Strategic Computing and Communications Technology Group H: Standards Final Report
Nobody could argue that cellular telephony, both as an industry and as a technology, has not been successful. Since its commercial inception in 1981, cellular has taken the world by storm. Its penetration rate continues to rise unabated and the technologies behind it continue to develop rapidly.
Yet, one could argue that cellular has succeeded only in spite of itself. It is an industry full of competing, incompatible standards and customer-confusing acronyms. The competition has been fierce, the capacity slow to expand, the government perhaps more a hindrance than a help. But, as we will show, cellular has been able to continually skirt these problems and others on its way to success.
The first modern cellular system went into commercial operation in Sweden in 1981. This system, known as the Nordic Mobile Telephony System (NMT), was based on analog radiophone technology. It found significant success, not only in the Scandinavian countries but also in Asia, Africa, and other parts of Europe.
In the United States, commercial service began in 1983 with the system known as AMPS: Advanced Mobile telePhone System. Standardized in 1981, this system is still in use in the U.S. today and is colloquially known as "analog cellular."
The AMPS standard was endorsed by the FCC and the Cellular Telephone Industry Association (CTIA). Wisely, the FCC allowed exactly two cellular carriers in each business market, providing for competition but limiting the market to avoid chaos. In retrospect, this decision was a wise one. AMPS cellular flourished throughout the 1980s.
Soon, though, the systems in place were being used to capacity. Cellular operators could only add capacity (by subdividing cells) so many times and had reached their limit. Something had to be done. It was widely recognized that the best approach would be to switch over to a digital system. This would not only increase the systems’ capacity but also allow for data transmission, privacy, and additional calling features.
In 1988, the CTIA formulated their User Performance Requirements (UPRs) for the new digital networks. One of these requirements demanded a tenfold increase in capacity over the existing analog system. For a digital standard, the U.S. looked to Europe, where the Groupe Speciale Mobile (GSM) had chosen a Time Division Multiple Access (TDMA)-based system. IS-54 TDMA was adopted by the CTIA in 1990. TDMA, though, was not compatible with GSM nor did it meet the capacity requirement set forth in the UPRs. No matter, cellular operators were more than pleased with TDMA’s threefold capacity increase.
Three months after CTIA’s adoption of IS-54 TDMA, a small American company, Qualcomm Inc., unveiled an alternative. This system was based not on time-division multiplexing but on code-division multiplexing or CDMA. Unlike TDMA, CDMA did provide for a tenfold increase in capacity over analog (and then some). But CDMA was still just a prototype in a laboratory, while the Europeans had shown working, large-scale TDMA-based systems.
Nonetheless, observing CDMA’s obvious superiority in capacity – not to mention its American origins, lower power requirements, and even tighter security – the CTIA adopted the IS-95 CDMA standard in 1993.
Today, the number of choices are even greater. While the technologies have stayed the same (i.e. analog, TDMA digital, and CDMA digital), their implementations have also varied. Personal Communications Systems (PCS) have come to market. PCS can be based on either of the digital standards. In addition, GSM, the European system, is beginning to make inroads in the United States cellular market.
So where does all this leave the American consumer? Certainly, such a bewildering array of choices could make for a very confusing situation. But instead of confusion, the American marketplace seems to be accepting this panoply of standards as an embarrassment of riches. One main reason is that the typical American consumer appreciates having a choice and feels better about a purchase for having made such a decision. Another is that, in truth, all the systems work adequately and are available for a reasonable price. The irony is that in spite of the wide number of incompatible standards, cellular telephony has been a success. This is, to say the least, unusual in the computer and communications technology arena.
Moreover, rampant standardization is not the only problem which cellular telephony has defied. The usual pull of network externalities is only partially at work. Also, switching costs do not have their traditional impacts here.
The classic example used to illustrate the idea of network externalities involves, not surprisingly, the telephone. It is said that for every phone added to the worldwide telephone network, the value of the network and all the other phones increases. But until some critical number of phones were in service, the cost of a telephone was too great to justify for many homes.
Cellular phones, however, did not have to overcome this critical mass problem. This is because even the first cellular phone in service was able to connect to the existing worldwide telephone network, providing an instant critical mass of users connected to the network. Looking closer, this can be viewed as a standardization issue: if the new cellular networks could not interconnect with the existing wired networks, cellular would have had a much more difficult path to follow.
When subsequent cellular standards came along, interconnection also ensured that the early adopters would have plenty of use for their new units.
While interconnection enabled the acceptance of the first cellular standard, one might expect that later standards would have a difficult time becoming established with a dominant standard already in place. Fortunately, some classic marketing techniques were put into use to ease switching costs for users. In short, the new phones were essentially given away by service providers who in turn derived most of their revenue from usage costs.
