Commentary: Uncle Sam, Please Pick A Cell Phone Standard

German pianist Gottfried Boettger composes music for movies, but he also spends much of his time giving concerts throughout Europe. Touring doesn't slow down his film work, though. Thanks to a wireless phone service called GSM (general standard for mobile communications), directors can always call Boettger at his German wireless phone number and even transmit film clips via wireless modem to his laptop computer. He composes the music on an electronic keyboard and sends the file back to the director--again, wirelessly--from any country he's in. Unless he happens to be in the U.S.

Tech-happy America, it turns out, is at least five years behind Europe in rolling out digital wireless phone systems. The reasons for the gap are many and complex, but one stands out: a lack of government standards in the U.S. Back in 1988, the European Union chose GSM for a new generation of wireless. Europe may never have standard specs for electrical plugs and TV sets, but the EU wanted to be sure a wireless phone could be used anywhere in its 15-nation region. To spur compliance, the EU gave away space on the radio spectrum to operators who adopted GSM.

ACRONYM SOUP. At one time, the Federal Communications Commission would not have hesitated to set such a standard. But today, the U.S. frowns on such market interference. Instead, the FCC auctioned off radio spectrum for digital wireless, raising $20.4 billion. The winning bidders got to pick any standard they wanted, slicing the nascent market into three camps--24% of the country will be covered by GSM, 14% by a newer digital technology called time division multiple access (TDMA), and 57% by code division multiple access (CDMA), newer yet. Each group can marshal arguments on the advantages of its technology, and each hopes it will prevail in the marketplace.

Consumers, though, don't much care about this acronym soup. They just want the digital improvements, such as security, no static, and E-mail, that all three offer. But the U.S. systems remain incompatible--with each other, and with existing analog cellular. That's sure to drive U.S. callers to distraction, since they already have to deal with a lack of roaming agreements between many of the nation's cellular systems.

The move to digital was supposed to end the confusion, but the FCC's laissez-faire ways guaranteed more incompatibility. And since equipment makers can't focus on just one system, the result is lower volumes for each--ergo, higher prices and slower growth (chart).

Not so for the rest of the world. The huge number of GSM customers in Europe has created economies of scale that CDMA and TDMA equipment makers can only dream of. Lower costs and a proven track record have thus persuaded 108 countries to adopt the GSM standard. UBS Securities Inc. forecasts that GSM will have 166 million subscribers worldwide by 2000--vs. 21 million for CDMA.

U.S. tech manufacturers insist market forces are ultimately better than government mandates. The European approach "doesn't always lend itself to new technologies that are bubbling up," says James K. Brewington, network systems chief for Lucent Technologies Inc., which supports all three standards. It is true that both CDMA and TDMA have more capacity than GSM. But it's also true that the next generation of GSM under development will most likely match their capacity. "If we had to do this movie over again, an earlier and better standards process might have helped us out," admits Jack M. Scanlon, president of Motorola Inc.'s cellular networks.


This debate may seem moot, given Washington's current thinking. "The U.S. has always been a market-driven model," argues Shirley S. Fujimoto, a wireless specialist with law firm McDermott, Will & Emery. "Eventually, like VHS and Betamax, one technology will probably prevail." Perhaps, but the ability of citizens to communicate anywhere easily is a greater national goal than the ability to tape Jeopardy. A little government intervention would have helped both consumers and manufacturers, who could be selling lots of digital gear by now. As new communications technologies continue to emerge, it might be worth considering Europe's approach next time around.

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