Billing World Publisher's Letter Next Generation Systems for Wireless Service Differentiation

The thing I found most striking this past holiday season from a wireless perspective was the lack of meaningful product differentiation in the marketing campaigns among carriers with generation two (G2), digital wireless (TDMA, GSM and CDMA) offerings, and equally surprising the lack of differentiation with generation one (G1) or analog cellular or AMPS offerings. But looking into the crystal ball for 1998, they are going to be changes because G2 systems will evolve and G3 systems will begin to take shape. This letter looks at the next generation wireless systems (G2+, G2.5 and the G3s) and the likely winners and losers.

G1 Outlook

Analog cellular goes on and on like the pink bunny in the battery commercials. AMPS still outsells G2 phones and will for a few more years in urban markets and even perhaps a decade longer in the rural areas. In the Washington, D.C. area Bell Atlantic appears to spend a lot more money promoting AMPS rather than CDMA, and as yet SBC's Cellular One doesn't even promote its G2 system, TDMA. Finally and most important, most consumers don't see a difference between analog and digital phones except in transmission quality. Even on this differentiating point, many consumers prefer analog cellular to today's TDMA. Also because of digital coverage area, users with dual mode phones are on the analog system more often than not anyway. Bottom line outlook for G1 wireless: good until the year 2000 at least.

G2 Outlook

Again, regarding consumer differentiation among the digital wireless options, I don't see or "hear" quality differences between GSM and CDMA as long as the RF engineering is done correctly and the coverage is there. TDMA (IS-136), however, is problematic. But, as soon as TDMA phones become equipped with digital coders equal to GSM and CDMA (e.g., 13 KBPS) and begin to appear on the market, there will not be any perceptible difference in the marketplace. Yes, the engineers can go into viewgraph warfare showing capacity and/or infrastructure cost advantages/disadvantages at wireless seminars but in reality these differences have yet to be proved in existing deployed systems. But the reality is that consumers don't care about capacity and infrastructure cost issues, they care about service quality, price and features. Bottom line for the G2s is that something has got to change in 1998 in order to achieve product/service differentiation.

So how do you differentiate? A "no brainer" for Billing World readers! You do it through "meaningful" convergence billing, OSS interconnection with local, long distance, Internet service and deployment of SS7 infrastructure to create Wireless Intelligent Network (WIN) based services. Question? Who has the upper hand and is most likely to succeed in the wireless differentiation wars? The companies who have these three key resources are in the best position: (1) convergence service platform, (2) national spectrum footprint and (3) a national brand name.

AT&T G2+ Outlook: AT&T clearly has all these key ingredients: convergence service platform infrastructure (billing, OSS and SS7), a national spectrum footprint with cellular and PCS spectrum and brand name, not to mention established marketing distribution channels and roaming alliances (SBC Cellular One, Roger Cantel etc). To win big in 1998 all AT&T needs is better TDMA phones with better coders and a new local service business strategy.

Sprint G2+ Outlook: Sprint has the same key resources as AT&T: convergence service platform, national PCS spectrum footprint and brand name. I believe all they need besides lots of capital is a national strategic vision with their cable TV partners. Note Sprint PCS A and B band licenses are 60% owned by cable companies TCI, Cox and Comcast.

MCI/Worldcom G2+ Outlook: MCI has reportedly invested over $3B on their enhanced service platform, and, assuming they are acquired by Worldcom, it gets only better because Worldcom too has a premium service platform. The only thing they need is spectrum! MCI's 'plan A' was to lease airtime at wholesale rates from the PCS C-Band auction winners. I think they better come up with another strategy because the likelihood of these upstarts being operational in 1998 is very slim, since many are already in bankruptcy or will be by year-end. So what's MCI/Worldcom going to with no spectrum? Buy or merge with the GSM operators or Nextel. If they don't, they will likely miss the wireless convergence boat.

Nextel G2+ Outlook: Nextel has a dispatch customer market base and a newly created business/consumer base with its national SMR spectrum footprint and Motorola's Integrated Digital Enhanced Network (IDEN) product, utilizing TDMA digital cellular type technology. Other than the 8 KBPS-coder rate (vs. CDMA and GSM 13 KBPS coders), it looks and feels like the other G2 wireless systems. They also have Craig McCaw's deep financial pockets behind them and some synergy with CLEC sister company Nextlink with operations in second tier cities. Regarding their G2+ outlook for 1998? I believe they need a long distance partner with a service platform in place to keep pace with AT&T and Sprint in the consumer and general business market. If they narrow their scope to the dispatch market where they dominate domestically they will also be able to differentiate both domestically and internationally but at a lower market potential.

