2G Telecommunication Industry

Network Operator
– US Network Operator
— Consolidation of the US Market
— McCaw Cellular and AT&T Wireless
— Airtouch and Vodafone
— Verizon Wireless
— Cingular Wireless
— Sprint
– Network operator in Europe
— Great Britain
— Germany
— France
— Spain
Infrastructure Provider
– Lucent Technologies
– Philips Kommunikations Industrie
– Ericsson
– Motorola
– Nokia
– Nortel
– Alcatel
– Siemens
Terminal Provider
– USA
– Europe
— Siemens
— Philips
Semiconductor Industry

Industry of the rising digital communication market

Network Operator

At the end of the 1980s, PTTs were split up and privatized almost everywhere in Europe. For example, in Germany in 1989 the post office was divided into three parts: the post office, the financial service (Postbank) and the telephone service (Telekom).

When the new licenses for GSM were awarded, several competing providers were chosen in all countries, typically two. The first one was usually the former PTT organization (like the German Telekom) and the second was a new entrant. This was the same approach that the US and Great Britain took already with 1G.

US Network Operator

With the introduction of 1G AMPS, all Baby Bells had become operators of mobile networks in their regions. They created corresponding branches with own names for this purpose. Pacific Telesis, for example, called its mobile communications division PacTel. All of these mobile operators had already experience operating mobile networks in the 1980s. Such experience lacked with the new players that entered into the new GSM market. Therefore the mobile devisions of the Baby Bells participated as partners in creating new operators in Europe. Doing this, they left their local areas and became global players.

Mobile phone operators from the US became global players with 2G mobile services.

Pacific Telesis or PacTel teamed up in Germany with Mannesmann who had received a license for the German mobile network D2. When the PCN (1800 MHz) network was released in Great Britain, PacTel partnered with British Aerospace and won a license. This new provider was called Orange a few years later.

US West helped build the first cellular network in Hungary. Together with Bell Atlantic they also built the first network in the Czech Republic and parts of the network in Russia. Bell South was essentially involved in setting up mobile communications in South America, while Southwest Bell set up the 2G network in Mexico via TelMex. Bell Atlantic and Ameritec built the cellular network in New Zealand.

Consolidation of the US Market, from local to nation wide networks

Beside the fact, that some of the US Operators became global player, there was a tremendous consolidation taking place in the US. Beside the „Baby Bell“ there where hundreds of operators active in local wireless networks. Soon these tiny operators gave up their licenses and in the end only few operators were active. Even the Baby Bells had to merge their business to stay competitive. This was especially important since starting in the mid nineties, mobile telephony introduced „nationwide roaming“ which enabled the usage a mobile phone not only in the related metropolitan area like e.g. New York, but also in San Francisco, using the same subscription and phone number. The introduction of PCS, which became a nationwide service from the very beginning accelerated this trend. In the end of the consolidation, there where only half a dozen player left as mobile operators in the US.

MCCAW CELLULAR UND AT&T WIRELESS

McCaw was originally a cable television provider in the USA. McCaw’s interest in mobile communications grew early on and when AMPS licenses were awarded, McCaw managed to acquire a large number of licenses, especially very lucrative ones. With 1G AMPS, beside the Baby Bells there had been „hundreds“ of other small, local operators that got a license. Most of those small operators sold this license and stepped out of the business. This is how McCaw Wireless was born. It finally had licenses from 6 of the 30 most important and lucrative metropolitan areas. In 1987, McCaw sold his cable TV business to focus fully on mobile communications and acquire even more licenses. The main business was to rent out these licenses at high cost to various providers.

Together with AT&T Technology, McCaw Cellular developed a technology that made it possible to use mobile devices in different areas. Until then, a mobile phone device was tied to the local network and could only be reached there. National roaming was now possible. This new service by McCaw was offered under the name CellularOne. McCaw earned money from roaming charges.

After being out of business with the first generation of cell phones, AT&T returned through the back door back to the cell phone business in 1994 using McCaw CellularOne.

In 1994, AT&T bought McCaw Cellular/CellularOne for $11 billion. This made AT&T a player in the wireless business after it was pushed out for the 1G business. This $11 billion transaction was the second largest deal in America history at the time.

