Tech Intro

An Introduction to Wireless Telecommunications for Non-Techie Investors
Updated December, 2004

• Introduction


• Smoke Signals: The First "Air-Interface" Communication


• Radio Waves: Communications Starts Getting Technical


• Cellular Radio: "Walkie-talkies" Have Come a Long Way


• Analog vs. Digital "The Copy Is as Good as the Original"


• Brief History of the Cell Phone


• Compatibility Problems Lead to GSM


• "Alphabet Soup": PSC, DECT and PHP


• Packet vs. Circuit Switching: (Sharing vs. Owning the Information Highway)


• "Multiple Access" Increases Potential Usage


• Time Division Multiple Access (TDMA)


• Code Division multiple Access (CDMA)


• Narrowband vs. Wideband CDMA ("It's All about Bandwidth, Stupid!")


• Wireline vs. Wireless Telephone Systems (POTS,Cell Phones, WLL & 3G introduction)


• The Telecom Future: "Light Years Beyond Dick Tracy's Wrist Phone"


• 3G Is Coming Like a Herd of Elephants


• When Will 3G Reach Its Potential?


• How an Investor Can Make Money from 3G


• Important Disclaimer

Introduction

One of the most challenging aspects of investing in wireless telecommunications is to understand enough about the technology to invest prudently . . . so that one can sleep well at night.

Some telecom technology shareholders own shares of a company for reasons unrelated to the technology (e.g. PE ratio, liquidity, earnings, risk-reward ratio, management, etc.). Some own shares precisely because they do understand the technology, firmly believing, perhaps, that their company is pioneering the technology of the future for wireless telecommunications -- and they want to be a part of it.

Some of us have no technical background to draw on, but want to know enough "in layman's terms" to basically get a handle on what it is that the various companies are claiming in the area of wireless telecommunications technology. It is for this latter group that this exclusive WirelessLedger.com report is intended. This information may indeed provide the help you need.

Be sure to BOOKMARK WirelessLedger.com's exclusive Wireless Jargon , the best current GLOSSARY of telecom technology related terms. WirelessLedger.com's handy glossary not only describes terms in alphabetical order, as one would expect, but this extraordinarily user-friendly glossary usually links the user to a variety of related terms within the definitions in the glossary. No printed glossary can do this . Only an electronic one like ours, which makes extensive use (throughout this site) of hyperlink technology. Thus, the glossary word "CDMA" (g) provides not only a definition, but also a helpful link to a page listing links to all related terms within the entire Wireless Jargon glossary (each term is linked back into the glossary at the appropriate alphabetical location). So "CDMA"(g) also links to these terms: 3rd Generation; ATM (g) Synchchronous Transfer Mode; Broadband(g); Circuit-Switching, xDSL x Digital Subscriber Line; ethernet; frame relay; GPRS (g) General Packet radio Services PLUS 39 other related terms included in the glossary itself). Either print this one and keep it handy or bookmark it - which is an even better idea because that way you'll be able to use the extensive linkage (unseen in printed form)to maximum benefit.

(Please read the disclaimer at the end of this article.)

Smoke Signals: The First "Air Interface" (g) Communications

OK, let's start at the beginning. The first "air-interface technology" (g) (today's buzz phrase) was probably the smoke signal. The Greek historian Polybius (200BC-120BC) is reported to have devised a system of alphabetical smoke signals.

Now, fast-forward twenty centuries later. Picture the old Western films with telegraph lines strung along the railroad beds. Samuel Morse invented the telegraph in 1844. (His first message: 'What hath God wrought?") Then in 1876 came the telephone -- with Alexander Graham Bell's "Mr. Watson, come here. I want you!" It took Thomas Edison's invention of the variable-contact carbon transmitter a year later to make the telephone signal strong enough for practical use as a communications device, using a metal cable (now copper), with the signal boosted along the way.

Radio Waves: Communications Start Getting Technical

The Italian inventor, Marconi, sent the first radio signal in 1897, in London, but the existence of radio waves was first demonstrated by Heinrich Hertz, a German professor, in 1887. Radio waves are part of a large family of rays and waves known as electromagnetic waves. They consist of electric and magnetic fields that vibrate at right angles to each other. All electromagnetic waves move at the speed of light -- which is 186,000 miles per second -- and travel through air and space.

Sending an electric signal (g) to the antenna of a transmitter produces radio waves. The signal makes the electrons in the metal atoms of the antenna change energy levels and emit radio waves that are "modulated." This means that the original sound is superimposed right on the radio waves in such a manner that the radio wave "carries" the sound along with it. Radio waves, like all other waves, have a particular frequency or wave length. Frequency is a measure of the number of waves that are transmitted per second, measured in hertz. (Remember the German professor, Hertz, mentioned above?) Wavelength is a measure of the length of each complete wave, expressed in meters.

Microwave beams, radio waves of extremely high frequency; carry telephone calls as digital signals. (Optical fibers, by the way, involve a laser- produced light beam, which is then "modulated" -- superimposed -- by the sound signal before it is fired along a glass cable.)

Check out the Wireless Wizard for more helpful information (including illustrations) on what makes this mysterious radio stuff work. But be sure to Bookmark this report before you go.

Cellular Radio" "Walkie-talkies" Have Come a Long Way!

Are you old enough to remember the war surplus stores after World War II? As a youngster I used to scour them, hoping to find an affordable pair of the walkie-talkies I saw in the John Wayne war movies. Remember those big, battery-powered, boxy things that sent radio wave messages. You turned a crank to get it started. I never found a walkie-talkie I could afford back then. But now, I slip its modern-day replacement into my pocket. The battery lasts a long time. I don't have to turn a crank -- and, I can phone all the way across the ocean!I refer, of course, to cellular telephones (cell phones) -- those ubiquitous communications devices which many of us are now carrying on our belts or in our pockets or purses, whether we are in vehicles, walking, or just sitting somewhere. These devices use radio waves, allowing us to be quite mobile.

