At the dawn of the cellular-phone era a decade ago, American Telephone & Telegraph Co.'s market researchers predicted that, by the turn of the century, about 900,000 mobile phones would be in use in the U.S. Not even close. With the millennium still seven years away, that number has been exceeded--12 times over.
America's rapid embrace of cellular--repeated around the globe--has created, almost overnight, a $15 billion-plus industry. Now, new technologies such as digital cellular and personal communications networks (PCNs) hold the promise of explosive growth in wireless markets for the remainder of the decade and beyond (table). And after first grossly underestimating the phenomenon, AT&T and other big players in communications, computers, consumer electronics, and information services are pursuing the market with the fervor of converts.
Over the next few years, companies ranging from AT&T and IBM to L.M. Ericsson and Matsushita Electrical Industrial will invest billions to create a new world of wireless communications. AT&T last year agreed to pay $3.8 billion to buy one-third of McCaw Cellular Communications Inc., the leading cellular carrier. Sprint Corp., the No.3 long-distance carrier, paid $4.7 billion for Centel Corp., mainly to get that company's cellular properties. Motorola Inc. is looking for partners to help fund Iridium, a $3.8 billion satellite system that would allow wireless calls anywhere on earth. And two deep-pockets alliances--Ardis and Ram Mobile Data--are building national wireless data networks.
QUICK FIX. Meanwhile, more than 100 companies and groups--including cable-TV operators--have applied to the Federal Communications Commission to operate PCN systems. A twist on cellular, PCN would use hundreds of micro-cell transmitters to blanket a calling area and provide more than 20 times the capacity of conventional cellular. The pocket-size phones of PCNs will be cheaper than cellular phones and might serve as cordless phones indoors and mobile phones outdoors. PCN calling fees also are expected to be lower than cellular. Some investors and analysts predict PCN could compete with the wired nets of local phone companies. In Eastern Europe and elsewhere, wireless is being used to modernize phone service quickly--avoiding the time and expense of stringing wires (box, page 60).
There's also a scramble to create the hardware and information services to take advantage of the new invisible infrastructure. Alone and in groups, giants such as IBM and Motorola are designing wireless-phone and computer combinations. To build its Newton, a handheld "personal communicator" and organizer, Apple Computer Inc. has teamed up with Japan's Sharp Corp. The personal-computer maker is also collaborating with Germany's Siemens to tie office phone systems to Newton. A competing group, including AT&T, Matsushita, and Olivetti, is backing EO Inc., another maker of personal communicators. Chipmaker Intel Corp. is working with Swedish phone-equipment maker Ericsson. In software, Apple spin-off General Magic Inc. has signed AT&T and others to back its Telescript program as the lingua franca of wireless networks.
Driving this whirlwind activity is a vision of "anytime, anywhere" communications. The premise is that wireless digital networks, feeding information to powerful handheld phone-computer-fax hybrids, will alter the way people live and work--redefining what's a workplace, a store, or a library. Using a personal communicator, you might trade stocks while sitting on a train, order a pair of gloves from an electronic L.L. Bean catalog while riding on a ski lift, or look up a legal precedent from a computerized law library while lolling in your backyard. "You'll have incredible power in your pocket at a very low cost," says Robert M. Kavner, an AT&T group executive who is helping to lead the phone company's charge into the wireless age.
SEA CHANGE. As the surprising popularity of cellular shows, the shift to wireless is a more powerful force than anybody realized 10 years ago. Now, Kavner and other enthusiasts say it may turn out to be a shift as profound as the move from gaslight to electric bulbs, trains to airplanes--or mainframes to PCs. "The last 100 years have been the wireline century," says Thomas E. Wheeler, president of the Cellular Telecommunications Industry Assn. "We have just embarked upon the wireless century."
That assumes, of course, that the new networks fall into place smoothly. That's a big "if." First, it will cost billions of dollars and take years to upgrade today's analog cellular networks to digital technology. And Washington has yet to allocate the radio spectrum needed for PCN systems.
Doling out spectrum space could be done quickly through auctions, a move the Clinton Administration now backs. Auctions would replace time-consuming competitive hearings or the lotteries that created windfalls for lucky winners in the early days of cellular. Opponents of auctions worry that big companies might buy up much of the spectrum at the expense of small ones, but supporters say companies with promising technology should be able to get the necessary funding to bid.
Perhaps the biggest question mark is the health issue. Early this year, the cellular industry was rocked by reports suggesting that handheld cellular phones might be linked to brain cancer. Evidence connecting radio emissions with any form of cancer remains inconclusive, but the scare has the cellular industry racing to prove that a world of pocket phones and laptop computers with wireless modems will be safe. "If people are scared of having a radio next to their ear, do you think they'll be willing to have a radio in their lap?" asks one computer-industry executive.
