with only a minimal presence in the US — gave up on the North American CDMA market five years ago, but still sells CDMA phones in its home market of Japan.

Statistics say that Motorola retains its lead at 35% of the US market — the combined share of #2 and #3 Samsung (18%) and LG (17%). The Q1 2008 stats showed Nokia in 4th at 8%, RIM (North America’s leading smartphone maker) at 5th, just ahead of Sanyo (Sprint’s major handset supplier).

However, I’m curious who’s buying all those Motorola phones, because I don’t see many on sale at the mall. Around here, I do see the Motorola Razr with teens and adults alike, but with adults I more often see smartphones like the iPhone, Treo or Blackberry.

Teenagers and college students seem to favor texting phones with the slide-out keyboard like the T-Mobile Sidekick; here the LG VX9800 and Samsung Glyde help Verizon stay competitive for these customers. That Verizon uses BREW for its downloadable apps means that these LG and Samsung phones have Qualcomm inside.

Nokia re-enters CDMA market

After settling its licensing dispute with Qualcomm, Nokia has re-entered the North American CDMA market with its new phone, the Nokia 6205 being sold by Verizon. The phone was actually introduced in June as a Batman movie tie in.

Because Nokia doesn’t know how to make CDMA phones any more, it outsourced design of the Nokia 6205 to an offshore ODM. PhoneNews.com speculates the phone was made by TechFaith, a Qualcomm- and Intel-backed startup that also makes phones for Kyocera and NEC.

It seems like a small scale entry by Nokia, which forecast declining market share in 2008 as it seeks to preserve margins in the face of brutal price cutting by rivals. The risk is that Nokia — which is a premium brand in Europe — will signify a low-quality, low-end product in the US, as it did 20 years ago when it was the Radio Schak house brand.

China will/won't allow cdma2000

Back in November 2000, I needed a case to teach political risk. So I wrote one about Qualcomm's on-again, off-again relationship with the Chinese government and state-owned carrier China Unicom — the one that eventually allowed Unicom to offer cdmaOne 2G mobile phone service in China. (My teaching case “Qualcomm in China” was used to flesh out the China portion of Dave Mock’s Qualcomm book).

Last month, the Chinese government unveiled a master reorg of telecommunications carriers is realigning six companies to three, each of which will have a wireline and mobile operation. China Unicom will be broken up, and its CDMA operations sold to China Telecom (the dominant wireline carrier) while its GSM network will be sold to China Netcom. One estimate places the value of the CDMA network at $13-15 billion.

But after that, nobody can agree on what’s happen — which exactly makes the point of the original case that a lack of policy transparency creates high risk and uncertainty for Western firms operating in China.

Among the disputed predictions that are the source of so much speculation:

• Will it create real competition for China Mobile, which with nearly 400 million subscribers is the world’s largest cell phone operator? An expert interviewed by the FT said “There will be no way to create a real three-way fight – China Mobile will still be the big one standing alone” but the market pummeled China Mobile shares on the assumption that it will have real competition.
• Supposedly having three carriers means three 3G licenses will be issued, solving a long-standing problem in Chinese telecom policies. Some say (as has been long predicted) it will happen in time to showcase Chinese wireless technology for the 2008 Olympics, but others say it won’t happen until 2009.
• Many say it clears the way for every carrier to deploy TD-SCDMA, but TheStreet speculates that all three types of 3G will be deployed: TD-SCDMA with China Mobile, W-CDMA with China Netcom and cdma2000 with China Telecom. With this plan, CT would have a huge time to market advantage because the cdma2000 upgrade is faster and cheaper, while China Mobile would deploy the least proven technology (one it has been trailing for several years).
• Reportedly one expert claims that China will skip 3G to 4G (see the comments on this post). It would certainly make sense technologically — allowing China to skip a generation of infrastructure development and giving its manufacturers a huge leg up on 4G equipment deployment. The problem is that the comment is attributed to Willie Lu, a prolific wireless researcher who is well connected and well trained (although a lousy webmaster), but a 4G promoter based in America who speaks for himself and not the Chinese government.

So will there be a TD-SCDMA? Will Qualcomm make any money from it? As with a year ago, everything is still up in the air.

Qualcomm is notoriously secretive in disclosing its royalty terms, which makes it difficult for researchers like me but also leaves it vulnerable to accusations of violating the non-discriminatory part of RAND patent licensing terms. One report I thought curious was an account Friday that claimed that China Telecom signed a deal with Qualcomm to pay CDMA royalties at 4%.

Reviewing my notes from the Qualcomm in China case, it’s clear that report is wrong. The list price for QCOM’s patents is known to be in the 4-5% range. I reported back in 2001 that on behalf of Unicom and its suppliers, the Ministry of Information Industry (MII) negotiated Irwin Jacobs down to 2.65% for handsets and 1% for infrastructure. So there’s no way the MII-led reorg will cause China Telecom to pay 4% royalties for Unicom’s existing 2G network.

Qualcomm and Nokia truce?

Nokia has a new EV-DO capable CDMA phone that has passed FCC certification. This means that it could once again sell phones to the majority of the US market that uses CDMA, beyond the low-end 2135 candybar sold by Metro PCS.

