Billing World Publisher's Letter Cellular vs. PCS and TDMA vs. CDMA vs. GSM

Two of the most frequently asked questions at my wireless technology seminars are What's the difference between cellular and PCS? and What's better, TDMA, CDMA or GSM? First, let's look at cellular vs. PCS.

Cellular vs. PCS

One would think that comparing and/or differentiating cellular from PCS would be relatively straightforward, but it's not. Here's why!

Let's start by looking at which network technology is needed for wireless service. The three basic subsystems involved are the handset (or car phone), the radio frequency (RF) link (base station, antenna) and the terrestrial infrastructure (switches, wireline network interface, billing systems, customer care infrastructure, OSS and more).

The primary focus of RF link technology (e.g., AMPS, TDMA or CDMA) is to improve speech quality and system capacity. The primary technology focus of the infrastructure is software development related to new services such as caller ID, over the air activation, voice mail and so on. Finally, the primary technology focus for handsets is to lower the cost and, to a degree, the size and power drain which enables longer talk time between battery charges. Handset development requires choosing a RF link option to optimize design, and low-cost handsets require standards and high volume production.

The fun begins when senior executives who have cellular (800 MHZ) and/or PCS (1.8 GHZ) licenses have to explain to Wall Street investors and the industry via the trade press how they plan to eat the other guy's lunch in the marketplace. Here are how the stories have rolled out.

The PCS Story

Winners of PCS spectrum say they are going to win out over the cellular guys because they will develop an infrastructure (software) that can provide the latest in intelligent network (IN) services from caller ID to over the air activation, etc. Because they have no baggage (e.g., 40 million analog cellular subscribers), all their new subscribers will have the latest handsets that can support these new services. Besides, everything will be digital from day one, which will mean better quality and higher capacity. Could this be a true story or just a dream? What's missing in this PCS story? First, it will take megabucks to create the new infrastructure from scratch, and second, none of this has anything to do with spectrum (800 MHZ vs. 1.8 GHZ).

The Cellular Story

If you are a cellular executive, then you will say "hogwash" to the PCS hype. Your position to Wall Street and the industry is that PCS is just digital cellular at a higher frequency band. Anything you can do with PCS spectrum you can do with cellular spectrum. Again, this could also play out to be correct. What's missing in this story? You have to upgrade the cellular infrastructure and the 40 million cellular customers will need new handsets. This is a challenge because your vendors who provide the cellular infrastructure must upgrade their equipment software to support the new IN stuff, the handset vendors need new standards and you have to support two sets of customers (analog only and dual mode analog/digital). In short, you have legacy system problems to solve that the pure PCS players don't.

The Marketing Story

Meanwhile, the wireless marketeers understand the consumer couldn't care less about frequencies (e.g., cellular at 800 MHZ vs. PCS at 1.8 GHZ). But at the same time, the consumer has the perception that digital means good quality and the general press says PCS is really good stuff and user-friendly. That's why they call it "personal communications," yeah right! So, if you are a PCS upstart, such as APC in Washington, D.C., marketing under the brand Sprint Spectrum and you want to beat out Bell Atlantic-Nynex Mobile and Cellular One in the marketplace, then call your Sprint Spectrum service digital cellular. Nowhere is the term PCS mentioned in the Sprint Spectrum advertisements in Washington, D.C.! Also note that because their cellular competitors don't offer digital cellular yet, there is clear product differentiation. Now, if you are a cellular incumbent and you know a PCS license holder is about to start offering service in your market and they plan to use the term PCS in their advertising campaign, then what do you do? Well, you could beat the PCS guy to the punch by rolling out digital cellular at 800 MHZ and call it PCS, like AT&T Wireless did in New York City last fall. To make matters even more confusing, in some markets other non-wireless voice services are called PCS. For example, a long distance telephone company in North Carolina bundled one-way paging and long distance service together and called it PCS! The bottom line is that PCS can be anything you want as long as it can create a customer in the eyes of a marketeer. Now for the most frequently asked question No. 2É

The TDMA vs. CDMA vs. GSM Stories

What's better, TDMA or CDMA or GSM? Again, industry confusion. There are three digital wireless options: North American TDMA, CDMA and GSM. All three can theoretically operate in either cellular (800 MHZ) or PCS (1.8 GHZ) spectrum band alone, or together (dual frequency mode), or with analog cellular (dual modulation mode) or all of the above. In reality, the equipment isn't available today that supports all combinations (dual modulation and dual frequency), but all the carriers tell Wall Street and the press that they will. Yes, if there is a market and the equipment vendors have signed billion-dollar orders, any of these dual mode options can be produced. Until then, vendors will wait until standards are in place and demand appears strong. The good news is that dual mode is here, and dual frequency is not far behind.

What also gets lost in all the hype over TDMA vs. CDMA vs. GSM? In the long run, it's not an issue of capacity or transmission quality regarding the winner in the marketplace. All these options can provide good quality service, but some, such as NA-TDMA, may take more time. Besides, all carriers can implement any of these air interfaces in the end. The real differentiator in the future will be infrastructure, such as billing systems, customer care, OSS, IN and seamless terrestrial interconnection with local, long distance and data services.

