Archived - Wireless Technology Roadmap — The Wireless Industry

This chapter presents the results of the framework analyses that guided our research toward understanding how wireless applications of particular interest to Canada could evolve over the period 2006–2016.

We begin with an analysis of the first global wireless industry: from Marconi's "wireless telegraph" in the 1890s through the building of national radio broadcasting networks in the 1920s and 1930s.

• The First Global Wireless Industry: Radio Broadcasting (1896–1956) Forces
• The Second Global Wireless Industry: Cellular Telephony (1973–2033)

The First Global Wireless Industry: Radio Broadcasting (1896–1956) Forces

The Dynamics of Wireless Growth

Wireless technology has created not one but two major new industries since it emerged in the late 19th century. The first was the radio broadcasting industry, outlined below. The second is wireless cellular telephony, still unfolding since its beginnings after World War II. The four phases of growth for the radio broadcasting industry are shown in the chart below:

Laying the Groundwork for Wireless Cellular Telephony

New functionality creates new markets: Mobility launched the next wireless revolution. The Detroit Police Department pioneered one-way communication to dispatch patrol cars (1928). Two-way mobile AM radio was the next advance (1933); however, these primitive systems took up most of the trunk and had reception difficulties. FM (improved signal quality and resistance to interference) became the standard for most police systems in the 1940s.

The breakthrough that opened the door to cell phones was AT&T's successful radiotelephony pilot (1946) — the first to connect mobile radio through the public telephone system. However, its adoption — as depicted by the clearing metaphor (see Chapter 2: A Framework for Charting the Wireless TRM) — was blocked by broad market forces, delaying the realization of cell phones as a major market for forty years.

Broad Market Forces Intervene (1946–1987)

Of the five broad forces in the clearing metaphor (see Chapter 2: A Framework for Charting the Wireless TRM), economics, politics and technology itself were largely responsible for the forty-year hiatus in the commercialization of cell phones:

• Economics, industry structure in particular, was the most immediate reason that AT&T shelved the results of its 1946 cell phone pilot. AT&T's lucrative wire line monopoly provided no incentive to incur the significant costs of building wireless networks. (AT&T's market monopoly was a direct result of regulation in the much older telephone market.)

• Politics, in the form of spectrum regulation, was the most powerful impediment to the realization of cell phones. It began in earnest with the creation of the Federal Communications Commission (FCC) in 1934, part of Roosevelt's "New Deal." Regulation aimed to use radio spectrum, seen as a scarce natural resource, in the broad public interest (for example, broadcasting, emergency services, government agencies, etc.). Private use like personal two-way radio communication was seen as a misallocation of resources.

• Spectrum availability for new applications suffered as a result. For example, in 1947, the frequency allocation for cell phones could support only 23 simultaneous calls per cell. In fact, the very concept of cell phones was a direct consequence of spectrum shortage. In the 1940s, researchers had realized that the limited radio spectrum allocated to mobile telephone service could be "recycled" again and again by limiting its transmission range to small cells.

• Technology: While radio system engineering was up to the task of two-way personal communications, device technology was not. The technological system needed to support truly portable cell phones was missing vital elements. For example, current cell phones depend on the significantly reduced size of advanced microchips. The original cell phone formats reflect this missing element:
  
  • Mobile (permanently installed in vehicles);
  • Transportable (briefcase phones); and
  • Handheld (original, bulky cell phones).

The Second Global Wireless Industry: Cellular Telephony (1973–2033 ¹³)

As outlined above, cellular telephony was stillborn in 1946, blocked by the AT&T monopoly and denied more than token bandwidth by the FCC. While mobile two-way radio communication had been a reality since 1933 — based on bulky vehicle-mounted vacuum tube systems — truly portable handheld radiotelephones would have to wait for the creation of the semiconductor industry.

The Elements of the Technological System

It was a quarter-century wait. The transistor (1947) proved the long-anticipated promise ¹⁴ of semiconductors, but their high volume application in circuits needed the further inventions of the integrated circuit (1959), Complementary metal oxide semiconductor (CMOS) manufacturing technology (1968) and the microprocessor (1971).

Although the needed device, component and material technologies to realize the technological system of the cell phone were then all in place, so was AT&T. Its influence would be felt until its breakup in 1984 by the U.S. Justice Department under antitrust legislation. Important developments in the introductory period leading up to the explosive growth of wireless cellular telephony, beginning in the late 1980s, are outlined in the following table:

The subsequent take off period of accelerating growth in cellular telephony services was enabled by regulatory compromise. Instead of allocating additional bandwidth to meet the demand for cellular services, the FCC allowed licensees to use competing (that is, incompatible) transmission technologies in the 800 MHz band. Licensees went their separate ways to develop transmission technologies that could maximize capacity with limited bandwidth, for example:

• Verizon, Sprint and Altel developed versions of CDMA;
• AT&T and Cingular developed versions of TDMA.