Nokia would have a hard time shipping a new UC CDMA phone given the expiration of its patent license with Qualcomm. On the other hand, this would be consistent with the UT report that the two parties are trying to bring all pending IPR disputes to resolution in a single venue.

Still, the one dissonance comes from CEO Paul Jacobs in a Bloomberg interview:

Jacobs, 45, said Qualcomm is not making any progress in its talks with Nokia, the world's largest maker of mobile phones, in another dispute. The companies are at odds over how much Nokia should pay to use Qualcomm technology under a new licensing agreement, a dispute that has spilled over into several court cases.

``Though we keep talking to them, there hasn't been a lot of movement,'' said Jacobs. A legal victory will be needed to bring the two sides closer together, he said.

In other words, both sides hope to win in court, and neither will be willing to compromise until the courts say who has a better hand. With appeals, that could be another two years.

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?

Technorati Tags: CDMA, Leap Wireless, MetroPCS, mobile phones

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.

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.

Technorati Tags: 3G, CDMA, China, TD-SCDMA

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.

Technorati Tags: 3G, CDMA, Qualcomm, W-CDMA

First CDMA iPhone in 2012

USA Today reports that Apple has not only given AT&T a five-year exclusive for the iPhone, but it has promised not to develop a CDMA version of the phone for that entire period.

I believe that’s a big mistake for Apple, since they’re limiting themselves to the 27% of Americans who use AT&T (née Cingular) and excluding the 49.9% that use CDMA. (It’s not clear whether gray market European iPhones will be available for T-Mobile subscribers). This also reduces their bargaining power in Japan, and raises questions about their Korean entry strategy.

But the big impact is that Apple has guaranteed that for the next 5 years, Verizon and Sprint will promote whatever iPhone-killers are offered by LG, Samsung and Motorola. I haven’t looked at their mobile phone advertising budgets, but I’d guess that these two (with T-Mobile) will be outspending AT&T by 2:1 or more.

Technorati Tags: Apple, CDMA

MetroPCS takes a giant Leap

Metro PCS (NYSE: PCS) had a successful IPO Thursday, selling 50 million shares at $23 each — gaining 19% on its first day of trading, and less than 1% on Friday. It was one of the few successful telecom IPOs in years, unlike (say) last month’s Clearwire IPO.

Metro PCS is a niche CDMA carrier whose gimmick is “all-you-can-eat” wireless voice and (now) text messaging for about $40/month. It offers phones from Motorola, Nokia, and Chinese manufacturer UTStarcom, among others. The reason no one has heard of it is because it serves only six major markets:

• Northern California (Monterey-Santa Cruz, Bay Area, Sacramento)
• South Florida (Miami-Ft. Lauderdale-Naples)
• Central Florida (Tampa-St.Petersburg-Orlando)
• Atlanta
• Detroit
• Dallas-Ft. Worth

At the end of 2006, it claimed 2.9 million subscribers. Seeking Alpha remains bullish on the company.

Metro PCS began service in 2002. If this story sounds familiar, it’s because this is a sequel (some would say a copycat) to San Diego-based Leap Wireless (NASDAQ: LEAP), which was created as a Qualcomm spinoff in 1998. Certainly Leap considers itself to be the pioneer in this unlimited-use model, to the point that last summer Leap sued Metro PCS for patent infringement. While Leap (brand name Cricket) got a four year head start, its growth stalled for many years. It reported 1 million customers in 2001, but only 2.2 million subscribers at the end of 2006.

What happened? As Leap’s founding CEO (and former Qualcomm COO) Harvey White explained in an interview last September, Leap suffered from terrible timing. It launched planning for vendor equipment financing, and then hit the perfect storm of the NASDAQ collapse in addition to the multibillion dollar vendor financing losses of Lucent, Nortel and others. As a result, Leap went into Chapter 11 in 2003. The company filed a reorganization plan rendering its original shares (NASDAQ: LWIN) worthless, eventually emerging from bankruptcy in the summer of 2004.

With the recent re-capitalization, Leap has begun expanding again to now have operations in 22 states, including its long-awaited entry last December into its home San Diego market.

Of course, one threat facing both companies (as noted by author David Mock) is that the big boys will match their prices. Given the disincentives for cannibalization, I can’t see Verizon or Cingular(AT&T) doing it, but certainly T-Mobile and Sprint are potentially desperate enough.

The Wall Street Journal article (paid site) speculated:

Some analysts said Metro may eventually try to acquire Leap, creating an even more formidable competitor to the top-tier cellphone giants.

Leap has a market cap of $5.4 billion, while MarketWatch estimates the Metro PCS market cap at $7.9 billion. Assuming they can get past the animosity, it sounds like a merger of equals to me. At least they have compatible technologies, unlike Sprint Nextel or the McCaw/Cingular/AT&T migration from D-AMPS to GSM.

Graphic: San Diego Union-Tribune, Nov. 19, 2004

Technorati Tags: IPO, Leap Wireless, MetroPCS, mobile phones, CDMA