There are several basic characteristics found in all cell phone systems:

First, the area served by a cellular radio (g) system is composed of small geographic areas called "cells." (From which, of course, comes the name "cell phones".)

Second, because battery operated portable instruments have low transmitting power, and thus the signal only travels a limited distance, the specific radio frequencies assigned to a particular cell can be re-used in other cells within a larger geographic area. This significantly increases the number of cell phones that can be used simultaneously in the larger area

Third, as the cell phone (or any other related mobile instrument) moves from one cell to another in the midst of a call that call is automatically re-routed from the old cell to a new cell without an interruption that one would notice. This process is known as the "hand off" (g). A central control or service is keeping track of the movement of the mobile phone subscriber. It's called a mobile telephone switching office (MTSO).

Fourth, when the demand for the radio channels in a given cell is larger than the capacity of that cell (that is when it can't handle the number of calls it needs to handle simultaneously), the service provider splits overloaded cell into smaller cells, each having its own base station(g) and central controller. The radio frequency allocations are automatically redistributed to balance out the greater number of smaller cells. It is this reusing of frequency between the two cells and the splitting of cells when demand increases that distinguish cellular systems from other radio telephone systems. Without this ability, cellular providers could never serve large metropolitan areas containing hundreds of thousands of subscribers because there simply could not be enough frequency available.

We've come a long way from the walkie-talkies of World War II, haven't we? These cell phones are so neat. Now instead of being a kid in the '50s -- I can be a "kid in MY fifties."

"How Stuff Works" for more very helpful and interesting information on how cell phones work. But please bookmark this report before you go so you can easily return.

Analog versus Digital: "The Copy Is As Good As the Original"

To understand the history of cell phone development, one needs to grasp the difference between "analog"(g) and "digital" (g). So, before proceeding, lets look at the differences here. Hey, you probably already know the difference -- so skip ahead. But just in case you "always wanted to know but were afraid to ask" -- read on.

There is a very important breakthrough here! Remember the last time a friend gave you a great cartoon -- but it was fuzzy and there was lots of speckled stuff on the page it had picked up as copy was copied from copy? Well, now you don't have to lose anything when you make a copy using digital technology. That's why the music industry can now deliver perfect recordings to you -- over the Internet! (Try that with your order for new shoes.) The copies are just like the original -- because of digital technology. Now that's a breakthrough!

Most investors are missing out on what may be the most lucrative investments in wireless. Read... Understanding Intellectual Property A key in making money in wireless investments

The objective in transmitting speech, audio, video or other information is the clearest possible reproduction of the original message without losing any part of it because of the distortion of the signal. The foundation for achieving noise-free and distortion-free communication is the "binary" signal. Utter simplicity is the key here. There are only two binary digits, or bits, 1 and 0, "yes" or "no." (How's that for simplicity?) With only two possible values, it would take substantial noise or distortion picked up during transmission to change the binary signal from one value to the other.

Ordinary voice communications over the phone are not in binary form. The analog(g) must be converted to digital. (On the other hand, most non-voice information, such as data communication, is already in binary form, eliminating the need to change the signal from analog (g) to digital.)

Brief History of the Cell Phone

AT&T (NYSE:T) introduced the first mobile telephone service (MTS) connected to the public telephone system back in 1946. To use the phone, one had to search manually for an unused radio channel before he or she could place a call. The user reached a mobile operator, who then dialed the call over the public telephone system. Since only one party could speak at a time, controlled by a "talk" button, this was called a "simplex" radio connection.

Ma Bell upgraded in 1964 to "improved mobile telephone service" (IMTS), featuring automatic dialing and channel searching with a "duplex" connection. There was a very high demand for this system, but it had very limited channels available to it since each radio frequency was used only once in the whole geographic area. It was common in a large city for such a system to serve only 300 or 400 customers with another 2000 customers waiting for service. The antenna for this service had to be placed on a very high structure in order to provide coverage throughout the entire service area.

It was during this time that the "advanced mobile phone system" (AMPS) (g) was developed, thanks primarily to Motorola, Inc. (NYSE:MOT) and AT&T. It was introduced in Chicago in 1983. By the end of its first-year there were 200,000 AMPS (g) subscribers in United States and in five years the number had grown tenfold. But there was still insufficient capacity. The challenge was to increase capacity without the need of additional radio spectrum allocations. Motorola proposed an analog (g) system in 1991 known as narrowband (g) AMPS (g) or NAMPS. In this system each existing 30 kHz channel is divided into three 10 kHz channels.

While narrowband AMPS was being installed throughout the U. S., another system was being promoted by a committee of the Telecommunications Industry Association (TIA) in the late 1980's and early 1990's. This approach relied on "digital" technology (instead of "analog"(g)) in conjunction with a Time Division Multiple Access (TDMA) (g)) method pioneered by InterDigital Communications Corp. (NASDAQ:IDCC). This approach also permitted three new voice channels in the place of one AMPS (g) channel.

In Time Division Multiple Access, each subscriber can briefly use the entire radio frequency channel assigned to it to transmit data. Unlike first generation, analog(g) systems, which tie up channel for as long as their call takes, TDMA(g) technology allows the sharing of one channel by four users, each with "time slots" allocated at different times. InterDigital Communications Corp. (IDCC) later evolved key aspects of this TDMA technology into TDD (time division duplexing) (g). More on that current technology below.