Other Wireless Carriers G2+ Outlook: So what are the other wireless operators who don't have their own long distance network and associated service platforms going to do to achieve service differentiation in 1998? The obvious answer is to seek help from system product vendors, system integrators and outsourcers. While many vendors cover the billing and customer care bases, only a few to date cover the OSS requirement (for local phone service bundling) and SS7 integration (for local number portability). ILECs who sell these services under a wholesale arrangement (i.e., like Connecticut's or soon to be SBC's SNET), or under a consortium arrangement (i.e., Illuminet) can help. In addition, equipment vendors such as Lucent are now providing SS7 facilities management services. Bottom line: by the next holiday season you will see wireless service differentiation via convergence billing, customer integration and one stop shopping.

G2.5 Outlook

First what are G2.5 wireless systems? Back in the early '90s when the debate over what is PCS and what spectrum should be allocated in order to expand cellular capacity, two categories of systems emerged. The first category is today's G2, which was optimized for high mobility, the so-called high-tier option. The options reaching the market were the above-mentioned TDMA, GSM and CDMA. The handsets for these high mobility systems used lower than toll quality coders (8 and 13 KBPS) and transmitted at high power (200-600mw) which resulted in short talk time between battery charges.

The alternative system proposals were for low mobility (pedestrian speeds) and became known as low-tier PCS options. These system concepts were characterized by toll quality voice (32 KBPS coders), and low power (10-20 mw) for long talk time. These low-tier options, however, would require many microcell base station locations (i.e., cell radius in the 0.1-0.5 mile range). Many low-tier options were conceived, designed and some manufactured primarily for markets outside North America. Some leading candidates include: Personal Access Communication Service (PACS): A Bellcore concept primarily targeted as a substitute for a residential copper loop. Not deployed in North America as yet.

Digital Enhanced Cordless Telephone (DECT): Championed by the Europeans for the wireless PBX or wireless local loop. Some deployments completed outside North America.

Personal Handyphone Service (PHS): Developed for the Japanese market where it is extremely popular with over 6 million units in service. It is designed to be an extension, however, of the public switched voice network, i.e., no dedicated switching infrastructure-just enhanced wireless access. Outlook for North America is not good because it doesn't fit the cellular/PCS wireless service concept.

IS-661: Omnipoint won a provider preference PCS spectrum award, e.g., they didn't have to bid against anyone for the New York MTA, PCS A-band, but they paid for the spectrum. The pioneer award was based on the creation of IS-661, a hybrid CDMA/TDMA system concept. Omnipoint then split the company into two parts after they received their PCS license. One part was to develop its CDMA/TDMA system for the low-tier market, and the other was to develop a carrier service network using their PCS license implementing high-tier GSM technology. IS-661 has yet to be deployed commercially.

The collective problem today with all low-tier options is that the voice quality is better than high-tier G2 wireless, but it is not clear if this is enough to make a business case for carriers to invest billions to deploy G2.5 technology. The bigger problem is that they were optimized for voice not data. Note the 32 KBPS coders cannot pass modest capacity modem or in-band data signals thereby eliminating it as a true copper loop replacement. Besides, the talk time of the new high-tier wireline phones are reaching the 4-5 hour range between charges. Bottom line: no significant service differentiation with G2.5, vs. high-tier PCS to excite today's wireless carriers.

Bring on the G3s

There are three factors driving third generation wireless design. First, greatly improved wireless Internet access is a must. Modifying tens of millions of corporate web sites in order to deliver three lines of text to a G2 wireless terminal isn't going to win many customers. Second, G3 technology must equal or surpass the performance of a copper loop. If not, G3 will flounder like the G2.5s. Finally, not all the G3 markets will be the same. G3 will likely be developed for global markets. As such the world can be broken down into four markets, each with its own wireless business drivers and consumer needs.

G3 Outlook for North America

North America's residential market is characterized by almost 100% copper loop availability, 96% cable TV access availability, G2 technologies already are quickly approaching 80% population coverage, major cable players hold cellular/PCS spectrum licenses and, local telephone service markets are open to competition. But, there is no industry leadership from government. These conditions segment the North American carriers and their suppliers into four groups with four separate visions of G3 technology.

AT&T: The corporate AT&T primary strategic objective under Bob Allen (ex-CEO) was to get into the local service market and a pillar of that strategy was a wireless local loop offering that could deliver at least 128 KBPS to the home. Why 128 KBPS? If you need two loops to go after the Internet residential consumer you will need two 64 KBPS radio circuits as to not obsolete existing wireline modems in the home.

