The wireless phone: It used to seem like something of a miracle, didn't it? But today it's an indispensable tool for hundreds of millions of users.
Having grown accustomed to mobile voice communications, cellular phone devotees now want more from their handsets: access to e-mail, text messaging, data, weather and stock quotes and even interactive services.
Some of these services are already available, on a limited basis, on today's digital cellular networks -- the second generation (2G) of wireless technology. The widely anticipated, but not yet fully developed, third generation (3G) of wireless technology will fling the door wide open, delivering high-speed access for such demanding applications as streaming media, interactive gaming and videoconferencing.
In the meantime, there is 2.5G: newly developed technology that can bring consumers more services and improved capabilities by building on existing 2G networks. It bridges the divide between 2G and 3G, giving handset makers and service providers a way to keep consumers engaged while they wait for the next generation. But the complexity of 2.5G technology, primarily embodied in General Packet Radio Service (GPRS), presents a significant barrier to handset makers eager to tap into the market.
Enter Motorola. In a move that has come as a surprise to many observers, Motorola -- a major player in semiconductors and a leading manufacturer of mobile communications devices -- has announced that it will use its expertise to open up the 2.5G market for everyone. In July 2001, Motorola said it plans to offer the semiconductor and software technology at the heart of 2.5G and 3G devices to other mobile phone makers.
In other words, Motorola is inviting everyone into the fold.
"Motorola is the leader in wireless and the leader in GPRS," says Pete Shinyeda, corporate vice president and general manager of the Wireless & Broadband Systems Group, part of the company's Semiconductor Products Sector (SPS). "No other company is better positioned to get companies to 2.5G -- and to 3G, down the road -- than Motorola."
Although it's a new technology, GPRS is implemented as an upgrade to current GSM (Global System for Mobile Communications) systems. GSM serves the majority of 2G wireless subscribers worldwide. It is based on traditional circuit-switched technology, so it's great for voice but not optimal for data services.
Data is best served by packet-switched networks, such as those based on Internet Protocol (IP). GPRS is well suited for data because it is something of a hybrid: While preserving circuit-switching for voice calls, it supports IP and implements packet-switching techniques into the GSM system for data transmission. Motorola, building on its considerable GSM expertise, was the first to achieve an IP call over a GSM network, a major step in the development of 2.5G technology. As a result of this packet-switching capability, GPRS permits convenient, "always-on" data connections, as well as substantially faster data transmission.
Ahead of the Pack
The launch of GPRS networks has already begun. But there are challenges in rolling out new technologies. "Every new network launch has been hindered by a lack of compliant handsets or recalls because of buggy handset software," notes Charles Golvin of Forrester Research.
Mobile phone makers face the hurdle of developing handsets that are compatible with network infrastructure equipment supplied, typically, by various other companies. Even as they tackle technological issues, these handset makers must also focus on establishing and promoting their own brand identities. Out of this dilemma, Motorola sees a growing market for emerging wireless technology.
A New Strategy
Motorola's position in the marketplace is unique: It is a leader in the semiconductor industry as well as a major handset supplier. Motorola was the first company to market a commercial, portable cellular phone. More recently, it was the first to provide commercial GPRS handsets. Neither Texas Instruments nor Intel can claim this range of wireless expertise.
This comprehensive expertise in cellular systems makes it the only company that could execute this significant shift in strategy, according to Shinyeda.
"How many companies do you see in any industry who are saying that we're going to play on a consumer level, with branded products, yet also make available the complex internal technologies to other companies?" Shinyeda says.
"No other company has Motorola's breadth of cellular and wireless expertise."
For the most part, Motorola's semiconductor and software technologies have been available only to Motorola's own mobile phone division, the Personal Communications Sector (PCS). Such expertise has helped to put Motorola PCS at the epicenter of some of the first GPRS network launches in the world. Having proven its wireless technology in its own handsets, Motorola is now prepared to offer the technology to outside manufacturers.
Motorola's announcement was met with skepticism from some quarters. Why would Motorola want other players in the industry to have access to the crown jewels inside its handsets? What's more, will rival phone makers accept Motorola as a key supplier?
Motorola sees supplying other phone makers as an obvious opportunity to increase its business in the embedded wireless market, even as Motorola PCS -- a major customer of SPS -- has a leading brand in the consumer market. According to Ray Burgess, corporate vice president and director of Strategy and Marketing at SPS, the company has a chance to "leverage its comprehensive wireless expertise to win both sides of the handset market."
Moreover, industry participation is important in rolling out a major new technology. Motorola alone can't make the global GPRS market take off. Says Shinyeda, "If it's just Motorola out there, then consumers aren't going to have enough content and carriers aren't going to have enough reason to get the networks built out."
The notion of a competitor as partner, supplier, or customer, meanwhile, is hardly news in the tech industry. Motorola SPS, after all, partnered with chip industry rival IBM to develop the flagship PowerPC(r) family of microprocessors. And in the PC market, as another example, many companies have sold their own PCs while also supplying such components as disk drives to their competitors.
Standardization of Technology
In a report following Motorola's announcement, Forrester's Golvin suggested the benefit to other mobile phone makers. "Motorola's handset platform customers will be freed from the cost and complication of radio and processor design and assembly for each new network technology that emerges."
Mobile device makers may be happy to be so unburdened. Motorola points to a "disruption" in the mobile phone industry that the company likens to shifts in the PC market in the early 1990s, when leading PC makers gave up developing their own motherboards. With standardization and resulting economies of scale, it no longer made sense for PC makers to devote R&D to such basic technologies; instead, they focused on such factors as brand identity, customer service and supply chain efficiencies.
Motorola sees similar trends under way in the wireless industry, with moves toward standardization of underlying technology. Continuing to develop technology and solve incompatibilities in-house threatens to be a drag on handset makers, according to Shinyeda.
"As technology becomes standardized, they're saying, why are we spending all this R&D to provide solutions that our competitors on the street can provide just as well? Why don't we look for outsourcing?"
Those OEMs whose brand names grace handsets might best devote resources to developing unique brands and styles and fostering relationships with network operators and consumers. Says Shinyeda, "They're focusing again on the value chain at a different level -- the consumer proposition."
Standardization also promises to lower costs for handset suppliers and consumers. "What's going to drive value for Motorola is economy of scale," Shinyeda says. "We can cost-reduce and have a competitive strategy for customers, so we can enable them to have a lower-cost solution on the marketplace."
Motorola's own PCS sector endorses this strategy to supply its own competitors -- a point reiterated by Mike Zafirovski, executive vice president and president of Motorola PCS, during an analysts' meeting after the July announcement of the new strategy.
In fact, says SPS's Shinyeda, "They've been on board for a while. We couldn't have started this a year ago without the blessing across the corporation."