While the various first generation (analog (g) systems were severely handicapped by incompatibility with each other, TDMA(g) was designed to operate with the efficiency of digital technology AND to create a global standard in which all systems would be compatible.

A third cell phone technology surfaced in 1994. Championed by a creative and feisty San Diego firm, Qualcomm, Inc. (NASDAQ:QCOM) and also adopted as a standard by the TIA, it is known as (narrrowband) CDMA. It offered 10 to 20 times the capacity of existing analog(g)AMPS(g) systems. InterDigital also secured a foothold in CDMA(g) technology by buying SCS Mobilcom/Telecom. Both Qualcomm and InterDigital hold extensive CDMA(g) related patents. Qualcomm has paid InterDigital several million dollars in a cross-licensing arrangement. As we will see, Qualcomm (blessed with visionary management, highly competent engineers and the best PR Department in the industry) has very successfully developed narrowband(g) CDMA, while InterDigital has worked vigorously to develop wideband CDMA. (For a fascinating insight into the similarities and differences, see:Qualcomm and InterDigital. A Comparison of Two IPR Thinktanks)

Compatibility Problems Lead to GSM

The Japanese were the first ones to actually get a cellular system in operation, back in 1979. Denmark, Finland, Norway, and Sweden in 1981 saw the introduction of the Nordic Mobile Telephone (NMT) system. The two systems (Japanese and Nordic) were incompatible, as was a system developed in the United Kingdom in 1983 called the Total Access Communications System (TACS). In subsequent years additional systems, also incompatible, were developed in other countries. Searching for a system that would allow a cellular user in one European country to operate in another European country with the same equipment, a number of government-owned public telephone organizations in the European Community announced the digital global system for mobile communications, or GSM(g), in 1988. GSM(g) is based on TDMA(g) engineering, which InterDigital Communications Corp. (NASDAQ:IDCC), among others, claims as its intellectual property and for which it receives licensing fees. GSM(g) is the largest standard in the world (well over 80% market share), with over 150 million subscribers connected.

The TDMA(g)-based PDC(g)(personal digital cellular) standard deployed only in Japan has more than 45 million subscribers and TDMA(g) has more than 25 million. InterDigital thus claims its intellectual property rights are involved currently in the equipment used by more than 220 million subscribers worldwide. (Even though another generation of cell phones is coming, experts predict TDMA(g) -based systems will continue to grow for a number of years to come. More than 400 million cell phones are manufactured and sold each year. That potential stream of licensing and royalty revenue, of course, warms the hearts of InterDigital shareholders.

"Alphabet Soup": PCS, DECT and PHP

First generation (analog[g]) and second generation(g) (digital) cellular radio systems are noted for providing great mobility within their area of service, but they have shortcomings. The introduction of third generation 3G (g) technology will help alleviate the major problems. But in the effort to provide even greater second generation 2G (g) service, technology has been refined in a number of ways including the system that is called PCS (personal communication system).

The first PCS system was instituted in United Kingdom in 1991 and was called CT-2. At first, the system could only originate the telephone calls, not receive them, but more recently, two-way calls have been made possible.

The digital European cordless telephone (DECT) [g]), a form of PCS was designed initially in 1988 to provide cordless phone service within a single office building environment, but later became usable within a group of buildings. DECT(g) systems have been used primarily in the United Kingdom, in France but also in other areas.

Japan instituted a system based on PCS in 1994, calling it a "personal handy phone (PHP) system. A number of well known Japanese firms pay handsome licensing fees to InterDigital Communications Corp. (NASDAQ:IDCC) because the PHP technology is based on IDCC's TDMA(g) intellectual property. These licensees include: Denso, Oki Electric Industry, Inc., Matsushita Electric, Kokusai, Hitachi, NEC Corporation, Kyocera Corporation, Sharp, and Toshiba.

In the United States, the Federal Communications Commission (FCC) sold licenses for use in PCS systems and many of the same technologies used in digital cellular systems are used in PCS systems. Sprint, Powertel, and Nextel are big users of PCS in United States at this time.

Packet vs. Circuit Switching: (Sharing vs. Owning the Information Highway)

With Internet, multimedia and other data-heavy use, it has been essential to develop a more efficient method to send data through the telecommunications system.

The transmission of data can be done in either of two ways. When "circuit switching"(g) is employed, a particular physical path is determined and is held open throughout its trip through the network. Our traditional public telephone system operates on this principle. The "line" stays open as long as the parties keep their phones off the hook. It doesn't matter whether people on the line are saying anything or not.

With the advent of digital (g) technology (see analog[g] vs. digital), the potential capacity of a line can be used to its fullest. A digital-based "packet-switched" (g) network sends its data in small pieces (which are called "packets"), each proceeding on its own as it moves through the network. Packets of data from any number of calls can be sent down the available circuits simultaneously. They are reassembled at the receiving end by means of several engineering schemes involving software that interprets instructions in the packet "headers" or addresses, to determine where to send them and in what order to reassemble them.

Using the analogy of a highway, traditional circuit switching(g) allows a car headed from Nashville to Memphis to use exclusively an entire lane of Interstate 40 for the duration of the trip (as in, "he drives as if he owns the road.") On the other hand, packet switching(g) permits as many cars as can safely do so, to use the same lane at the same time. (When data compression techniques are also utilized, it makes it as if each of the cars were transformed into a bus full of people.)