Airtouch and Vodafone

PacTel required money for its expansions. For this reason it went public. In 1994 it became independent from PacBell and called itself Airtouch. When PCN licenses were issued in America, Airtouch also wanted to participate in this game and hoped to build a nationwide network based on PCN. For this purpose, Airtouch merged with mobile business of US West. Still, they weren’t strong enough to compete against AT&T Wireless. So Airtouch teamed up with Nextel and Bell Atlantic to form PCS PrimeCo. PrimeCo became the first operator of CDMA in the United States.

Both Airtouch and Vodafone had many stakes in networks in Europe. So there were a lot of discussions, whether it would make sense to combine them. In 1999 the time had come. Airtouch merged with Vodafone and Vodafone Airtouch was created. When Vodafone also took over Mannesmann Kommunikation in 2000, it became the largest mobile phone provider in the world.

Verizon Wireless

The General Telephone & Electronics Corporation (GTE) was a private telephone company, one of the few that existed alongside the 7 Baby Bells. It operated some cellular networks in the United States e.g. in the San Francisco Bay Area. When the competition became too pressing, especially for Vodafone-Airtouch against AT&T and Sprint at the end of the 1990s, it was decided to merge GTE, Bell Atlantic and Vodafone-Airtouch. The newly create mobile operator was called Verizon Wireless.

Cingular Wireless

The Baby Bell company Southwestern Bell Cooperation was renamed SBC Communication in 1995 and grew significantly. In 2000 there was a joint venture between SBC Communication and Bell South. The new company was called Cingular Wireless. Ultimately it consisted of a merger of many individual mobile networks, many of them Baby Bells:

  • Ameritech Mobile Communications
  • BellSouth Mobility
  • Southwestern Bell Mobile Systems
  • BellSouth Mobility DCS
  • BellSouth Wireless Data
  • CCPR Services d/b/a Cellular One of Puerto Rico and U.S. Virgin Islands
  • Pacific Bell Wireless
  • Pacific Bell Wireless Northwest
  • SBC Wireless
  • SNET Mobility
  • Southwestern Bell Wireless

When Cingular Wireless was founded, it became the second largest wireless carrier in the United States.

Sprint

Sprint established itself in the 1970s and 1980s as a provider of long-distance services alongside the monopolist AT&T. In 1980, Sprint installed thousands of kilometers of fiber optic cable under the name United Telecommunications. They later changed their name to Sprint (Southern Pacific Railroad Internal Networking Telephony). In 1983 Sprint was taken over by GTE and continued as Sprint Cooperation.

Sprint acquired a license for the PCS network in 1995 and was one of the first providers of one of the first nationwide cellular networks.

Network operator in Europe

Great Britain

Vodafone and Cellnet where already established operators with the TACS network in the Great Britain. So it was a natural move, that both acquired GSM licenses and build corresponding 2G networks. A third operator started operation in 1994 Orange was a British mobile operator. It was created from PacTel and British Aerospace. Later the majority of Orange was acquired by Hutchington Telecom from Hong Kong.

Germany

In Germany the GSM network was called D-Netz. Since there where two licenses there was D1-Netz and D2-Netz. This followed the tradition of spelling out the network generations (A-Netz, B-Netz, C-Netz). D1 licenses were awarded to Deutsche Telekom, that was created from the old PTT organisation. The D2 license was awarded to Mannesmann, who worked with PacTel from the USA as described above. Later, Mannesmann was taken over by Vodafone.

Two licenses were issued for the DCS frequencies, referred to as E1 and E2. E1 went to E-Plus. This was a merger of VEBA Telecom, RWE Telliance, Thyssen Telecom and BellSouth. So, another Baby Bell operator became active in Germany. The network started in 1994. E-Plus was very innovative. He was the first company to introduce a pre-paid tariff. This forced also the other providers to provide such tariffs. This made mobile phones more attractive for young people who avoided expensive subscriptions. In 2000, E-Plus was taken over by the Dutch company KPN.

