Subject: [NEXTEL-1] Cellcos bet big on third-generation wireless - and took a big hit. Now T-Mobile's John Stanton has a grand convergence plan.

From: Marcel <[email-masked]>
Date: Tue, 22 Apr 2003 04:08:50 -0400

May 2003

Cellcos bet big on third-generation wireless - and took a big hit. Now T-Mobile's John
Stanton has a grand convergence plan. Starbucks is just the beginning.

By Dan Briody

As T-Mobile USA's John Stanton tells the story, his company's future was changed by a
chance meeting with Michael Dell, chair and CEO of Dell Computer. During the 2001 Allen &
Co. CEO schmoozefest in Sun Valley, Idaho, Stanton sat down for drinks on a sun-drenched
patio and learned that Dell planned to build Wi-Fi into most of his company's laptops. It
was a bombshell.

Stanton, chair of T-Mobile, had been spending much of his time discussing business trends
with cell phone makers and network equipment providers, trying to figure out how to offer
wireless broadband to mobile phone users. Like his peers in the cellular industry, Stanton
thought Wi-Fi was just another open spectrum technology with no place to go - a fad like
HomeRF and Bluetooth, a techno-hobbyist's Tinkertoy, a network for wireless weenies. The
real solution to broadband wireless was 3G; it was just going to take a bit longer than
expected.

But here was Dell with his plan to make devices that access the Internet wirelessly, and
he's all about Wi-Fi. "Michael said they were going to build Wi-Fi into a significant
portion of their laptops," recalls Stanton. "I was shocked. Up to that point, I thought
[Wi-Fi] was nothing but more overstated expectations. But here was a guy that was deeply
committed. It was at that point that I realized Wi-Fi was real. That was the seminal
event."

The world of wireless communications has turned upside down. A few years ago, it was
generally accepted that your phone would be your ticket to the wireless universe, and the
cellular service providers, offering more and more services and bandwidth, would be at the
center of the action.

The reality, as Stanton learned, is far different: Cellular was not cutting it. Its data
and multimedia services were slow and ineffective. Computer makers wanted a wireless
broadband solution, and they wanted it right away.  They wanted Wi-Fi.
Stanton came to this conclusion just as T-Mobile was embroiled in a fierce political and
financial battle. The company was born a year earlier, when Deutsche Telekom announced it
would spend an eye-popping $50 billion to acquire VoiceStream, then the only US carrier
with a network based entirely on GSM, the technology used widely by European carriers.
Analysts immediately criticized the company for overpaying, and the acquisition
(ultimately a mere $30 billion) coincided perfectly with the bursting of the Internet
bubble, the cratering of tech valuations, and the beginning of a long, torturous decline
in capital spending by wireless carriers. It was horrendous timing.

For a while, it seemed T-Mobile's salvation depended on 3G, the next generation of
cellular technology, to revive the firm's dwindling revenue. Though there are many
different paths to 3G (CDMA 2000, WCDMA, TDS-CDMA), the end result was to be the same: to
make the Internet wireless, with a quantum leap in the capacity and speed of the networks.
This was a pretty thrilling vision, so much so that the overheated European carriers got
caught up in a bidding war for 3G spectrum licenses. Altogether, they ended up spending
$100 billion just for the right to provide the service; the actual cost of building the
networks and otherwise rolling out the technology would likely double that.

But the first trials of the favored European 3G standard, WCDMA, turned up troubling
technical limitations, from disappointing data rates to high power consumption. And
suddenly the massive debt that the carriers, including Deutsche Telekom, had taken on for
the 3G landgrab started to look like a crippling mistake.

What this meant was that 3G was certainly not going to happen as planned, and might not
happen at all. So T-Mobile settled on a more modest path: It quietly began upgrading its
GSM networks to a cheaper, more evolutionary technology called GPRS (also known as 2.5G)
and waited for something to happen. Rumors abounded that T-Mobile was on the block. By the
middle of 2001, even GPRS was labeled a major flop in Europe, with slow speeds and very
little customer adoption.

Meanwhile, back in the US, T-Mobile watched as Sprint PCS and Verizon got their own 2.5G
networks up and running using the competing CDMA standards, which were cheaper to deploy
and offered faster speeds. The situation started looking desperate, with T-Mobile seeming
to fall behind. But a revolution had been brewing, a movement to elevate a grassroots
technology into a worldwide broadband solution.