Thus, while switching costs for service providers were in fact enormously high, the same was not true for cellular users. They could switch from one system (and standard) to another with relative ease.
Here, too, cellular telephony benefited from the ubiquity of classic wireline telephony. It’s safe to assume that new cellular users had been using telephones all their lives. Dialing a cell phone was much like dialing any other phone. Pick-up and hang-up worked like a cordless phone (with which most cellular users were already familiar). Storage of frequently dialed numbers worked in the same way as on a fancy home or office phone with memory settings. Thus, cellular telephony did not have a human factors problem to overcome.
There are a number of lessons to be learned from cellular telephony’s history. Some are:
· Keep perspective! One thing that Engineers in particular must keep in mind: the average user is not concerned with the matter of standards per se. Issues important to the consumer include quality, price, and reliability but not protocols, bitstreams, or algorithms. While users want systems that work well, they are not going to concern themselves with the technology behind the system – or what acronym that technology goes by.
· Timing is everything. The timing with which a standard is promoted can have a significant impact on its success. CDMA digital, for example, will be most successful in North America and East Asia where there is currently no dominant digital cellular standard. In Europe, however, CDMA is not expected to gain significant (if any) market share because the GSM standard is already widely deployed there. The technical advantages of CDMA are not enough to overcome GSM’s position in this mature market. A more likely scenario is that, five or ten years hence, a revolutionary system might unseat GSM in Europe.
· Computer and communications technology can circumvent standards problems. As stated earlier, consumers do not care what standard they are using. They simply want the product to reliably work. As such, if the product can seamlessly adhere to multiple standards, so much the better. Cellular phones are able to do this, with some models handling both analog and digital and others able to communicate on multiple digital standards. By hiding the details, a communications device (or a software program) can bridge the gaps among diverse standards.
· The method of standard creation has had no impact on its success. The GSM standard was created by an international standards body. The AMPS and CDMA standard were created by private companies. The market is blind to these facts – the acceptance of these technologies does not in any way hinge on the method of their formulations. National origin is a different matter: some have stated that CDMA’s success in North America and East Asia is partly in response to the Europeans’ dominance in TDMA technology.
· The FCC must not repeat past errors. There role of the government in the cellular telephony industry needs to change. In the past, the FCC has rubber-stamped a particular standard and then divided up the needed electromagnetic spectrum to suit the standard. Unfortunately, while refereeing in this way is advantageous to the business in the near term, such decisions also have the effect of slowing down the introduction of new technologies. For example, is the spectrum allocated by the FCC for PCS best suited to CDMA- or TDMA-based systems? The technologies are different and so are their spectrum needs. The FCC needs to be aware of the effect it is having with respect to new technologies and should act accordingly.
The rapid pace of change in the cellular market continues thanks to creative marketing and advances in technology. While no one knows exactly what the future holds, here are some possibilities:
· Invasion of GSM. The GSM standard is at this time the only one in use throughout Europe. As such, Europeans enjoy seamless service as they travel throughout the continent. Thanks to GSM’s success, cellular technology companies from Europe, North America, and East Asia are all making GSM equipment. The resultant competition, along with enormous economies of scale, have made GSM hardware – for both providers and users – the least expensive digital option. The U.S. market is going digital. Might GSM, offering low prices, proven technology, and international portability, succeed here as well?
· Superiority of CDMA. Of all the available digital standards, CDMA is generally seen as the technically superior one. In combination with PCS’ capabilities, it is distinctly possible that, should there be a shakeout (driven by users demands for seamless transcontinental service), CDMA will survive based on its merits.
· Ubiquity of networks. On the other hand, it is possible that no single standard will become dominant. Given sufficient spectrum and enough providers, it is possible that pan-U.S. networks will eventually be in place for each standard. Users would be able to take their phones anywhere in the country and still receive service. At that point, the battle is over.
· Steinbrecher radio. Technology continues to evolve, of course. This new system promises even greater gains in capacity and could become popular.
· Low Earth Orbit systems. At least four mobile telephony systems using swarms of low-orbit satellites are in the works. These will provide planet-wide coverage, the ultimate in ubiquity of service. Further, in combination with the ability to locate a caller geographically, any number of enhanced services and pricing models are possible.
The fighting among proponents of the various cellular standards is as fierce today as ever even while new standards continue to emerge. Certainly, each has its advantages. Certainly, the technical landscape is rich but confusing and overcrowded. Still, the U.S. cellular telephony market is far from saturated. Thanks to falling prices and hot new technology, there will be continued growth for many years to come. And thanks to cellular’s ability to avoid many common technology pitfalls, the industry will be able to remain solid despite the presence of multiple competing incompatible standards.