Another issue: People already overwhelmed by junk mail, fax frenzy, and nonstop phone solicitation are apt to object to the intrusion of anytime-anywhere communications. There's also the question of privacy. To send calls to your pocket phone, PCN systems will need to know where you are. And cellular callers already worry about eavesdroppers who use police scanners to pick up their conversations. (Technologists say that won't be possible with forthcoming digital cellular systems.)
NOMADIC MAN. There's already one obvious market for these wireless wonders: the executives and professionals who were the first to take up cellular phones. Freed from the umbilical cords of computer wires, executives can keep up their frenetic travel schedules and still conduct business as if they were in the office. They'll be able to fire off faxes and electronic mail and read files from distant computers wherever they are--including planes. "Man started out as nomadic," says Craig O. McCaw, chairman of McCaw. "It may be the most natural state for human beings."
Wireless technology isn't just for the white-collar set, though. By bringing the latest information to employees wherever they roam, wireless data terminals have the potential to revamp the way service personnel and even production workers do their jobs. Repair people, for example, will have instant access to parts inventories. Back at headquarters, wireless computer networking will make it a snap to move a PC from one office to another.
Even low-tech equipment will go wireless. Tiny radios on boxcars, freight containers, and truck trailers will help shippers pinpoint deliveries of goods, as they make their way across countries or oceans. Also, it may soon be economical to install transmitters in soda machines to relay information such as how many cans are needed of each beverage.
The bottom line: "There's a very clear-cut productivity argument," says George M.C. Fisher, chairman of Motorola. At Pitney Bowes Inc., for example, 3,500 copier-repair people now carry $2,500 wireless data terminals connected to the wireless Ardis network, a joint venture of Motorola and IBM. Originally created for IBM's technicians, the setup not only tells workers what and where the next assignment is but also dives into a data base for such information as the date of the last repair and the name of the person to see. Before, Pitney Bowes reps phoned in and arrived with "whatever information they could scribble on their hand or the back of a pad," says Murray D. Martin, president of Pitney Bowes Copier Systems.
Now, technicians arrive with all the necessary information. And if they need a part from the repair depot, they can order it over the Ardis system and have it delivered. Martin figures the system has improved productivity 12% to 15% and raised customer satisfaction. But it came at a price: about $130 million, including a computerized dispatch setup.
GETTING SET. So far, only a few pioneers have been willing to pay such high prices for the benefits of wireless. Among them are the two package-delivery giants. Federal Express Corp. built its own private radio network, and United Parcel Service of America Inc. recently organized a national network by piecing together cellular-phone systems. But as costs plunge, thousands of other businesses will follow. Motorola, for example, predicts that by 2000, as many as 20 million U.S. workers will be walking around with wireless data terminals. Motorola estimates the market for such two-way wireless setups should hit $5 billion then.
Corporate America seems ready. In a survey of 3,500 top executives by Deloitte & Touche, more than 90% said they expected wireless communications to boost productivity by the mid-1990s. At software maker Microsoft Corp., Nathan Myhrvold, vice-president for advanced technology and business development, sees the market for wireless data devices equaling the market for PCs--now about 30 million units a year.
Before this mass market materializes, however, there are hurdles to clear--both in technology and marketing. The most important technical developments center on the shift from analog to digital cellular. By converting the human voice to computer code, at least 10 times as many calls can be sent over the same slice of radio spectrum. Right off the bat, that should relieve service problems in such cities as Los Angeles, where too many cellular subscribers are often trying to get onto the airwaves at once.
Digital systems are already operating in parts of Europe, where a continent-wide common standard has been adopted. But in the U.S., a dispute over two proposed technologies has delayed the shift. One, called time-division multiple access (TDMA), is ready and would boost capacity up to sixfold by slicing cellular voice channels into split-second time slots, then sending digitized calls in tiny bursts. But just when the cellular industry decided on TDMA, another system appeared. Called code-division multiple access (CDMA), it promises to expand capacity by a factor of 10 by breaking a call into digital "packets," then assigning a computer code to each. The packets are intermingled with packets from other calls and unscrambled at the receiving end. But until the technology dispute is settled, the old-fashioned analog system may be the only nationwide network.
When the digital networks are in place, however, the speed and reliability of sending data should improve dramatically. Cellular operators have already endorsed a format called cellular digital packet data (CDPD) to improve data communications over existing analog networks. Based on an IBM-developed technology, it allows data to "hop" between channels that are not being used for voice traffic.
In the meantime, makers of phones, computers, and consumer-electronics products are working on designs for the gadgets we'll carry around in the wireless world. The most talked-about has been Apple's Newton. This calculator-size device, due out by this summer, will combine the functions of a pocket organizer, such as a calendar and a to-do list, with communications features such as the ability to send and receive faxes. Because Newton has no keyboard, users will write on its screen with a special pen. Software will "read" the writing and act on instructions, Apple says. Newton also will capture handwritten notes to be sent as faxes.