In addition to a number of other benefits, "packet switching(g)" technology allows a subscriber to pay only for information sent or received -- not for the connection time. Since cell phone calls presently cost more than traditional landline calls, of course, users do not remain connected all day. Instead subscribers connect several times a day to read e-mail or download other information. With wideband CDMA "packet-switched" capability, for example, subscribers can be charged for the volume of data transmitted, instead of the duration of the time online.

"Multiple Access" Increases Potential Usage: TDMA/CDMA

Besides analog(g) versus digital, and circuit switching(g) versus packet switching(g), there is another major difference between first generation and second or third generation(g) telecommunications. This key difference has to do with what is called "multiplexing(g)." Multiplexing(g) is the sharing of a communications channel by combining signals at a common point. What if only one person at a time -- instead of several -- could ride up or down in an elevator car? That's the way telecommunications was before "multiple access(g)," which allows several conversations to ride the same radio wave simultaneously. In order to be efficient enough to handle the growing volume of wireless calls, there frequently is a need for the radio channel to be shared (in the most efficient way possible) among users who are spread out geographically and who only periodically and randomly attempt to communicate. Three systems have been engineered to efficiently share a single channel under conditions like this: Frequency Division Multiple Access (FDMA) (g), Time Division Multiple Access (TDMA) [g]), and Code Division Multiple Access(g) (CDMA).

In the advanced mobile phone system (AMPS[g]), the first generation analog(g) cellular system used in United States, different subscribers use separate frequencies. When the call is completed, the frequency slot is released to a different caller. The objective of the AMPS(g) system is the reuse of frequency slots as often as possible so that many callers can be serviced. Within each cell (or geographic area), frequency slots are used simultaneously by many subscribers calling from separated cells. Of course, the cells have to be far enough apart geographically that the radio signals from one cell do not interfere with those in another cell using the same frequency slot. As the use of cell phones increased dramatically, there simply were not enough frequency slots available, resulting in the cell phone gridlock many of us have experienced during rush-hour periods in urban areas. Calls may simply be "dropped" as one leaves a cell and goes into another where there is insufficient capacity. Distortion and interference are further problems with this first generation (analog[g] system).

Time Division Multiple Access (TDMA)

As noted above, the engineering principal guiding digital-based TDMA(g) is to divide time into individual slots and then separate the signals of different subscribers by placing those signals in separate time slots. Occasionally, there are more requests for time slots than there are available slots. When this happens, the information is stored in memory until the time slots become available. This introduces a slight delay in the system. The IS-54 (g) cellular system copes with this delay by combining aspects of both TDMA(g) and FDMA (g).

Also see the TDMA(g) discussion under "brief history of the cell phone," above.

Code Division Multiple Access (CDMA)

In CDMA (g) systems, signals are sent both at the same time and in the same frequency band, but they are coded by using user-specific waveforms constructed from an assigned code. In the CDMA(g) cellular system, an analog(g) voice signal to be transmitted is first organized digitally. Then the bits are put together into a coded stream of data. IS-95 (g) (narrowband(g) CDMA) uses 1.23 MHz of the radio frequency spectrum. One user can be distinguished from other users in the same 1.23 MHz bandwith because of its assigned code.

InterDigital Communications Corp. (NASDAQ:IDCC), developed the basic CDMA(g) technology into a wideband version which IDCC originally called B-CDMA™(g) (Broadband Code Division the Multiple Access™). IDCC's proprietary version of wideband CDMA used a much larger bandwidth(g) (typically 5 to 30 MHz) than the (narrowband(g)) CDMA architecture championed by San Diego's Qualcomm, Inc. (NASDAQ:QCOM). The bandwidth(g) enables a large number of users to simultaneously access a single radio frequency and provides the capacity to support services requiring wider bandwidth(g), such as Internet access, high-speed fax and other high data applications. InterDigital claimed that its "cutting-edge architecture" had the flexibility to deliver -- on demand -- whatever bandwidth(g) is required, allocating spectrum as the subscriber needed it. Before next generation, 3G (g) WCDMA (g) was adopted as an international 3G standard, InterDigital was laying the groundwork for wireless with its proven B-CDMA proprietary technology.

Nokia (NASDAQ:NOK) of Finland, Ericsson Telephone Co. (NASDAQ:ERICY), of Sweden, Siemens SI), Alcatel and others have also been successfully developing wideband CDMA architecture, positioning themselves to capitalize on the new third generation(g) international standards which rely heavily on a wideband CDMA architecture

At first, it was not thought that a wireless version of CDMA would be useful for cell phones, which carried only voice, a minimally demanding use. InterDigital's proprietary wideband CDMA technology was initially applied to fixed location wireless products (see "Wireline versus Wireless," below) It was successfully field tested in United States, China and other countries but was never offered for sale because InterDigital chose instead to move directly to a fully mobile version, which became a major portion of WCDMA (g). With attention shifting rapidly to third generation(g) mobile wireless technology, InterDigbital was in the enviable position of having already field tested the type of wideband CDMA architecture (WCDMA) that was included in the international standards announced in the fall of 1999.

Wideband will be increasingly necessary in the future to handle data-heavy applications like the Internet or multimedia.

Ever creative Qualcomm has not been sitting on its hands, of course. It has also been refining its narrowband(g) CDMA technology, adding capacity and efficiency. They have dubbed their third generation(g) CDMA(g) offering "CDMA 2000."(g) This technology will also be included as one of the optional international third generation(g) wireless standards. Because of its lack of compatibility with GSM(g), which prevails in 80% of the worldwire market, narrowband(g) CDMA 2000(g) may not do nearly as well in the worldwide marketplace as the wideband CDMA technology being promoted by InterDigital, Ericsson, Nokia (NYSE:NOK) and others. Qualcomm, however, has always managed to defy predictions and land on its feet when push came to shove. Holding some of the basic CDMA(g) patents, Qualcomm is receiving substantial royalties, no matter whether its narrowband(g) or InterDigital's - Nokia's - Ericsson's wideband CDMA eventually prevails.