The E2 license went to VIAG Interkom. One of VIAG Interkom’s participants was British Telecom. VIAG started quite late and only in some metropolitan areas. They had a new concept of connecting mobile communications and the telephone network and offering mobile phone calls practically at the normal telephone rate (Homezone). Outside metropolitan areas, telephone calls were made via the D1 network. There was a roaming agreement for this. To make such a model work, the phones had to be capable of dual mode.

France

The first GSM network in France was operated by France Telecom, which was privatized in the 1990s.

In order to defend itself against a Vodafone takeover, Mannesmann Kommunikation bought Orange in 1999 because it assumed that this would make it unattractive for Vodafone. However, Mannesmann was taken over by Vodafone in 2000 and Orange was sold to France Telecom. Since then, the GSM network in France has been running under the name Orange.

Société française du radiotéléphone (SFR) was a French operator who was already active running a 1G Network (NMT450). It established a GSM network which became the second largest network in France behind France Telecom/Orange.

Spain

In Spain, Telefonica had the monopoly for communication until the 1990s. As described, Telefonica was founded by ITT and had many connections to South America. From 1995, Telefonica operated a GSM network in Spain under the name Movistar.

Infrastructure Provider

Lucent Technologies

AT&T had its own infrastructure provider through Western Electric. In the 1990s, however, there was a desire that this infrastructure provider should be independent to expand and generate profits. The reason was, that Operators were hesitant to purchase equipment from a company that was owned by a competitor. Therefore, AT&T decided to spin off its production facilities. This is how Lucent Technologies was founded in 1996. In order to ensure greater reputation and revenue for this company, AT&T also transferred Bell Laboratories to Lucent. The semiconductor business also initially belonged to Lucent until it was spun off under the name Agere in 2002.

Especially in the USA, Lucent had a leading position for AMPS and IS-54 equipment. Lucent also had CDMA technology for IS-95. They added GSM know how by acquiring e.g. PKI (see below).

Philips Kommunikations Industrie

The PKI had a good position as the main supplier of the German B-Netz and as one of the main suppliers for the C-Netz. Philips was also involved in the development of the GSM system. For example, the first GSM speech codec was developed by Philips Research and PKI. However, the PKI underestimated the complexity of the GSM system and the fierce international competition. Although they had orders from both Mannesmann Kommunikation and Deutsche Telekom to build base stations, they could not provide working products in time. In 1992, Mannesmann pulled the trigger, canceled the order and ordered the base stations from Ericsson. A little later, Deutsche Telekom also dropped the PKI and bought the base stations from Motorola. PKI ran into a severe financial situation. They gave up the terminal equipment business and sold the network division to AT&T/Lucent Technologies in 1996.

Ericsson

Ericsson had the best prerequisites for a top position in GSM. This was primarily due to their established and leading AXE switches (digital switches) and good relationships with 1G cellular network operators. Almost everywhere they were able to equip at least one of the GSM networks in European countries with mobile switching centers, base station controllers and/or base stations. In addition to GSM, they were also involved from the start in upgrading the AMPS networks to digital AMPS/IS-54. After a long dispute with Qualcomm over CDMA patents, they finally took over Qualcomm’s network division. As a result, they captured practically a third of the mobile communications infrastructure market in 2000.

Motorola

Motorola had not a strong position for mobile switching centers. They had to purchase switching technology. Motorolas strength was to provide base stations. They had already a strong position in AMPS and were able to expand this business towards IS-54. An early collaboration with Qualcomm proved to be strategically advantageous. This led to Motorola (alongside Qualcomm itself) becoming the leading supplier of CDMA equipment, not only in the USA but also in Asia and South America where CDMA was introduced as well.

On the other hand, Motorola lost valuable development resources because it stuck to analog technology. For a long time, Motorola tried to introduce the analog narrowband AMPS, instead to focus on digital AMPS. They therefore did not realize that mobile communications would inevitably be digital from 1990 onwards.

Another special route was Motorola’s development of iDEN (Integrated Digital Enhanced Network), its own digital standard used by only one US operator (Nextel) and a few foreign operators.

Nokia

Like Ericsson, Nokia had built a strong position in the NMT market and also played in other analog systems. As a result, they quickly gained a position in the GSM business. However, they were weak in switching systems, where Ericsson was significantly stronger.

