It was an unprecedented event. Qualcomm Inc., the biggest defender of CDMA technology, and L.M.
Ericsson, the largest naysayer of the technology, embraced last week, ending more than 10 years of open hostilities
between the two.
“It’s wonderful to be together,” said Dr. Irwin Jacobs, chairman and chief executive
officer of Qualcomm, laughing and joking with Ericsson CEO Sven-Christer Nilsson at last week’s news conference in
New York.
The statement was ironic considering how the two companies months ago were headed to court over
cdmaOne patents and were ready to weather out an intellectual-property-rights standoff that appeared to threaten the
International Telecommunication third-generation Union’s standards-setting process.
It has been more than a decade
years since Jacobs introduced Interim Standard-95 technology to the world as a viable mobile phone technology.
Jacobs and cdmaOne have come a long way since the technology received a chilly reception from the U.S. mobile
phone industry in the late 1980s. It was a time when carriers already had invested large amounts of money into Time
Division Multiple Access technology, and cdmaOne technology was an entirely different digital technology that
operated in ways engineers had trouble understanding.
Ericsson, too, was skeptical that CDMA technology, initially
developed for the military, would work in mobile phone terrestrial systems. And it said so. The company aggressively
pushed ahead with GSM, TDMA and W-CDMA technology for the next generation of systems.
Nevertheless,
cdmaOne technology’s chief promiser, Jacobs, was able to convince AirTouch Communications Inc. to give it a try.
Major operators like Sprint PCS followed, and big vendors like Lucent Technologies Inc. and Motorola Inc. licensed
the technology. At the end of 1998, the CDMA Development Group reported worldwide cdmaOne subscribers grew by
about 15 million with a total of 23 million global subscribers as of Dec. 31.
It is this growth that prompted Ericsson,
the worldwide GSM and TDMA manufacturer, to become a cdmaOne infrastructure and handset vendor by settling
standing IPR disputes with Qualcomm, licensing cdmaOne technology and purchasing Qualcomm’s infrastructure
business for an undisclosed amount. Carriers say Ericsson’s stubbornness in refusing to back cdmaOne technology has
slowly faded as new management came into the company.
“Acquiring this talent and also solving the IPR
issues means we can move quickly into the cdmaOne market right away,” said Ericsson’s Nilsson. “That’s
an estimated $90 billion in this year alone when it comes to infrastructure. Let me assure you that we also aggressively
intend to pursue the cdmaOne handset market. This is a major opportunity for us, and we want definitely to get a piece
of the 16 million units that we have seen this year.”
The series of agreements between the two companies
resolves all disputes globally over CDMA technology. Qualcomm and Ericsson said they will cross license IPRs for all
CDMA technologies, including cdmaOne, W-CDMA and cdma2000. Qualcomm also will receive rights to sublicense
certain Ericsson patents to Qualcomm’s Applications Specific Integrated Circuits customers.
Analysts are not
looking for Ericsson to become a major contender in the cdmaOne infrastructure market as the company plans to
primarily use the resources from Qualcomm’s infrastructure division to develop a cdma2000 center to develop the next-
generation technology and draw upon its extensive research in W-CDMA technology-a 3G standard incompatible with
cdma2000 technology.
“I don’t believe they will be very aggressive in bidding on cdmaOne networks,”
said Michael Ching, equipment analyst with Merrill Lynch in New York. “They will act on the backlog from
Qualcomm and will bid on certain networks … What they are getting with the cdmaOne infrastructure is expertise to be
very competitive in 3G.”
“I would be surprised if Ericsson makes much headway in the United
States,” said Mark Roberts, head of the telecom research group with Everen Securities in Chicago. “The
real interest is to jump-start cdma2000 and position themselves in mainland China if it opens up to IS-95. Ericsson’s
largest customer is China.”
Ericsson said it plans to introduce a cdmaOne handset by 2000, but analysts
believe the company could introduce one within six months. RCR reported in October that Ericsson had developed a
working cdmaOne handset prototype. Entry into the cdmaOne market is critical for Ericsson, which is watching its
GSM and TDMA handset marketshare fall to Nokia Corp. Ericsson said it is looking at purchasing chips from
Qualcomm. Swift entry into the cdmaOne market is critical as competitors continue to flood the market and drive down
prices.
Qualcomm, which never had a great prospect of providing major infrastructure contracts, now gets rid of a
struggling infrastructure division, a unit that has dragged down the company’s financials. Qualcomm never wanted to
be a manufacturer, analysts point out, but had to manufacture to develop infrastructure and handsets to jump-start the
cdmaOne market.
“It was important to Qualcomm to establish CDMA as a leading access technology,”
said Jacobs. “Now there are many providers, and Ericsson will add significant strength as a vendor … Employees
working for this division can expand today’s CDMA networks.”
Qualcomm, the primary equipment vendor
for U S West Wireless and Leap Wireless International Inc., reduced its employee count significantly in the
infrastructure division in February. Qualcomm’s manufacturing relationship with Northern Telecom Inc. will stay
intact, said Jacobs.
“We’ve been putting a great amount of energy in royalties and ASICs. They have been
very good for us,” said Jacobs. “We’ll bring new technology to incorporate in the ASICs along with
software. We see that as being a very important component of the business.”
Analysts have indicated the
company could make more money as a royalty and ASICs company. Jacobs indicated, however, the handset business
will not be sold off soon. And the company will continue to pursue its interests in the other areas of business, including
the satellite venture Globalstar and OmniTracs.
“Each year Qualcomm is predicted that we better get out of
[the handset] business,” said Jacobs. “We’re trying to add capacity as opposed to moving
away.”
And the product development possibilities could be endless. Perry LaForge, executive director of the
CDG, said his group has been working to develop a CDMA/GSM handset, something Qualcomm has been interested in
developing as well. GSM IPR issues had prevented the groups from aggressively pursuing the concept.