Daunting Engineering Challenge: "Multipath Fading"

(" What's That? I Can't Hear You!")

InterDigital Communications Corp. (NASDAQ:IDCC) developed a proprietary wideband CDMA architecture that spreads signals over a given amount of spectrum -- and thereby counters very effectively -- innate wireless problems such as "multipath fading" (g). This common degradation of signal happens when a radio signal is received directly by an antenna, but then the same signal is received again as it is reflected off a building or hill. This problem is similar to the "ghosting" effect of TV signals or the interference, overlap or distortion we sometimes experience while listening to our radios.

Indeed, InterDigital's "spread spectrum" (g) solution to the "multipath fading(g)" problem demonstrates why InterDigital's engineering is apparently so highly respected by its industry peers -- and further, why its intellectual property rights have been included as "essential" in every one of the international third generation(g) wireless standards (g).

Interestingly, here is how InterDigital claims to have solved the major problem of radio wave interference from buildings and hills: IDCC's patented architecture spreads the digital radio signal over a larger bandwidth(g) , typically 5 to 30 MHz. In extensive field trials, InterDigital demonstrated that much of the benefit of narrowband(g) CDMA technology is lost in urban and other conditions because a full 1 MHz of a signal can be affected by interference. Observers believe that InterDigital's patented engineering contributions to the international standards allow even a degraded signal to be recovered and communications maintained.

By way of comparison, the narrowband(g) CDMA technology patented by InterDigital's and Ericsson's principal CDMA(g) rival, Qualcomm, Inc. (NASDAQ:QCOM), was developed specifically to coexist in the narrowband(g) channel design (1.25 MHz) of first generation analog(g) AMPS(g) (advanced mobile phone system). Qualcomm has demonstrated excellent quality transmission, however, with its newest versions of narrowband CDMA. Some observors beliueve that Qualcomm's technology is superior to WCDMA (g). It has beaten WCDMA to market. WCDMA's primary advantage is its compatibility with 80 to 85% of the existing 2G (g) digital cell phone service in the world. It is generally accepted that WCDMA (also called UMTS in Europe), will be 85% of the 3G market worldwide in 2007.

Compatibility with GSM/TDMA(g)(Building on the World's Current Standard)

The major advantage of wideband over narrowband(g) CDMA is its much better compatibility with the second generation GSM(g) -- TDMA(g) wireless digital systems which are by far the most widely used cell phone technology throughout the world.

"Wireline" versus "Wireless" Telephone Systems

Any discussion of the past, present or future of the telecommunications industry assumes basic knowledge of the difference between "wireline" and "wireless" (or "air interface"(g)) telephone communications). An investor interested in a telecom technology investment will probably want to be familiar with this distinction because it will be helpful in understanding the significant roles being played by various telecom technology firms in the current transition from wireline to wireless communications.

All telephone systems are either wire-based, wireless, or a hybrid of the two. There are four different types of telephone service. We are familiar with two of them, but there are two other types which most of us in America have never seen. The four basic types are:

The following is a description of each system:

POTS

Cell Phones

Wireless local loop(g)

Next Generation Wireless Systems

(1) POTS

We all grew up with the plain old telephone service (POTS), so not much needs to be said about it. (Some of us remember having a "party line." Our families shared one telephone line with several other families in the neighborhood. We knew which incoming telephone call was for us because of a distinctive ring. We could easily listen to our neighbors' telephone conversations by simply picking up the telephone.) Each of our telephones was wired into the wall (at a "jack"). A wire ran from the wall to a little box on the outside of the house. Another wire went from that box to a telephone pole out on the street or in the alley. Then another wire went all the way to a telephone-switching center in our town or neighborhood. Originally, our town's central system was connected to other towns via long distance wires. For the most part, those long distance wires have been replaced by high-powered microwaves.

(2) Cell Phones

Cellular telephones are those ubiquitous communications devices that many of us are now carrying in our pockets or purses, whether we are in vehicles, walking, or just sitting somewhere. The earliest of these devices were analog(g), while the second (and current) generation, 2G (g), is digital. (See: Analog vs. Digital) These devices use radio waves instead of wires to carry voice or data. With the third generation (3G)(g) cell phones, PDAs, wireless lap tops and otehr devices, we will be able to carry a device with us anywhere to connect to the Internet and other data rich sources. We will even see and hear the person we are communicating with. (And it won't be in the jerky way we may have seen demonstrated until recently). Faxes will be transmitted wirelessly, right to our own car, a conference room somewhere, or even to our own chair at the beach (God forbid!). No wires -- anywhere. Nokia plans to introduce cell phones that can receive television programming in 2006. (NEC, InterDigital, Nokia and Ericsson engineers have been involved in making the world's first 3G(g) cell phone devices, incorporated in the Japanese telephone system by NTT DoCoMo.) All cell phone technology is based on "modulating" (g) voice and data on radio waves and transmitting them through the air. Note: there is an explanation of the evolution of cell phones elsewhere in this section. (See: Brief History of the Cell Phone, above).