The problem AT&T faces is that their wireline technology (IS-136) is not easily scalable to 128 KBPS access service. The channel bandwidth of TDMA (30 kHz) can only support a 48 KBPS radio modem. The second problem is that you need a broadband infrastructure (cable TV or millimeter microwave network) to interconnect the many microcells required in the suburban neighborhoods.

So what does AT&T do for a G3 technology? Build their own, which they will be field testing in Chicago this year. This is a proprietary technology approach where little public information is available. As for my assessment of this approach... it is bleak. Without strong support from the big four equipment vendors (Motorola, Lucent, Nortel and Ericsson), the development costs will be massive. It will be hard to get the scale economies needed from only one player, in one market, i.e., North American market.

Cable Players: By all readings these guys should be in the catbird's seat. They have a broadband infrastructure to interconnect microcells, cable MSOs (TCI, Cox and Comcast) have partnership in PCS spectrum licenses in major markets and a customer base to market a local service offering.

The problem that the cable industry faces regarding G3 technology selection is manyfold. First, they are hard pressed for capital. Second, they have too many networking opportunities on their plates... from Internet access to IP telephony and each cable market is different demographically (rural vs. suburban, high vs. low Internet access interest etc.). Finally, PCS spectrum availability differs from market to market. Note spectrum partner Sprint in some markets controls 100% of the PCS spectrum (D and E bands). But Sprint has a minority interest with cable operators in other markets and a 40% interest a number of PCS A and B band licenses, with cable MSOs (TCI, Cox and Comcast) holding the remaining 60%.

As a result the cable industry is developing something they call CMI. It encompasses Internet access, IP telephony and other multimedia concepts as well as wireless technology that supports G2 and G3 concepts. Like AT&T's approach to G3, CMI is unique to a set of North American players and as such it cannot match the manufacturing scale economy cost curves other pure G3 technologies will achieve.

CDMA Players: The carrier customers of CDMA technology and ultimately G3 technology in North America have these things in common. First, they have shown little interest in using their cellular/PCS spectrum for local access competition or WLL. Note most of the spectrum licenses used for CDMA are controlled by ILECs. Also CDMA license holders want to see a very strong migration path from CDMA ONE or today's IS-95 to IS-95+ or CDMA TWO that doesn't obsolete CDMA ONE. Finally, their prime interest regarding G3 technology deployment is just better wireless Internet access. A CDMA option using existing infrastructure that could deliver 64 KBPS for improved Internet access appears to be the winner that the CDMA players will settle for in the foreseeable future (next two to five years).

My assessment of this approach to G3 technology: it suffers from the same shortsighted thinking that created IS-136. Having a TDMA option (Digital AMPS) that had to be compatible with AMPS regarding the 30 kHz channel makes it very difficult technologically to scale upwards in service quality. Having the next generation IS-95 locked into 1.25 MHz channels could very well create the same scalability albatross for CDMA TWO.

GSM Players: The North American GSM players have these things in common. First, they all see the writing on the wall regarding the merging of operations under one corporation's ownership. Second, most want to see their G3 technology as a strong WLL or copper loop competitor. Finally, they don't control the direction of GSM technology because the Europeans hold the intellectual property rights to GSM. So regarding G3 technology for GSM, as goes Western Europe so goes the North American GSM players and that's OK by most.

European G3 or TD/CDMAThe environment, market and wireless industry is different in Europe than in North America. How?

There's only one G2 wireless standard, namely GSM. So the wireless network transition path will be the same for all carriers.

Strong government leadership that can force one G3 architecture

Plans to relocate spectrum in the 2 GHz band specifically for G3 wireless

Strong support by major North American manufacturers, namely Nortel and Motorola, for its G3 system and more!

The European solution to G3 is something they call TD/CDMA. It's an architecture that uses CDMA for the air interface to an existing GSM infrastructure including a European version of SS7 and OSS.

The G2 advantage of European TDMA (or GSM) over North American TDMA (IS-136) is that GSM uses 200 kHz RF channels and IS-136 uses 30 kHz. G3 modems with 200 kHz of bandwidth can deliver 384 to 500 KBPS. Adding CDMA on top of it all can allow 8 different codes per modem channel yielding user output in the 3-4 MBPS range. This in turn allows high performance Internet access, compressed full motion video and more to a mobile handset.

Another leg up for TD/CDMA in the year 2000 marketplace is the success of GSM globally. By the year 2000 most market forecasts have GSM units capturing 50% of global wireless sales. With the exception of South America and Japan, it will be everywhere. The disadvantage is that it could suffer from the same ill that struck North American TDMA IS-136... the requirement by the carrier to be backward compatible with the previous generation's infrastructure. So there's room for the Japanese and their G3 approach.