Nortel

Northern Telecom was formed from Western Electric due to the fact that AT&T was no longer allowed to produce abroad. In the 1970s, Northern Telecom was early in the development of digital transmission technology and had switches which they sold not only for the Canadian market, but worldwide. This also enabled them to gain a position in the mobile communications sector.

Nortel, like Lucent, had the disadvantage that they did not participate in the standardization of GSM. So there was initially no business for GSM.

Alcatel

Alcatel was focused on the French market. Like Siemens, they had problems to establish themself outside their core market.

Siemens

Siemens was able to keep its own traditional market (Deutsche Telekom and Mannesmann Kommunikation) at least with mobile switching technology. This market was significant in the beginning. However, Siemens had more and more problems asserting itself internationally. Soon it was clear, that Siemens need a strong partner to enter the global market.

Terminal Provider

USA

In 1995, Ericsson and Motorola dominated the handheld device market in the United States. This was due to their leading positions in AMPS. This meant they were able to quickly build equipment for IS-54. As PCS CDMA gained more and more market share, Ericsson and Motorola lost corresponding market share. Qualcomm and Sony, who worked closely with Qualcomm gained and sold more and more phones. Starting in 1997, Qualcomm slowly opened the CDMA market by issuing licenses. It also delivered corresponding chipsets, so that Motorola and Nokia could now benefit from CDMA. By the end of the 1990s, Nokia dominated the American market. They had a larger portfolio of devices and more attractive designs. In addition, they were able to offer inexpensive devices because of their low-cost production facilities.

Europe

Many manufacturers tried to enter or at least stay in the mobile phone market. Many focused on the domestic markets in which they had previously been active. However, that was their big disadvantage compared to Ericsson, Nokia and Motorola. From the start, the big three handled mobile communications as a global business and served all (GSM) markets at the same time. Therfore they were able to produce in extremely high quantities and could always produce with lower cost than “local” suppliers.

Another advantage was the portfolio that the big three owned. They had high-end devices that everyone wanted, medium-sized devices with a few “features” and cheap, low cost devices. They were able to make high profits with the high-end devices, which they used to subsidize the low-cost phones so that they were even cheaper. Nokia dominated this market. They also quickly realized that price wasn’t the only deciding factor in sales. The “look and feel” was almost as important. Phones had to be attractive.

Siemens

Siemens had a good position in GSM since it was deeply involved in the standardization. They also were able to build innovative products for the GSM market. E.g. they had the first handheld with a color display. However, the handheld business was not very profitable.

Philips

Philips was a leading consumer electronics provider and had a strategy to become a leading provider for mobile phones. In the late nineties they could catch up with the leaders regarding size and weight. However, they could not compete in volume and therefore in price. One action was taken in creating a joint venture with Lucent Technologies in October 1997. In the mid nineties Lucent hat still a lead position in providing telecom terminals. This was still coming from the old AT&T business. All new terminals were now sold under the brand Philips Consumer Communications. The joint venture was a failure. After only one year a loss of almost half a billion Dollar was crated and Lucent stepped out of the JV.

PCC continued to get a foothold into the mobile phone business focussing especially on GSM phones. In 2001 they tried to get another joint venture with LG in 2001. But this failed and finally Philips gave up and stepped back.

Semiconductors Industry

Almost all semiconductor provider tried to play in the new mobile communication business. The key players were:

  • Texas Instruments
  • Motorola (later Freescale)
  • AT&T (later Lucent and then Agere)
  • Siemens Halbleiter (later Infineon)
  • Philips Semiconductors (later NXP)
  • ST Microelectronics
  • Analog Devices
  • VLSI
  • LSI

Some manufacturers teamed up with key mobile phone manufacturers. Texas Instruments was working mainly with Nokia and Ericsson in providing baseband solutions.

Agere, Infineon, Philips Semiconductors, Analog Devices, VLSI and LSI created own baseband solutions and tried to get customers. Some had of course natural customers:

  • Philips Semiconductors – Philips (later PCC)
  • Siemens Halbleiter – Siemens
  • Motorola – Motorola

VLSI got design wins especially with Ericsson and later Samsung. Philips, Siemens and ST Micro had excellent RF technology and sold their products or ASICs to Nokia and Ericsson.