The WIP Race
By Keith Radousky
WirelessWeek - October 01, 2008
Ameritech launched the first commercial cellular network on Oct. 13, 1983, with much fanfare at Soldier Field in Chicago. New customers began signing up by the
thousands despite the near $3,000 price tag and subscription fee of $50 per month and 50 cents per minute of airtime. Leading up to the launch, wireless infrastructure providers (WIPs) had been working feverishly behind the scenes to make the magic happen. Since that time, WIPs have adapted to tremendous industry consolidation, experienced competitive power shifts and accelerated technology migrations. Much has transpired in the last 25 years, and much remains to evolve in the coming years as those early radio networks transform into spectrally efficient all-IP networks.
The first major WIPs were Motorola and AT&T Networks (previously Western Electric). In the early 1980s, the networks consisted of a mobile telephone switching office (MTSO), cell sites, and a connection to the public switched telephone network (PSTN). That’s it. No voice mail, caller 
identification, messaging or data services of any kind.
The WIPs were eager to earn business in this new and exciting market. Motorola had marked success with cellular “A” block licensees (primarily radio common carriers known as RCCs) while AT&T focused on “B” block licensees (primarily regional Bell operating companies known as RBOCs). This made sense: Motorola was the dominant supplier of land-mobile equipment to the Radio Common Carrier (RCC) industry while AT&T supplied the majority of wireline equipment to the RBOCs.
THE SWEDISH CONNECTION
In April 1984, a new entrant, Ericsson, launched a small network serving Buffalo, N.Y., called Buffalo Telephone Company. Even though Buffalo didn’t need that many cell sites to provide coverage, (remember these were the days of 3 watt mobiles and a 3 dB gain outside antenna), it was huge success for Ericsson.
Motorola and AT&T didn’t appear threatened by Ericsson at the time. Motorola had won business in most of the “A” block markets while AT&T was experiencing similar success in “B” block markets.
However, Ericsson was clever; it focused on winning the “A” side business on Motorola’s turf in Chicago. The “A” block licensee was Rogers Aircall, which already operated paging and 2-way radio networks there and was a customer of Motorola. Roger’s key decision maker, Bernard (Bud) Kahn, did his due-diligence and chose Ericsson. He did so because he and his team concluded Ericsson’s equipment was more advanced than both AT&T and Motorola. Ericsson leveraged lessons it learned from the Nordic cellular system (the world’s first commercial cellular network) in the equipment designed for America. Essentially, Ericsson was providing second-generation equipment.
The Rogers Chicago network was launched in January 1985 under the brand name Cellular One. The debut TV commercial during Superbowl XIX on Jan. 20, 1985, promised to “Drive Ameritech Crazy.”
Cellular One did succeed in convincing many Ameritech customers to switch (the first churned subscribers) by offering 90 days of free service and attracted new customers with aggressive pricing of only $15 per month plus 34 cents per minute primetime and 20 cents non-primetime.
Other major cities such as Detroit, Los Angeles and San Francisco chose Ericsson as well. As the years went by, Ericsson also was successful in changing out many networks from Motorola and AT&T Networks. Two of the most notable events involved Craig McCaw swapping out many AT&T markets and New York’s Metro One replacing Motorola equipment with Ericsson.
NORTHERN EXPOSURE
Northern Telecom was successful in Minneapolis, Minn., and other smaller markets. It’s worth pointing out that the Canadian company managed to win both the A and B licenses in Minneapolis.
Overall, Northern Telecom didn’t do as well as the others primarily because it outsourced cell site supply to Novatel at first and then GE. To its credit though, it offered a world-class switch, but a cellular system is half radio technology and operators recognized the challenge of integrating and operating multiple providers within one network.
In 1992, Northern Telecom (by then renamed Nortel Networks) and Motorola joined forces to form Motorola-Nortel, thinking that the venture could leverage each company’s forte. But the partnership quickly fell apart. As a result, Motorola lost much market share. Motorola discontinued its internal switch program and returned to its old switch partner DSC. Nortel soon introduced a dual-mode (AMPS-TDMA) cell site. However, neither company was able to keep pace with Ericsson or AT&T Networks (by this time renamed Lucent Technologies).