Japanese G3 or W-CDMA

Before getting into what makes Wideband or W-CDMA a different G3 wireless approach, a few words on what makes the Japanese wireless business environment different from North America or Europe. First, they really missed the boat with GSM and were very late getting into CDMA (IS-95). So they... more than any regional players... are thinking globally with their G3 approach and this means to them dominating the Asian-Pacific market. Second, the carriers in the Asian-Pacific region are not thinking backward compatibility with G2 because they don't have G2 architecture in place to speak of in countries like India, China or Vietnam. Third, they are in a position to play North American vendors off European vendors regarding access to their markets in return for entry in markets where Japanese manufacturers are absent.

So bring on Japanese W-CDMA. This is a "clean break" approach, e.g., no backward compatibility with any G2 architectures. The advantage is that on day 1 of service you can use big 5 MHz channels (no 200 kHz for GSM or 1.25 MHz for CDMA ONE). We're talking about huge capacity for mobile multimedia applications.

Regarding partners, Ericsson seems to have thrown their G3 support to W-CDMA vs. the European TD/CDMA approach. Why? Just like the car commercial, wider is better. If you are starting wireless from scratch, 5 MHz channels are hard to beat. Of course discussing or comparing a telecommunications technology is like discussing religion or politics at a social party. And just like the view-graph wars of the early '90s comparing CDMA vs. TDMA, you see the same types of battles taking shape between the TD/CDMA and W-CDMA camps. Issues like higher handset costs, integration with unlicensed terminals, power control etc. are brought up by the engineers. My bet is on W-CDMA. The cost of computer chips eventually reduces to the cost of sand and since backward compatibility doesn't matter if you have no system to begin with, W-CDMA looks good at this point.

The Fourth World's Choice: IMT-2000

Before getting into what International Mobile Telecommuni-cations for the year 2000, or IMT-2000, is all about, let's examine what is unique about the fourth world market regarding a G3 wireless architecture. Roughly 82% of the world's population lives there vs. 18% in the other three markets (North America, Europe and Japan) and there is a desperate unfulfilled demand for telecommunications service.

Wireless terminal population doubles every two years in the first three markets vs. doubling every year and a half in the fourth market. Run through the numbers and you get a market four times larger than North America or Europe in five years or so.

In summary, there are special needs in the fourth global market such as international roaming, service integration with low earth orbit satellites (LEOS), high speed fixed services (T1/E1 access) and more, that you don't have for wireless systems elsewhere.

The International Telecommunications Union (ITU) has pitched the cause of the fourth wireless world and created the IMT-2000 initiative. It is not as such a wireless product development guideline or standardization activity as it is a process to see a 21st century wireless architecture or G3 system to meet the needs of emerging nations. With 187 countries as ITU members the fourth world will have influence on picking a G3 candidate.Specifications for IMT-2000 or a G3 wireless system:
128 KBPS for high mobility and ISDN applications
384 KBPS for pedestrian speed and full motion compressed video
2 MBPS for fixed E1/T1 access and wireless LANs

So where does the current G3 wireless architecture stack up against the ITU's IMT-2000 vision?
NA-CDMA TWO will probably turn out to be the weakest candidate because its architecture will be biased towards meeting today's North American-CDMA carrier requirements for backward compatibility. Also the frequencies allocated for PCS in North America don't line up with IMT-2000 and LEOS spectrum bands, and the higher speeds of 384 KBPS to 2 MBPS will be difficult to support in a 1.25 MHz CDMA ONE frequency channel slot.

Europe's TD/CDMA will be a stronger IMT-2000 candidate. Speeds of up to 3-4 MBPS will likely be achievable with attractive economics. Since TD/CDMA backbone infrastructure is compatible with GSM, it will have advantages in many emerging nations' markets. And finally, the European frequency bands are a better match with IMT-2000 bands.

Japan's W-CDMA will be the strongest candidate. The Japanese are the most aggressive in pushing an IMT-2000 selection by the end of 1998. They are geographically closest to the big market prize... Asia-Pacific. They will likely mandate W-CDMA as the 21st century Japanese standard and they will develop the terminals required for W-CDMA for their domestic market sooner than other regions. They have the passion to win the heart and minds of the ITU and win the system selection prize as well.

To end on a positive note for the Billing World readers, it doesn't matter which G3 wireless architecture is chosen, new billing, customer care and OSS infrastructure will be needed.