1997 Realities

Given unlimited resources and technology in the year 2000, the differences today between cellular and PCS, TDMA vs. CDMA vs. GSM will disappear, at least in the eyes of the consumer. However, today there are differences and each has its strengths and weaknesses, including analog cellular or Advanced Mobile Phone Service (AMPS). The table above summarizes the differences based on my assessment of 1997 technology readiness.

Analog Cellular (AMPS)

The strength of analog cellular is service coverage. More than 97 percent of the population in the United States can get AMPS dial tone. Its weakness is capacity, but today only in the top three cities: Los Angeles, New York and Chicago. In a couple of years, service will deteriorate as more customers are added onto the network. So, in these markets, carriers must go digital or expand with PCS spectrum. Also, adding more analog radio equipment is double the incremental cost of adding digital. Finally, analog vendors are slow to develop IN features for analog handsets because digital offers a carrier much better economics and more. But in reality, AMPS phones will outsell digital cellular or PCS phones collectively for the next few years and will be around for at least 10 more years.

Digital Cellular/PCS (TDMA)

North American TDMA (or the standard IS-136) offers a rich set of Intelligent Network (IN) features, lower base station costs relative to AMPS, higher capacity than AMPS and is championed by the largest U.S. cellular carrier, AT&T Wireless. The problem with this option in 1997 is service quality. It just doesn't sound as good to the consumer as the other digital options, and often the consumer prefers AMPS over NA-TDMA. But it will improve over time with better quality digital codecs. Also note many of today's service problems are not due to the basic digital design of TDMA but RF implementation by the carriers. On the other hand, if the consumer complains about quality, that can be overcome with a 30 percent air time discount! So, TDMA has its place.

Digital Cellular/PCS (CMDA)

Most cellular carriers and PCS upstarts have chosen CDMA as their wireless technology. But before you jump to the conclusion it must be better than all others, consider that (1) many manufacturers of CDMA equipment — including Lucent Technologies and Nortel are financing the deals, (2) some equipment manufacturers are part owners of the licenses (e.g., Qualcomm is an investor in NextWave) and (3) if CDMA doesn't perform as promised, these mega billion-dollar contracts are null and void!

Regardless, the strength of CDMA is quality and capacity. But be careful. CDMA sounds great at trade show demo booths and for those users who are stationary or walking down the street at less than 4 mph, and yes, in this environment there is great promise of high capacity. However, the jury is still out on whether you will get both high quality and capacity together, as well as the promised 10-fold increase in capacity over AMPS if all of your customers are driving at 55 mph.

The downside, or risk however, in choosing CDMA is not so much achieving high quality and high capacity simultaneously, because these issues will probably go away as technology improves. The real problem will become OSS and IN development. The rest of the world outside North America is going either with GSM (discussed later) or what I'll call "commodity" CDMA.

The biggest markets for wireless service are not in North America but in developing countries, where you see typically four to 15 phones per 100 people. Services in these markets depend on low cost and simple technology. This means limited IN and OSS features. For half the world's population who have never placed a phone call, features such as caller ID and the personal telephone number are not market hot-buttons. Bottom line: The Asian vendors who are supporting CDMA are creating a commodity-type phone with limited IN/OSS support features. These phones and support infrastructure will not make it in the U.S. market. The key weaknesses of CDMA are future availability of smart phones and OSS support. This is why vendors who choose to develop CDMA (such as Lucent and Nortel) not only have to finance the equipment they sell to carriers, but also have to manufacture the handsets. Lucent and Nortel will be investing billions in the development of CDMA handsets. For these vendors, this undertaking is new at the scale needed to succeed. Handsets developed in tandem with infrastructure (e.g., switches, OSS, billing and customer care) are a big challenge and much has to be done by both the equipment suppliers and wireless carriers to insure CDMA's success in the United States.

Digital PCS (GSM)

Global Standard for Mobile Communications (GSM) is based on European Digital Cellular (900 MHZ and 1.8 GHZ). It's been more than 10 years in the making, including handset, radio and infrastructure standardization. It's the chosen digital standard in more than 100 countries, including the developed countries of Western Europe. Its strengths are good quality transmission, IN/OSS features and low cost due to global production volumes.

Many PCS upstarts have chosen GSM because of near-term availability of equipment and long-term outlook for IN/OSS support. Its weakness is that GSM equipment currently can only operate in the PCS spectrum band (1.8 GHZ) and not in the cellular (800 MHZ) band. Also, this technology option loses the view-graph wars at trade shows and conferences when projections of system capacities are compared with CDMA. The reality about GSM: (1) dual mode GSM/AMPS phones will appear on the market this year, (2) IN/OSS service upgrades are a sure thing because they will be developed for Europe despite what happens in the United States and (3) unquestionably the quality is great in large-sized markets. If you question this, consider APC. It has well over 100,000 subscribers in Washington, D.C., area and the quality is great!

So, what's better? Cellular, PCS, TDMA, CDMA or GSM? In the long run it's a mute point. However, the company who does the best job at building a world-class billing, customer care and OSS infrastructure will win. And how does AT&T, MCI, Sprint, the telcos and PCS upstarts stack up to meeting the infrastructure challenge? Are any of these options capable of replacing the telco copper loop? For the answer to these questions, see next month's issue of Billing World!