Telecom/1996-04-telecom-walnutcreek.iso/george.gilder.essays/from.wires.to.waves

Text File | 1995-06-07 | 45KB | 787 lines

Date: Sat, 3 Jun 1995 07:59:18 -0500
From: TELECOM Digest (Patrick Townson) <[e-mail]>
Subject: From Wires to Waves by George Gilder


  Date: Sat, 03 Jun 1995 03:31:48 -0400
  From: Gordon Jacobson <[e-mail]>
  Subject: George Gilder's 12th Telecosm Article - From Wires To Waves

     This series of articles by George Gilder provide some interesting
technological and cultural background that helps prepare readers to
better understand and place in proper perspective the events relative
to the National Data Super Highway, which are unfolding almost daily
in the national press.  I contacted the author and Forbes and as the
preface below indicates obtained permission to post on the Internet.
Please note that the preface must be included when cross posting or
uploading this article.

     The following article, FROM WIRES TO WAVES, was first
 published in Forbes ASAP, June 5, 1995.  It is a portion
 of George Gilder's book, Telecosm, which will be published
 in 1995 by Simon & Schuster, as a sequel to Microcosm,
 published in 1989 and Life After Television published by
 Norton in 1992.  Subsequent chapters of Telecosm will be
 serialized in Forbes ASAP.


                      FROM WIRES TO WAVES

                              By

                        George Gilder

             As wireless telephony goes digital,
                it gets very cheap very fast.

     U.S. Sen. Ted Stevens of Alaska wants to know: With deregulation
of telecommunications, who will bring connections to Unalakleet, to
Aleknagik and to Sleetmute? Who will bring 500 channels up the Yukon
with the salmon to the people in Beaver?  What will happen to the
Yupik, the Inupiat and the Inuit?  Will we leave them stranded in the
snow while the world zooms off to new riches on an information
superhighway?

     A senior Republican on the Senate Commerce Subcommittee on Communi-
cations, Stevens is a key figure in the telecom deregulation debate on
Capitol Hill.  As he contemplates the issues of restructuring
communications law, he has reason to be suspicious of the grand claims
of an information age.  He knows that universal service -- the magic of
available dial tone in your own home -- has hardly reached rural Alaska
at all.  As George Calhoun points out in his sort invented by Alexander
Graham Bell in 1881 and now extended to some 95% of American households)
are simply not feasible, either technically or economically, in many
remote regions.

     In Beaver, for example, there is one telephone in a hut linked to
a nine-foot satellite dish.  Permafrost and cold economic reality make
it impossible to extend dial tone to the several hundred households of
this town, even though its average household income, mostly from
salmon fishing, is some $120,000.

     Ted Stevens is right to be concerned.  Portentiously sharing his
concern are other powerful Republicans from rural states, including
Larry Pressler of South Dakota, the chairman of the subcommittee.
Extended now from phone service to broadband digital superhighways,
their concerns could pose a deadly obstacle to true deregulation of
communications and thus to continued American leadership in these
central technologies of the age.  At stake is some $2 trillion of
potential value to the U.S. economy (see Forbes ASAP, April 10).  The
problems of universal service in Alaska disguise the more profound
paradox of telephone service in most of the world.

     The fact is that the universality of telephones is crucial to
their usefulness; yet universal service using current technology is
totally uneconomical and impractical.  Snow and ice are the least of
it.  The basic problem is the architecture of the system, with a
separate pair of lines, on average two miles long, devoted exclusively
to each user.  It simply does not pay to lay, entrench, string,
protect, test and maintain miles of copper wire pairs, each dedicated
to one household that uses them on average some 15 or 20 minutes a
day.

     Connections in cities are one thing.  Urban access systems
comprise a bramble of millions of wire loops, each linking a home or
business telephone to a nearby central office switch.  Under a half
mile in length, these lines still represent some 80% of the cost of
the system.  But because the lines are short and often bundled
together, city telephony benefits from economies of scale and
convenience.  In rural areas, however, the copper lines cost between
10 and 30 times as much per customer as they do in cities.

     Moreover, Calhoun reports that in general, phone companies cannot
supply ISDN (integrated services digital network) and other digital
services over twisted-pair wire more than 18,000 feet (some 3.5 miles)
from the central office.  Perhaps a third of all the nation's phones
are more than 3.5 miles from a central office.

     What saves us is socialism.  Closing the huge differential
between the costs of serving rural and urban customers is a Byzantine
web of cross-subsidies, whereby inner-city and business callers in
urban areas subsidize the worthy citizens of Kirby, Vt.; Vail, Colo.;
Mendocino, Calif.; Round Rock, Texas, and Tyringham, Mass., among
other bucolic locales, to the tune of billions of dollars.  Overall,
subsidies from business and urban customers to rural and other
expensive residential users total some $20 billion a year.  In case
the cross-subsidies do not suffice to guarantee universality, Congress
has established a $700 million "Universal Service Fund."  For all
that, some 5% of homes still lack telephone service (compared with 2%
unreached by TV, which faces no universal service requirement).

     Lending huge physical authority to this Sisyphean socialist
scheme are some 65,049,600 tons of copper wire rooted deep in the
rights of way, depreciation schedules, balance sheets, mental
processes and corporate cultures of the regional Bell operating
companies and other so-called local-exchange carriers. The minimum
replacement cost of these lines deployed over the last 50 years or
more -- and still being installed through the mid-1990s at a rate of
at least five million lines a year -- is some $300 billion.  By
comparison, Calhoun estimates, the telcos could replace every
telephone switch for one-tenth that amount while radically upgrading
the system.