(3) Wireless Local Loop(g) (WLL)

This is also called "fixed location wireless" because wires are not needed between one's house or office and a central switching station. But this is a hybrid telephone system because it includes both some wiring and some radio wave transmission. This system has evolved during the 1990s in order to meet two primary needs:

Thus, a WLL (g) system depends upon wires inside a home or office -- but does not use wires from that point to the switching station, relying instead on radio waves. This is called a "fixed location" wireless system to distinguish it from a "mobile" wireless system. Cellular phones are a completely mobile system and are used to complement our traditional wireline system, so that we can use a telephone "on the run." With the WLL (g) system, the phones inside the building are still wired to the wall. You can't simply pick up your phone when you leave, put it in your pocket, and head somewhere else. So, WLL is a FIXED location, albeit partly wireless, system.

(4) Next Generation Wireless: A Completely Mobile System for Home or Office

In the Fall of 1998, InterDigital (NASDAQ:IDCC) engineers, in partnership with Samsung, Alcatel, and Seimens, realized that the wide band CDMA system they had been developing for fixed location wireless systems was so robust and so amazingly adaptable that, with adjustments in software, it had the potential for eventually making a "fixed" system completely mobile. Telecom tech firms in the foreseeable future would be able to provide the technology allowing telephone service to be completely mobile, at basically the same cost as service that was limited to a fixed location. This means that in the future, it will be just as inexpensive to install a new telephone "line" that one can carry along wherever one travels (local or long distances) as to install a "line" that is limited to use at a certain location ("fixed"). Already in Finland and a growing number of other countries, many businesses and residences don't bother to install wired telephones at all; they now use mobile telephones at a fixed location at home and in the office as well as on the move.

The Telecom Future: "Light Years Beyond Dick Tracy's Wrist Phone"

In 1975, I went to Circuit City to buy a new television. I had heard friends talk about how wonderful their new television sets were that had remote control devices. Wow! Changing channels and making adjustments without going back and forth to the TV set! When the salesperson asked me what I was looking for in a new TV, I said, "I'm especially interested in one with a remote control." He showed me some models and I was really impressed. "I like this model," I said. "You know," he said, "if remote is important to you, I wouldn't buy any of the models in our store today. Next month, models will feature a brand new wireless remote. You won't have that wire to contend with between you and the TV." "Golly," I said. "Imagine being able to control the set from my chair - and without ever worrying about somebody tripping over the wire. What will they think of next?"Well, they have thought of a lot of wireless stuff since then -- and yes, I did wait a month to buy a new model with a wireless remote. You and I are so pleased with having the conveniences that appliances provide, that we often don't even consider that someday they may ALL be wireless!

A communications system based on wires, whether copper or fiber optic, is expensive and it takes a long time to install. We don't think about it because America is the most wired area on our planet. Wiring is already in place -- strung or buried over the last 50 years. But what if you lived in Kenya -- or any newly emerging markets country? What if there were only one or two telephones in your town or village? What if your government realized that modern communication was essential to making an economy grow -- and that the government had neither the money to install wires -- nor the time to wait until wires could be installed (even if they had all the money they needed). What would you do? Go wireless, of course.

Even in a country like Finland, a developed, prospering economy -- wireless telephone service now comprises over 50 percent of all newly installed telephone service in the country. Want to order new phone service in Finland? You don't bother about wires. Your new "line" is wireless. No telephone wires anywhere near your home. Why bother with them? That is the direction we are headed in telecommunications today. Almost every communication that can be done today via wires -- will someday be wireless (or "air interface"(g) as they say). Not only that, but communications involving multimedia -- or other applications that we haven't even dreamed about yet -- may completely bypass the wireline phase -- and start out as wireless.

I used to think that "wireless" necessarily meant "limited.' After all, frequencies for the radio had all been portioned out years ago. But now, we are learning how to greatly expand the spectrum that can be used for radio waves. Wire, it turns out, is far more limited than usable radio spectrum will be in the future.

3G Is Coming Like a Herd of Elephants

Reading some media reports back in 2002 might have caused the casual reader to conclude that the cell phone service providers around the world, after spending an astronomical sum for necessary licenses, had decided that next generation wireless 3G (g) simply wouldn't fly. Reporters filed stories suggesting that 3G was a goner, before it had even arrived.

As has always been the case, a portion of the media thrives on sensationalism. Media outlets that breathlessly predicted 3G as the answer to almost all of the world's economic problems headed in the opposite direction in 2002. In 2004 they reversed course again going positive on 3G, in tune with significant gains in the share values of wireless communications firms.

The truth is, 3G (next generation wireless) not only is coming, but has arrived. It is as unstoppable a herd of elephants.

3G may even eventually completely replace the 2G service that is now pervasive throughout the world, just as 2G replaced the original analog service during the early 1990's. NTT Do Co Mo recently announced that it intends to abolish all 2G services by 2012, replacing all with 3G services. NTT Do Co Mo currently has 40 million users in Japan.

It is expected that some service providers will not be making money on 3G for several years. So why is 3G being built? Governments have mandated the build out of 3G systems as part of the frequency licensing terms agreed upon four or five years ago. But primarily, 3G is being built by operators because they know there will soon be a need for a major upgrade to their extremely successful 2G (g) networks. The success of cell phones has been so phenomenal that networks are running out of frequency spectrum in urban areas around the world. Even without growth from new "killer applications," normal growth in usage will require the efficiencies of 3G technology.

3G has substantial technical advantages. In a given slice of frequency spectrum, 3G theoretically can accommodate 20 times more calls than today's 2G (g) (digital) systems. Because of 3G's efficiencies, voice capacity will cost only 1/7 as much to increase capacity as 2G did for that same capacity. Experts say that 3G technology can reduce operating costs by as much as 30 percent. Service providers see 3G as the ticket to delivering future profitability, even if that may take a few years.