In contrast, the Europeans (1982) formed a study group called the Groupe Spécial Mobile (GSM) toward developing a pan-European public land mobile system to resolve an undesirable situation: each country had developed its own system, which was incompatible with everyone else's in equipment and operation. The resulting GSM standard first saw commercial service in mid-1991, and by 1993 there were 36 GSM networks in 22 countries. ¹⁶ Today, GSM (aptly standing for "Global System for Mobile Communications") is the standard in some 170 countries. ¹⁷

"GSM was the first technology that could handle roaming mobile terminals as a global standard. This is very important because this factor alone means that a single technology could be widely deployed anywhere in the world where there is a demand for service." ¹⁸ Standards matter.

Figure 5: Mobile Service Revenue

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The Take-off Period (1987–2004)

The classic shape of the first half of the s-curve is seen in the growth of Global Mobile Services Revenue in the data (Figure 5) from the International Telecommunications Union.

The FCC decision to allow competing standards rekindled the significant product innovation that is typically most prevalent in the introductory phase. As the above data shows, the rapid double-digit expansion that is a hallmark of the take-off period peaked in 1995 (at 56 percent). As with all technology eras, gradually slowing expansion from peak growth marks the later part of the take-off period. By 2004, sales growth had slipped below 10 percent, signaling the beginning of industry's later growth period, the second-to-last act in technology eras.

The following section focuses on current developments that are shaping the industry's later growth period.

Later Growth (2004–2024) ¹⁹

Wireless technology is entering a period of lower but steady growth that will see its applications fully built out to reach their maximum economic potential, measured as a percent of GDP.

The industry's centre of gravity has begun a major shift toward marketing and distribution as the focus of competition. However, the battle for market share will no longer be decided by product functionality. Major product innovation is over: technology is now shifting from a starring to a supporting role.

Product innovation will be increasingly incremental with an emphasis on perfecting the technological system. The objective will be to refine wireless applications to the point where they begin to disappear into the background: a convenience that is taken for granted — like cars, air travel and electricity.

In broad terms, industry research, development and engineering activities will increasingly focus on the following customer objectives:

Because basic functionality (doing the job) is taken for granted, a key issue in choosing between suppliers is how much it costs. Process innovation becomes imperative in achieving cost reduction: it is critical in winning share in existing market applications and opening the door to new ones. However, these new applications are modest relative to the major market: mobile cellular telephony. While this core market is a half trillion dollars (2005), the three next largest applications combined, amount to $47 billion. ²⁰ These new applications are also firmly built on the networks that are the core of the steady build-out that characterizes the later growth phase.

The core market, wireless cellular telephony, exhibits this relentless cost pressure that is a central feature of the later growth stage (Figure 6).

Figure 6: Cellular Revenue Per Subscriber

Source: International Telecommunications Union.

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These cost pressures translate into mergers and acquisitions as industry consolidates in the face of slowing revenue growth. For example, recent M&A activity among major carriers in both the United States and Canada includes:

• Cingular, in a US$41 billion merger (2004) with AT&T Wireless, created the largest U.S. wireless carrier;
• Verizon merged with MCI in 2005, creating the second-largest carrier: US$90 billion in annual revenues;
• Sprint purchased Nextel for US$35 billion in 2005, creating the third-largest U.S. carrier; and
• Canada: Rogers, the third-largest wireless operator, acquired Microcell Telecommunications Inc., the fourth largest operator in November 2004. This created the largest carrier; Bell and Telus are second and third.

