Efficiency?s Inefficient Plight
By Dan Briody, Thu Dec 20 00:00:00 GMT 2001

The new breed of network efficiency providers faces an uphill climb.

In Chinese, the word for crisis is the same as the word for opportunity. And nowhere is that peculiar dichotomy more apparent than in today's wireless market. Particularly in the U.S., a severe lack of radio spectrum, the lifeblood of the wireless industry, is creating a whole new breed of wireless company: network efficiency providers. And while there is clearly demand for technologies that inexpensively make wireless networks more efficient, these new companies are finding that demand is only half the battle.

While battles rage over ownership of valuable bands of spectrum, the fact of the matter is that the amount of spectrum that is usable for wireless communications will never increase. ( refer to Spectrum of the World Unite! ). Spectrum is a finite resource that, in many densely populated urban areas, has already been completely claimed. 3G networks will increase bandwidth considerably, and in some cases double it for voice. But it will not be enough over the long run. So as wireless services - including voice, data, and a host of services that have yet to be conceived - continue to grow, the amount of spectrum in the world remains exactly the same. See the problem?

So to the rescue come the network efficiency providers, a small but growing army of technologists with products that help wireless carriers utilize the spectrum they already have more efficiently. And they use every trick in the book to do it. Some companies use sophisticated technology called Smart Antennas, which sit atop of cell towers and focus the beam of radio waves directly to a cell phone user, rather than broadcasting a signal around a 360-degree area. Some use complicated planning software that wireless carriers use to plan out their networks, cutting down on unnecessary cell sites and redundant spectrum. And still others charge hefty fees for consulting services that use a combination of the above. But regardless of the method, the goal is the same: squeeze ever more out of spectrum.

"This is a huge issue for mobile operators," says Joy Nemitz, senior vice president marketing and sales at Scoreboard, one of the new crop of efficiency providers that offers consulting and analysis of spectrum usage. "And now you've got a lot of companies looking to address the situation. It's getting much more attention, and all kinds of technology solutions are coming into play."

The players

Scoreboard works with many of the new technologies to advise carriers on the best strategy for maximizing spectrum. By using its method of predictive modeling, the company claims it can achieve improvements of up to 50 percent on a wireless service providers existing network. According to Nemitz, carriers are currently under scrutiny from Wall Street, after years of overspending on obtaining rights to wireless spectrum in government auctions. Now the emphasis is on the bottom line. "It's all about economics," says Nemitz. "Carriers used to be evaluated on the basis of their subscriber growth, and average revenue per unit (ARPU), but in the last six months, all of that has changed."

Among the many technologies that Scoreboard works with are Smart Antennas. Made by the likes of ArrayComm and Metawave, these little technological wonders have been known to increase capacity by 5 to 10 times, sometimes tripling data rates. The father of the cell phone himself, Martin Cooper, is the CEO and co-founder of ArrayComm, which lays claim to more than 182 patents. The company has spent more than $100 million in developing their technology, called IntelliCell, which can be found in over 90,000 base stations in Japan, China, and United Arab Emirates.

Metawave's Smartcell and Spotlight products are also widely deployed, and the company claims a 50 percent to 90 percent increase in capacity upon installation. Though there have been some concerns over Metawave's solvency of late, the company just secured $20 million from Oak Investment Partners to shore up its balance sheet. And they recently struck a deal with Lucent to create new CDMA based solutions. But the most exciting thing coming out of Metawave is SmartShare, an antenna sharing solution that allows multiple operators to share a single set of antenna panels while independently optimizing antenna patterns for their individual networks.

Other network efficiency providers include Schema, whose Falcom family of products is a comprehensive spectrum optimization system for achieving optimal frequency planning (OFP) in the wireless network. And Conductus creates high-temperature superconductor technology that enhances the sensitivity and selectivity of wireless base station receivers, leading to reduced interference, enhanced coverage, increased capacity and higher bandwidth.

There are dozens more of these network efficiency providers that have yet to surface, as well there should be. The efficiency of the network will only continue to increase in importance as wireless usage continues to increase, and resources remain constricted. Given all of this demand, and the relative nascence of the industry serving it, you would think that customers would be banging down their doors. But that is not the case. This is an industry that has often fallen prey to high barriers to entry. And in the saga of the network efficiency providers, this is no exception.