As is always the case with the launch of a complex new technology, there have been some glitches that needed to be addressed. 3G is the most technologically complex international endeavor ever attempted. The 3G cell phones and other wireless devices are extremely complex because they will not only have to communicate flawlessly with each other, but also with the current 2G and 2.5G (g) devices that many subscribers will still be using for years to come. There is no question, however, that 3G technology will work well. That has been well established.

Because of the immense cost of copper wires strung across great distances (and the propensity for easy theft right off the poles), wired telephone service has never been economically viable in much of the less developed world. But villages in the heart of Kenya and towns snuggled in the mountains of China and South America, where people may have never previously had access to telephones or faxes or Internet connections of any kind, will be connected, invisibly, via radio waves, locally and with New York, London, Moscow, Bejing or Bogota. High-speed Internet connections will be possible in the most remote parts of the world thanks to 3G technology. The long envisioned "global village" will be a reality.

And applications like real time streaming video from one cell phone to another in the most developed parts of the world will be, for the first time, both possible and affordable.

Before 1G (g) analog (g) cell phones became commonplace in the 1980s, naysayers asked, "Why would anyone buy a mobile phone? There are plenty of pay phones throughout the country."

I suppose they spoke of the original telephones the same way. "It's easy enough to write a letter. What would we say, anyway?"

2G cell phones were greeted with great skepticism in the 1990s. "We've got good cell phones already. Why do we need those more expensive digital things?" It took awhile to realize that communication was much improved thanks to digital. And without digital, the 1G analog systems would have become hopelessly overcrowded years ago. City after city would have become frequency gridlocked.

With the ever increasing usage of 2G digital cell phones, that same frequency gridlock problem will also occur without the extraordinary efficiencies of 3G. As is always the case, more and more users will arrive, some not envisioned at all today, to tap into the capabilities of data rich 3G. We don't know what the "killer applications" of 2010 will be. They will likely vary from region to region. We do know that access to the Internet is becoming an essential part of day-to-day existence for more and more people. And just as we got fed up with tethered remote controls for our televisions and VCRs in the 1960's, so we will demand that we have wireless high-speed access available for Internet connections and other purposes

When Will 3G Reach Its Potential?

So, when will 3G become a reality? It already is.

QUALCOMM (QCOM) has already been successfully rolling out its narrowband (g) version of 3G in 2003, CDMA2000 (g). And it has been well received. CDMA 2000 is an easy evolutionary step from its 2G version, cdmaOne (g). This evolution is relatively inexpensive and trouble-free.

However, over 80% percent of the cell phones worldwide, are not QUALCOMM’s narrowband cdmaOne (g), but rather the family of TDMA (g) based technologies called GSM (g), TDMA (g), PHS (g) and GPRS (g).

The evolutionary path for these market leading 2G devices leads to 3G WCDMA (g) (which in Europe is called UMTS (g)) and a variation of WCDMA which the Chinese government favors for that country, TD-SCDMA (g). The evolutionary path to WCDMA (and TD-SCDMA (g)) is clear, but this move from 2G to 3G will be complex and expensive (but much less expensive than a path from GSM to QUALCOMM’s CDMA 2000 would be. In spite of cost and complexity, however, it is happening because it is by far the most efficient progression.

The European Community believes that the 3G UMTS (g) (WCDMA) is a superior technology to the narrowband 3G technology CDMA 2000 championed by QUALCOMM. Europeans claim that 3G means high data capability and that wideband beats narrowband when the snazzy, very demanding applications are here. Investors should note that the WCDMA standard includes within it two complementary wireless technologies, FDD (g) (frequency division duplexing), and TDD (g) (time division duplexing). WCDMA with FDD will be introduced first. But as the demand for moving massive amounts of data grows and that data moves mostly in one direction (e.g. a connection to the Internet), then TDD (g) will be added to WCDMA, probably in 2004. It will enable substantial additional capability. Spectrum has already been allocated for TDD in most parts of the world and international standards for TDD are almost completed.

Some Chinese claim that their "home grown" version of 3G, TD-SCDMA (g), is even more efficient than WCDMA because of its even stronger reliance on TDD (g) technology, known for its ability to move massive amounts of data efficiently. Although the Chinese claim TD-SCDMA, it relies heavily on patented technology developed by the German firm Siemens (NYSE:SI) and the American firm InterDigital Communications Corp. (NASDAQ:IDCC). Siemens and InterDigital partnered in the development of a predecessor technology BCDMA (g) in the 1990’s. (As a new member of the World Trade Organization, the Chinese are expected to pay substantial royalties to both Siemens and InterDigital. Siemens says that TD-SCDMA does not require the use of QUALCOMM’s patented technology. Whether or not that is a bargaining ploy remains to be seen.) See the WirelessLedger.com exclusive report.

In Europe alone, operators will spend $300 billion for 3G, counting licensing frequencies, building infrastructure and marketing. They have to spend the money or they will be overrun by competing service providers who do upgrade to 3G.

The communications industry realizes that what has been an immensely profitable wireless revolution will suffocate without the added capacity and efficiency of 3G.

3G infrastructure (g) is being rapidly deployed, beginning in Asia, where 2G systems are almost near grid lock because of the number of wireless subscribers, Asia requires 3G technology now simply to keep mobile communications functioning.

Widespread 3G service has been spreading from Asia to Europe in 2004 and beyond.

The U.S. and other countries of the world lag behind Asia and Europe because there have been competing 2G standards and slow-moving government and regulatory agencies. But the United States will see widespread 3G service beginning in  2005-2006. In fact QUALCOMM's CDMA technology, which is theoretically 3G, even if some considerate it to be 2.5G, was already emerging in 2004.