In the mid-1990s, Ericsson, Motorola, Northern Telecom and Lucent enjoyed much success with the introduction of six new frequency bands at 1900 MHz that were auctioned by the FCC.
Nortel was the only company to offer and succeed in selling all three air-interfaces; TDMA, CDMA and GSM. Lucent sold TDMA and CDMA and offered GSM in Europe but not in America. Ericsson successfully sold TDMA and GSM. Motorola was successful but only sold CDMA. It’s interesting to note that Ericsson was initially opposed to CDMA but later bought Qualcomm’s CDMA infrastructure business. That business unit has faded into history.
The 1900 MHz spectrum auction enabled European GSM WIPs Nokia and Siemens to enter the American market. They both enjoyed some success but not to the degree that Ericsson did. Then in 2004, another opportunity arose with Cingular’s launch of UMTS. Ericsson and Lucent captured all of Cingular’s UMTS business. Verizon and Sprint have continued their relationship with Lucent, Motorola and Nortel for CDMA upgrades 1X RTT and EV-DO.
Ericsson and Nokia recently earned T-Mobile’s UMTS business. Now that Nokia and Siemens have joined forces, it’s unclear if the new Nokia-Siemens can recapture market share as operators begin the process of choosing their suppliers for the fourth generation (4G) of technology, which is referred to as Long Term Evolution (LTE). Finally, Alcatel and Lucent (known today as Alcatel-Lucent) joined forces in order to lower costs and better compete in the market for LTE.
THE HUAWEI FACTOR
Today, the WIPs selling in the United States include Alcatel-Lucent, Ericsson, Motorola, Nokia-Siemens, Nortel, and a new entrant, Huawei.
Now to the “Huawei Factor.” Both AT&T Mobility and Verizon Wireless have chosen LTE as their 4G technology. Sprint also will likely choose LTE now that it has essentially spun off its WiMAX business to Clearwire. Sprint does own 51% of Clearwire but it still needs a 4G path for its CDMA business. T-Mobile has yet to deploy 3G nationally so it probably won’t focus on LTE for some time. Ultimately, AT&T Mobility and Verizon Wireless are racing to be the first American operator to deploy LTE.
Huawei, which recently closed $200 million of CDMA business with Cricket Communications, can be compared to Ericsson in 1985. The Chinese company is taking on the large incumbent WIPs. One difference this time around is the incumbent WIPs are quite aware of the threat. They recognize Huawei’s ability to offer very attractive deals. Huawei is hungry for business and appears to have quality products. One thing is certain; Huawei is eager to earn market share in America primarily though aggressive pricing.
Ericsson may be in the best position to hold off Huawei because of its growing services business. Several years ago, Ericsson leadership recognized that wireless equipment margins would shrink dramatically and made a strategic decision to nurture and grow its services business. Today, services account for more than 20% of Ericsson’s revenue.
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| The author on his serial number 6 brick phone. |
Huawei has to rely on outsourcing for much of its services work. Nevertheless, Huawei is likely to earn LTE business with AT&T and/or Verizon Wireless. Furthermore, Huawei’s ability to offer low pricing will enable AT&T and/or Verizon Wireless to deploy LTE sooner rather than later. As in the past, there will be spectrum challenges and mobile device issues, but they will be solved.
History has proven time and time again that the wireless industry tends to understate demand. Case in point: in 1980, AT&T forecast that the total U.S. wireless subscriber market was 1 million. Today, there are more than 264 million subscribers.
Wireless subscribers are rapidly adopting data services, and thereby are triggering a capacity challenge that is driving the need for 4G. Huawei will force the incumbent WIPs to lower their prices to capture market share. Operators will enjoy lower cost per bit for their networks. Wireless subscribers will enjoy even higher data rates.
Make no mistake, Huawei is disrupting business as usual for the incumbent WIPs and there’s a new horse in the race for LTE business in the good ole’ USA.
Radousky is president of Wireless Industry Systems Expertise (WISE), LLC, which provides “Keep it Simple” technical expertise to the wireless industry and financial institutions. He can be reached at 404-520-8206 or keith@wise-llc.com.
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