U.S. Urges Europe Not To Impose A Digital-Wireless Standard

WASHINGTON, Wednesday, Dec. 23, 1998 -- The White House has asked the European Union not to adopt a technology standard backed by Telefon AB L.M. Ericsson of Sweden for the next generation of wireless telecommunications services.

In a letter, it urged the EU to follow the lead of a United Nations body, which essentially called for the market, not government, to choose the appropriate technology. The U.S. fears that the EU could lock competing U.S. technologies out of the European market.

While the U.S. wants to see multiple technologies compete in the market for these services, it also supports efforts to harmonize technological standards as much as possible, the letter said. It added that the administration would be "gravely concerned" if such efforts were blocked by European intervention.

Wireless services currently include mobile telephones, pagers and other devices. But the next generation of devices will be capable of transmitting data and e-mail from the Internet and provide other services, including video conferencing. Whereas second-generation mobile service providers compete almost exclusively on price, third-generation providers will duel by providing targeted value-added services.

Europe's industry became the front-runner in the second generation wireless market, chiefly because it set the Global System for Mobile Communication, or GSM, technology as the Europe-wide cellular standard. The prize in the third-generation battle is global hegemony, a single cellular standard that would allow companies to sell a phone in one country and let consumers use it in any other.

GSM helped make fortunes for manufacturers like Oy Nokia of Finland and Ericsson, which market equipment using the standard. But GSM networks are running out of room for new customers because the radio frequencies they're allowed to use are getting crowded. So they're looking for a new technology that would give them more space and added services.

North American, Republic of Korean and Australian players, led by Qualcomm Inc. (QCOM) of San Diego, back a standard known as CDMA2000, while European and Japanese concerns are pressing the International Telecommunication Union to adopt wideband CDMA (W-CDMA).

Each side in the CDMA battle has important assets. Qualcomm, which invented CDMA, claims it has exclusive rights to the CDMA technology. It wants W-CDMA's backers to revise W-CDMA so that it will also work with CDMA. If they don't, it warns it won't license them to use Qualcomm technologies it says are essential to W-CDMA. Ericsson has a huge CDMA market of GSM phones around the world and contends that W-CDMA doesn't rely on Qualcomm-patented technology.

Ericsson and Nokia support for W-CDMA because it makes it possible for GSM operators to upgrade to W-CDMA without replacing their entire network and also opens a new market in Japan to the Europeans. The companies spent last year lobbying for support from Asia's GSM operators, and early this year managed to convince Europe's telecommunications-standards body to accept W-CDMA and a second CDMA standard. Japan's standards body has submitted W-CDMA to the ITU for its endorsement next year as a global standard.

As supporters of rival W-CDMA and CDMA2000 clash over harmonization and intellectual patent rights, backers of another standard, Time Division Multiple Access (TDMA) hope to sneak across the finish line.

The ITU warned recently that if the two CDMA sides can't get together by Dec. 31, that body could exclude both W-CDMA and CDMA2000 from further consideration," leaving only TDMA-based standards in the running.

The White House letter is "an important demonstration of the administration's unwavering commitment to creating access to Europe's wireless market for all technology standards," said Gregory Williams, vice president of SBC Communications Inc.'s (SBC) Wireless Systems.

Williams is chairman of the Universal Wireless Communications Consortium, which represents major U.S. wireless providers including BellSouth Corp. (BLS), AT&T Corp. (T), Motorola Inc. (MOT) and Sun Microsystems Inc. (SUNW). Companies in a wireless consortium have invested $30 billion in TDMA technology world-wide, about $21 billion of which is in the U.S. That investment would be undercut if EU nations exclude the technology.

The third-generation market could be huge. In Europe alone, annual revenue from the sale of mobile multimedia services is projected to reach at least $27 billion by 2005, with about 32 million users of multimedia phones, according to UMTS Forum, a group of international phone operators backing the new services. Add demand from Japan and the U.S., and world-wide revenue could jump billions of dollars more.

By last year, Western Europe and Japan's digital-cellular markets had each grown to roughly $15 billion, 10 times the size of the U.S. market. By 1998, the markets in Europe and Japan are each expected to hit $28 billion, but the U.S. will still lag at about $9 billion, according to the European arm of San Jose, Calif.-based market-research firm Dataquest.

This year, West European manufacturers will sell about 17.8 million digital cellphones, compared with 6.2 million sold by U.S. makers, according to Dataquest. Billions of dollars in future revenue ride on the final choice of a standard, which could be made as early as January.