Wi-Fi was an underdog from the outset. Built for data transmission across local-area
networks with a radius of only about 150 feet, it was best suited to homes and corporate
campuses. But in light of the 3G fiasco, it had some serious advantages: high speeds and
low cost. Cellular carriers didn't know what to make of the new technology. Fear was the
order of the day.
"Wi-Fi was about the worst thing that could conceivably happen to them," says Richard
Dineen, a wireless expert with London-based market research firm Ovum. "It was unlicensed
spectrum with no barriers. Unsurprisingly, they kicked and screamed and didn't welcome its
arrival." Some even talked about trying to kill Wi-Fi by complaining that unregulated
wireless technologies risked interfering with licensed spectrum and should be curtailed.

T-Mobile, however, was in too much trouble to waste time with tantrums. After his fateful
meeting with Michael Dell, Stanton returned to the company's Bellevue, Washington,
headquarters and set in motion a series of events that would radically alter Wi-Fi's
fortunes - and, he hoped, T-Mobile's.

Stanton heard that Starbucks, another Seattle-area company, was dissatisfied with the
Wi-Fi network MobileStar was setting up for it, and he saw his opportunity. "MobileStar
was defaulting on its obligations, and Starbucks was looking for another provider," says
Stanton. "We reached an agreement. Starbucks terminated the MobileStar contract,
MobileStar went bankrupt, and we bought them out of bankruptcy."

T-Mobile put $100 million behind its Wi-Fi initiative and began lighting up 2,000 hot
spots in Starbucks stores around the country. In so doing, T-Mobile tipped the scales in
the battle for next-generation wireless services. It was a classic if you can't beat 'em
join 'em moment. One by one, carriers - even ones that were betting big on 3G - began to
recognize the promise of Wi-Fi. Sprint PCS invested in Wi-Fi service pioneer Boingo. AT&T
announced a joint Wi-Fi venture with Intel and IBM called Cometa. While neither AT&T nor
Sprint has announced plans to provide Wi-Fi service to their customers, that moment can't
be far away. Even up-and-running 3G networks can't compare with Wi-Fi's speed and
capacity.

Wi-Fi had fast become the thing carriers fear most: a disruptive technology. How
disruptive? T-Mobile is now fiercely ambivalent about 3G as the future of wireless data.
"We've always been an advocate and supportive of 3G, but frankly never saw a way to get it
done in the US," explains Cole Brodman, senior vice president and chief development
officer at T-Mobile and the man who hatched a business plan from Stanton's enthusiasm. "We
looked at Wi-Fi as a disruptive technology and a chance to get something done. On the 3G
side, we are in the wait-and-see mode, and we are working on evaluating some other
technologies."

The goal for T-Mobile and similar wireless providers is a seamless network, where one
device hops from the Wi-Fi network to the cellular network with ease. Call it
communications convergence: a blissful harmony of technologies, invisible to the consumer,
that allows broadband access anywhere, anytime, from any device. Despite significant
technical hurdles (not the least of which is a lightning-quick power drain), chipset
makers like Intel and Qualcomm are experimenting with built-in Wi-Fi, and dual-action
handsets are on their way. Samsung and HP have already shown PDA-based Wi-Fi phones;
Motorola has promised one by the end of the year.

Though T-Mobile is the only carrier that has publicly disclosed plans to converge Wi-Fi
with cellular, others are working on integrated networks. In February, at the 3GSM
Congress in Cannes, Texas Instruments floated a scenario that includes cellular microbase
stations combined with Wi-Fi hot spots to blanket dense urban environments.

In the meantime, T-Mobile is still tweaking its strategy. As the company evaluates various
3G technologies, the Starbucks Wi-Fi experience so far has been only a limited success,
with reports of just 20 Wi-Fi users per day even in busy locations. To spur demand, in
March T-Mobile slashed Wi-Fi access prices, and it's pushing ahead to unite its Wi-Fi and
cellular networks. The ultimate goal: offering customers the ability to roam between the
two and get one bill at the end of the month.

If T-Mobile gets it right, the company may soon have a customer base accustomed to using
phones to move around big data and multimedia files. That's not far from the previous 3G
vision - except for the 3G part, which T-Mobile barely mentions anymore. Wi-Fi, even in
its young and developing form, has everything to do with that.

http://www.wired.com/wired/archive/11.05/unwired/convergence_pr.html