ALL IN ONE. The gallons of ink spilled over Newton have raised some red flags about the move to wireless. "There's more hype than there'll be revenue, at least in the next few years," cautions IBM wireless researcher Satish Gupta. Competitors say that while Newton points to the possibilities of wireless, Apple may have created unrealistic expectations--for itself and the emerging industry. Not only has Apple yet to build a Newton, but when it does, the first version won't have most of the wireless data-communication capabilities that CEO John Sculley has highlighted. "I think the bar has been set too high by the Sculleys of the world," says James C. Hobbs, a vice-president at BellSouth Mobile Data. Apple executives were unavailable for comment.
Even if you can't yet stuff all the necessary electronics into one handheld unit such as Newton, "the technology is all here," says Martin Levetin, executive vice-president at Ram Mobile Data, a service similar to Ardis. The challenge, he adds, "is assembling the pieces and making commercial products out of it."
For now, the solution is to carry two devices--one computer and one communicator. That's how users of the Ram system operate. They carry a Hewlett-Packard Co. 95LX pocket-size PC attached to a radio device from Ericsson-GE Mobile Communications. The $995 package allows executives to send and receive short text messages almost anywhere. Soon, with help from Intel and other chipmakers that are shrinking the communications electronics, it will be possible to do this with one device, such as a notebook PC or personal communicator.
Titus & Sons, a medical-supplies distributor in City of Industry, Calif., is trying out one of the first personal communicators in production. Built by EO, the notebook-size machine stores product information and can send or receive wireless faxes. It also doubles as a cellular phone. The device "is essentially the office we don't have in the field," says Don Durben, a Titus salesman.
Investors in new wireless networks and hardware figure that millions of executives and workers will eventually want such mobility. But it won't happen overnight. "It takes 10 years typically before a new product really takes off," says Motorola's Fisher. In addition to technical issues, there is price. The EO personal communicator with the cellular-communications option, for instance, costs about $2,800. Apple says Newton will be priced somewhat under $1,000. Experts say a mass market won't materialize until gadget prices drop below $500.
Even then, the demand will depend a great deal on the types of wireless services available. Information providers such as Mead Corp. say they want to send their computerized data, such as newspaper and magazine stories, over the airwaves. But none has yet announced a concrete plan. In the process of launching wireless services, "there will be a lot of players who will lose money," predicts Dennis Patrick, the former FCC chairman who heads Time Warner Inc.'s wireless efforts.
Steep costs, high risks, and the need to set standards are already pushing wireless pioneers into complex alliances. "We're partnering with some of our future competitors in order to make this world happen," says AT&T's Kavner, who has managed the phone company's partnerships with EO and General Magic. Among backers of either or both are such potential AT&T rivals as Matsushita, Motorola, and Sony.
One big motivation behind such strange-bedfellows relationships is the fear of getting stuck with a Betamax product or service in a new VHS world. Without cooperation, it "will stunt the growth of the industry," says Frank T. Wapole, chief executive of Ardis. Cooperation may also be critical in getting federal regulators to dole out the needed airspace for wireless services.
BIG BOYS' GAME. Even as they team up, however, the major players in computers and communications are jockeying to become the big wheels in the wireless world, too. Motorola is perhaps the best positioned, since it's among the largest makers of cellular-transmission equipment, cellular phones, and pagers. It also owns pieces of wireless networks in the U.S. and abroad. And it's working on personal communicators.
Motorola has AT&T to contend with, though. The phone giant plans to market McCaw's cellular service using the powerful AT&T brand. And AT&T has bigger plans than McCaw. "It's not just cellular we're interested in, it's all of wireless," says Victor A. Pelson, an AT&T group executive who heads its communications services business. That's why the company plans to test PCN systems over its old microwave long-distance towers, which have been little used since the move to optical fiber. AT&T's stated goal is to be the leading provider of "anytime, anywhere" communications.
And Apple isn't the only computer giant that is aiming for the wireless world. Although wounded by its recent financial troubles and executive-suite turmoil, IBM is making substantial commitments to wireless. In addition to its half-interest in Ardis, it has a prototype personal communicator and is developing wireless PC networks. In addition, IBM is expected to take a stake in In-Flight Phone Corp., the Oak Brook Terrace (Ill.) developer of a digital air-to-ground phone system founded by wireless pioneer John D. Goeken.
So the race to make a wireless world has begun. The biggest players in the computer, communications, and information industries anticipate a new stage in technology, which, as the microprocessor did in the 1980s, will create vast new markets and new fortunes. They see empires in the air.