All of this consolidation has spilled over to the supplier level as well. Examples of supplier mergers include Alcatel-Lucent and the combination of the network arms of Nokia and Siemens ²¹ into Nokia-Siemens Networks; acquisitions include the sale of Nortel's UMTS Access unit to Alcatel. ²²

A major difference between the take-off period and the later growth period is the product's transformation — in the consumer's eyes — from technological marvel to basic necessity. This is the driver behind the ascent of marketing and distribution to dominate competition along the industry value chain. The competitive pressure to create customer value reshapes the value chain in support of this critical task. The following figure illustrates the result:

Figure 7: Specialization and Segmentation of Wireless Service Provision

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To better meet the needs of wireless users, suppliers have segmented the industry value chain, regrouping activities around five strategic centres of gravity:

• Content Creation (for example, CNN, Disney): They furnish information and entertainment through mobile Internet portals;
• Wide-Area Service Providers (for example, United Parcel Services, banks): They provide wireless solutions for customers to access corporate databases, applications and intranets;
• Mobile Virtual Network Operators (for example, Financial Times, Virgin): They use their branding and marketing strengths to compete with network operators and content providers;
• Area-Focused Service Providers (for example, Vodafone, Sprint-Nextel): They sell basic wireless network service combined with some service features or content, for example, roadside assistance, voice-activated dialing, cell phone insurance, etc; and
• Portal-Focused Service Providers (for example, AOL, Yahoo!): They partner with area-focused service providers to supply content and features, for example, email, stock quotes, weather, etc.

This reconfiguration of the value chain is essentially a shift from vertical integration to horizontal specialists that focus on different levels of the value chain.

Exactly the same shift has been occurring in the hardware part of the wireless industry. Here, old vertically-integrated companies (for example, Motorola and Ericsson) that once started with chip manufacturing and went right up the value chain to make handsets and base stations have increasingly concentrated on systems integration. They outsource their hardware needs to a series of specialists operating at what are now separate levels of the value chain: chips, software, manufacturing, design and branding.

In the new horizontal structure of wireless hardware, chips (for example, AMD) and software (for example, Microsoft) can be bought off the shelf. Manufacturing can be outsourced to an electronics-manufacturing firm (for example, Solectron) or even to an Original design manufacturer (OMD). ²³ Such firms, like HDC (Taïwan), design and build handsets for better known firms like Orange (France Telecomm) that apply their own branding. This practice underlines the shift from technology to marketing as the dominant strategic issue.

Content creation is itself experiencing a shift in its centre of gravity. "With the advent of YouTube and other peer-to-peer sharing, the volume of traffic uploaded has shifted dramatically. This challenges previous assumptions which drove asymmetric uplink and downlink designs. Indeed, the nature of this shift in content creation may well challenge the entire ICT structure's ability to deliver what users want." ²⁴

Maturity (c. 2023–2033)

The final decade in the technology lifecycle of wireless cellular telephony will see the centre of gravity of innovation shift to industry suppliers. Two likely candidates are software and microelectronics. Software is still more "black art" than a true engineering discipline (see Chapter 5: The Canadian Context, A Software Platform for Systems Integration). It relies heavily on experience and pragmatic refinements versus a firm foundation in scientific theory applied through reproducible engineering methodologies. In the next fifteen years considerable progress can be expected.

Microelectronics, now 60 years old, ²⁵ has already seen its successor technology beginning to emerge. Molecular electronics, based on quantum (versus classical) physics, will increasingly replace microelectronics, just as microelectronics began to replace vacuum tubes in the 1950s. A breakthrough development is the first quantum computer demonstrated by D-Wave, a Canadian company, in early 2007. ²⁶

¹³  This date is approximate, reflecting about a sixty-year technology lifecycle. (Return to text)

¹⁴  Bell Labs began semiconductor research in the 1930s. (Return to text)

¹⁵  Cellular was launched in Canada in 1985 by Cantel and affiliates of Mobility Canada. (Return to text)

¹⁶  "A Brief Overview of GSM", John Scourias, University of Waterloo (May 18, 2007). (Return to text)

¹⁷  Eurotel www.eurotelgsm.com (May 1, 2007). (Return to text)

¹⁸  Mark Pecen, VP Advanced Technology, RIM (May 18, 2007). (Return to text)

¹⁹  This date is approximate. (Return to text)

²⁰  "Mobile Entertainment, Mobile Health Care and Location-based Services," ICTC Wireless Technology Roadmap Industry Overview (Nov. 1, 2006). (Return to text)

²¹  "Telecom Giants plan $30 Billion Deal" The New York Times (June 19, 2006). (Return to text)

²²  "Nortel Selling UMTS Wireless Access Unit to Alcatel for US$320 Million," (Sept. 1, 2006). (Return to text)

²³  The biggest, all Taïwanese, are BenQ, Arima and Compal. (Return to text)

²⁴  John Visser, P.Eng. International Wireless Standards, Nortel (May 18, 2007). (Return to text)

²⁵  The transistor was invented at Bell Labs in 1947. (Return to text)

²⁶  "Orion's Belter", The Economist, Feb. 15, 2007. (Return to text)

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