The obstacle

Standing in the way of many of the network efficiency providers are the incumbent hardware providers that make the expensive equipment that goes into base stations at cell sites around the world. Among the powerful and influential infrastructure providers are Ericsson, Nokia, Siemens, Lucent, Marconi, and Motorola, all companies that generate revenues based on how many cell sites, and therefore base stations, wireless carriers put up. Their resistance to the efficiency providers is simple to understand: the more efficient the network, the fewer cell sites a carrier needs, the less revenue they generate on hardware.

Thus far, the hardware makers have been busy stonewalling the new technologies to hit the market, convincing carriers that the technology won't work, or that they'll have a superior product in a matter of months. All of this is leaving the network efficiency providers with a very bad taste in their mouths.

"The legacy of our industry is a monopoly," complains Martin Cooper, of ArrayComm. "We are still living in that mentality. Mobile operators depend on a couple of suppliers, and they pretty much deploy what those suppliers provide them." Cooper says that on one occasion, ArrayComm had been on the verge of selling its IntelliCell technology to a major carrier, when Ericsson told the carrier that the technology wouldn't work, and suggested an alternative instead, called frequency hopping.

According to Cooper, "it was more of a diversion than a solution, and it's the standard answer that a manufacturer gives when they don't have the product themselves." The bitterness is not limited to the smart antenna business. And this is not a new phenomenon. "The hardware manufacturers have known we were coming for a long time, and they understand the train wreck that's on its way," says Scoreboard's Nemitz.

The hardware providers are pleading no contest. "Even though we are quite large, we don't have the ability to block some else and keep their product off the market," explains Hakan Eriksson, vice president of research at Ericsson. "It would be very risky for us to give a dishonest opinion to our customers. And even if we could sell more hardware for a short time, in the long run, postponing the adoption of new technologies would risk the entire business."

Stuck in the middle of this battle is the carriers, whose business is at stake. While Sprint PCS claims to have a "laser-like focus on spectrum efficiency," the company is still only in trials with smart antenna technology, which has already reached its third generation. "We are very diligently looking at all of these technologies," says Tom Crook, director of technology research and development at Sprint PCS. "We are driving our suppliers to these new technologies."

But the network efficiency upstarts still complain that they are not getting a fair shake in the battle for the hearts and minds of mobile network operators. The theory goes that if just one of the major hardware manufacturers caves and either incorporates the new technology into their products or acquires one of the companies, then the dominos will begin to fall. Then the rest of the bunch will have to follow suit in order to be competitive and the dam will be broken. "We would love it if they even made it themselves," exasperates Cooper. "Just so we can get it out there. They won't make all of the products themselves."

Many of the hardware makers claim to be working on similar technologies that would compete against the network efficiency providers. And some are even working with the fledgling companies, like the deal between Lucent and Metawave, to create joint solutions. Marconi has signed a contract with ArrayComm to distribute their IntelliCell products. So all hope is not lost.

The getaway

Ultimately, it is very likely that many of the network efficiency providers will be acquired, and the technologies disseminated by their respective acquirers. In other words, somehow efficiency technology will make it to market. In some ways what the incumbent hardware makers are doing is just business as usual. But it is situations like this that tend to keep great technology from ever seeing the light of day. Remember the complaints surrounding Microsoft and its stunting of the operating system marketplace?

Whether it is a high-profile company like Microsoft (www.microsoft.com), or a half a dozen entrenched manufacturers, the result is the same: the consumer suffers. The only way that these much-needed technologies will make it to market is if the wireless carriers themselves demand them from their suppliers. And with subscriber rates still soaring, there is no need as of yet to do that. But what happens when Scandinavia reaches 100 percent saturation rates? And the U.S. gets over 70 percent of its population using cell phones? The quality will degrade, calls will get dropped, and customers will complain. That is when carriers will act, after the damage has already been done.

As consumers, there is very little we can do while this saga plays itself out. In the meantime, all we can do is wait. As Martin Cooper says, "we hope that the dam will break soon." You got that right, Martin.

After failing miserably at every attempt to become the next great American author, Dan Briody settled in San Francisco and started writing about the technology revolution in the mid-90s. Today he is the author of Red Herring's Wireless Watch column, and he is still trying to write the great American novel.