What might delay widespread acceptance of 3G? 2.5G GPRS (g) provides some elements of 3G service at less cost to operators and consumers. Some operators (service providers) may milk it for all its worth.

How Investors Can Make Money from 3G

What are the implications of all this for investors today? First, wireless communications is rapidly becoming much more complicated than wireline, even though wireless is cheaper and quicker to install. Remember just how simple wireline communication is. Two kids -- each with a tin can and a string held tightly between them -- can speak and hear over that line. With wires, if there's too much interference -- you just add more insulation around the wire. Not terribly complex.

Wireless walkie-talkies in the 1940s and '50s were pretty simple. Analog (g) cell phones are pretty simple -- but they don't carry much data, only voice. Today's second generation 2G (g) digital cell phones are only moderately complex. Manufacturers readily can both design and make the basic-level digital phones.

But if you want to connect wirelessly to the Internet -- or send lots of information/data -- or use in multimedia -- you will need the next generation of wireless digital communications. And third generation(g) wireless will be complex, incredibly complex. It is so expensive to develop a third generation(g) wireless products from scratch -- that all but a handful of telecom tech companies will contract with firms like Ericsson Telephone (NASDAQ:ERICY), InterDigital Communications Corp. (NASDAQ:IDCC), Nokia (NYSE:NOK), NEC, Siemens (NYSE:SI), Qualcomm, Inc. (NASDAQ:QCOM) and others who can provide the basic "System on a Chip(g) ." Or, they might license the basic architecture from Siemens, Ericsson, InterDigital, Nokia, Qualcomm or others so that they could manufacture their own pre-designed chips, if that's really important to them.

The firms which have been working diligently to develop next generation technology over the past several years will be richly rewarded in this decade. The immediate need for third generation(g) wireless communications was not obvious until the Internet usage explosion in 1998. Caught by surprise, few telecom tech firms had devoted the millions of dollars necessary to develop it. Surprise! Now, it is urgently needed and firms with a proven expertise will be well paid to help all the others. Shareholders of companies like Nokia, Siemens, Ericsson, NEC, Motorola, Samsung, Sharp, InterDigital and Qualcomm and others will be richly rewarded for their foresight. The future is full of potential for careful investors in wireless technology who do their homework diligfently. I can hardly wait!

The most successful investors often are the ones who see the true picture before the crowd does. The wireless revolution investment strategy least understood by investors is directed toward the patented intellectual property at the heart of the wireless revolution.To learn how investors today might profit handsomely by investing in the intellectual property "think tanks" whose patented technology is already included in the approved international standards for 3G, read WirelessLedger.com's breakthrough report, "Understanding Intellectual Property. A Key to Making Money in Wireless."

To dig a little deeper and benefit even more, read WirelessLedger.com's fascinating report on "The Standards-setting Process. A Key to Making Money in Wireless."

For a course introducing an investor to the basics of wireless communications (from smoke signals to now and beyond), see WirelessLedger.com’s exclusive report in its entirety.

For an overview of the ways to invest in the wireless revolution, see WirelessLedger.com’s exclusive report, "Five Ways to Make Money Investing in Wireless."

Read a primary exclusive report on InterDigital Communications Corp. (IDCC), the investment WirelessLedger.com’s believes is currently the most undervalued beneficiary of the wireless revolution..

Be sure to BOOKMARK WirelessLedger.com's exclusive Wireless Jargon, the best current GLOSSARY of telecom technology related terms. WirelessLedger.com's handy glossary not only describes terms in alphabetical order, as one would expect, but this extraordinarily user-friendly glossary usually links the user to a variety of related terms within the definitions in the glossary. No printed glossary can do this . Only an electronic one like ours, which makes extensive use (throughout this site) of hyper link technology. Thus, the glossary word "CDMA"(g) provides not only a definition, but also a helpful link to a page listing links to all related terms within the entire Wireless Jargon glossary (each term is linked back into the glossary at the appropriate alphabetical location). So "CDMA"(g) also links to these terms: 3rd Generation; ATM(g) Synchchronous Transfer Mode; Broadband(g); Circuit-Switching, xDSL x Digital Subscriber Line; ethernet; frame relay; GPRS(g) General Packet radio Services PLUS 39 other related terms included in the glossary itself). Either print this one and keep it handy or bookmark it - which is an even better idea because that way you'll be able to use the extensive linkage (unseen in printed form)to maximum benefit.

Important Disclaimer: The information contained on this site is for information purposes only. It is based on sources considered by the editor to be reliable, but is not represented to be complete and neither its accuracy nor timeliness is guaranteed. Nothing on this Web site should be interpreted to state or imply that past results are an indication of future performance. The contents of this Web site include forward looking statements reflecting the writer's opinions and expectations at the time they were written. Obviously, these statements are subject to risks and uncertainties. Actual outcomes could differ materially from statements expressed here. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS OR ANY LINKED WEB SITE.

This information, for the most part, comes from persons who have a vested interest in a rise in the share prices for InterDigital, Ericsson, Nokia, Qualcomm, Texas Instruments and other wireless firms. Before investing in any company, one should obviously look at a variety of sources for information, including that company's most recent filing with the SEC. There are no guarantees when it comes to investing, especially in the speculative areas of technology and telecommunications, and no such guarantees are implied here. Nor should this be construed as a solicitation to sell stock.

top of page

To obtain more information about WirelessLedger.com, an "information cooperative" related to wireless telecommunications technology investments, please visit our web site.

© 2004 by Dr. Bill Dalglish. Permission is hereby granted to reproduce this article providing it is for free distribution and that the author (Dr. Bill Dalglish) and source (WirelessLeder.com) are credited