CDMA vs. GSM

Electronic News, March 2, 1998 by Carolyn Whelan

GSM, the European standard, is making inroads in the U.S.

Atlanta, GA.--CDMA (Code Division Multiple Access), Qualcomm's brainchild, was forecast to be the big winner in the U.S. wireless market, beating out European incumbent GSM to become the dominant wireless technology in the U.S. The technology, which only five years ago was questioned as a widely-accepted standard--is considered superior by many due to its larger capacity, sound quality and data throughput.

But the pendulum seems to be swinging back GSM's way. Pressing time-to-market issues are pushing smaller carriers to embrace the more established technology. In addition, practical matters like infrastructure costs, capital expenditures and roaming capabilities means that chipmakers and electronics vendors can't ignore GSM (Global Standard for Mobile Communications).

Though starting late, CDMA has picked up only 1.5 million subscribers in the U.S. and 5 million more abroad, compared to 74 million users of GSM worldwide. There are about 1.2 million GSM subscribers in the US, says IDC. Worldwide, the GSM Association expects 55 percent penetration over the next 5-7 years.

"The growing popularity of GSM handsets around the world is forcing manufacturers to look for solutions they can use to bring phones to market faster," said Russ Johnsen, VP of Analog Devices' (ADI) Communications Division. "Analog Devices is responding to that need with an enhanced chipset-software solution for GSM phones." Last week, ADI unveiled two new chipsets for integrating voice and data over GSM handsets.

In tandem OEMs are overcoming compatibility issues that have long frustrated overseas travelers by producing dual mode GSM phones.

Nortel is one of a few OEMs supplying infrastructure for the GSM, CDMA and TDMA (Time Division Multiple Access) markets. Pascal Debon, VP of Nortel's GSM wireless business, thinks that ultimately the three will coexist, interoperate, and evolve together.

Mr. Debon thinks CDMA and GSM has an advantage because of its lower prices and worldwide roaming capabilities. He blames the U.S. shift towards CDMA on marketing and IPR strategies.

GSM carriers including Omnipoint and Western Wireless are also bullish on the technology. Western Wireless, which wanted to be first to market, chose GSM for its dependable technology, rich feature set, and low construction cost.

Alan Haase, VP of Ericsson's Professional Services argues, "CDMA doesn't offer anything that GSM doesn't already have." Mr. Haase sees a strong market for GSM. The big challenge for GSM, he said, will be adding more features like prepaying and data while maintaining its current speed and quality. "At the last count, GSM and CDMA were equal," he said. "The U.S. foot race is going to be fairly close."

The CDMA Advantage

To others, like research analyst Pete Peterson at the investment bank Volpe, Brown, Whelan and Company, the choice is less obvious. "Though GSM may be equal or better than CDMA in the network protocol area, CDMA is superior for its air interface," Mr. Peterson said. "Overall, GSM is more complete, more tight, and more specified, but from a spectral efficiency point of view CDMA is a very attractive way to go."

Given the exponential growth that the wireless business is seeing both in the U.S. and worldwide, many forecast the three to cohabitate. "When the dust settles it should be pretty transparent," said Jorge Fuenzalida, a Manager in Deloitte & Touche's telecoms practice. "GSM has challenges, but it doesn't have a death march at all. Worldwide, all three standards are going to coexist. And it will be relatively transparent to the consumer."

One of the biggest trends in the U.S. Cellular market is more dual band phones. "The fact that the U.S. has so many different standards is a big issue," said Emily Johnson, an analyst at In-Stat. "And consumers want to communicate with everyone."

Still, the multimode, multiband market is a limited one, since 85 percent of users don't want roaming capabilities, according to Paul Chellgren, VP of U.S. Sales for Nokia Mobile Phones. A dual phone maker must sell 500,000 phones to be economically viable, he said. In that sense, GSM has an edge. 50 million GSM phones will be sold this year, according to Mr. Chellgren.

Though Ms. Johnson confirmed that more carriers had opted for GSM in the 1900MHz PCS (Personal Communications System) mode, she, too, considers CDMA to be a superior technology because it uses the bandwidth more efficiently and gives a clearer signal. "There's fewer technical issues with CDMA than GSM." she said. "But GSM is clearly the market leader, especially outside the U.S."

In the PCS space CDMA's lead is not as dramatic as anticipated. "Of new units sold in the U.S. in 1997, only looking at PCS frequencies, CDMA 1900MHz phones had a slight advantage over GSM," said Ms. Johnson.

Roots Of The Battle

The roots of the battle between GSM and CDMA run deep, and, many believe, are driven by national politics and corporate marketing rather than true technology issues. In FY97, Qualcomm, which patented the technology and aggressively markets its benefits received more than $150 million in royalties, or 7 percent of its total revenues.