     In this cage of twisted copper wires writhe not only the
executives of the telephone companies, but also the addled armies of
telecommunications regulators, from the Federal Communications
Commission and other Washington bodies to 50 state public utilities
commissions and the towering hives of lawyers in the communications
bar.  The coils of copper also subtly penetrate the thought processes
of MIT Media Lab gurus, libertarian lobbyists from the Electronic
Frontier Foundation and myriad political analysts who see this massive
metal millstone as a fell weapon of monopoly power.  The copper
colossus even intimidates scores of staunch Republicans who have
arrived in Washington determined to extirpate every government excess,
but who bow before the totem of universal service in their districts.

     Like any socialist system, the copper colossus will die hard.
But die it must.

     Some 20 years ago, AT&T's long-distance lines comprised a
similarly imperious cage of copper wires, installed over the previous
50 years and similarly impossible for rivals to duplicate.  Then too,
analysts termed telephony a natural monopoly because the system could
handle additional calls for essentially zero incremental cost and
because network externalities ensured that the larger the number of
customers, the more valuable the system.  These assumptions had led to
government endorsement of the Bell monopoly as a common carrier
committed to universal service.

     Regulators, politicians and litigators always imagine that they
can control the future of telecom, awarding monopoly privileges in
exchange for various high-minded goals, such as universal or enriched
services.  But their actual role, as Peter Huber and his associates
show in their new text, Federal Broadband Law, is mostly to promote
monopoly at the expense of such values as universality, which
ultimately depend not on law but on innovation.  As a form of tax,
regulations reduce the supply of the taxed output.  It is
technological and entrepreneurial progress, impelled by low tax rates
and deregulation, that brings once-rare products into the reach of
the poor, always the world's largest untapped market.

     In this case, the decline and fall of the long-distance monopoly
was not chiefly an effect of politics or litigation but of technology.
Effectively dissolving the copper cage of long distance were the
millimeter waves of microwave radio.  Over the years, it turned out
you could set up microwave towers anywhere and duplicate long-distance
services at radically lower cost without installing any new wires at
all.  But this realization came woefully slowly to the regulators.

     In the "above-890-megahertz" decision of 1959, made possible by
new Klystron tubes and other devices that opened up higher frequencies
to communications, the FCC permitted creation of private microwave
networks.  On the surface, it was a narrow decision affecting a few
large corporations.  But as AT&T planners noted at the time, it
represented a clear break from the previous principles of common
carriage, cross-subsidy and nationwide price averaging in the
telephone network.

     Sure enough, over the next two decades a cascade of further
decisions climaxed with the authorization of MCI to emerge as a direct
competitor to AT&T. Within less than a decade, MCI added to its
panoply of aerial microwaves the yet more advanced technology of
single-mode glass fibers.  Issuing some $3 billion of junk bonds over
a four-year period, MCI built the first nationwide network of advanced
fiber optics.  GTE made comparable investments in Sprint, and AT&T
rushed to excel its new rivals.  Combining microwave with fiber,
long-distance telephony became a technologically aggressive and openly
competitive arena; AT&T's monopoly was a thing of the past.

     Today, the remaining monopolies in local phone service face a
threat from radio technology still more devastating than the microwave
threat to AT&T in long distance.  As with microwaves, the government
 -- in the name of preventing monopoly -- dallied for decades before
acting to allow elimination of the monopolies it had earlier
established.  After the invention of cellular at Bell Labs in 1947,
some 34 years passed before the FCC finally began granting licenses
for cellular telephony.  By the 1980s, the FCC and Judge Harold
Greene, managing the Modified Final Judgment breaking up AT&T,
permitted limited competition in wireless telephony.  However, the FCC
allocated half the metropolitan licenses to existing RBOCs, which had
no interest in using wireless to attack the local loop monopoly.  The
other licenses it assigned by lottery to gamblers and financiers with
no ability to create an alternative local loop. The process of buying
out the spectrum speculators required leading wireless carriers to
hobble themselves with huge amounts of junk-bond debt.  Although McCaw
Cellular Communications created a robust national system, its
financial structure prevented aggressive price competition with
wireline service.

     As a result, the idea persists that wireless telephony is an
expensive supplement to the existing copper colossus rather than a
deadly rival of it. The installed base of twisted-pair wire still
appears to many to be a barrier to entry for new competitors in the
local loop, rather than a barrier to RBOC entry into modern communica-
tions markets.  The conventional wisdom sees the electromagnetic
spectrum as a scarce resource.  Few believe that it will soon emerge
as a cheaper and better alternative to the local loop, in the same way
that microwave emerged as a cheaper and better substitute for copper
long-distance wires.


Making Waves

        At the foundation of the information economy, from computers
to telephony, is the microcosm of semiconductor electronics.  It
reaches out in a fractal filigree of wires and switches that repeat
their network patterns at every level from the half-adder in a
calculator chip or the SLIC in a telephone handset to the coaxial
trees and branches of a cable TV system or the mazes of switched and
routed lines in the global Internet.  In computers, engineers lay out
the wires and switches across the tiny silicon substrates of
microchips.  In telecommunications, engineers lay out the wires and
switches across the mostly silicon substrates of continents and
seabeds.  But it is essentially the same technology, governed by
quantum science and electrical circuit theory.

     Semiconductor engineers may still spend more of their time with
circuit theory, contemplating the operations of resistors, inductors
and capacitors on currents and voltages in the device.  But quantum
theory is most fundamental, because it allows humans for the first
time to manipulate matter from the inside -- to control the conduction
bands and energy-band gaps of the internal atomic structure of silicon
and other elements, and to make electrons, holes and photons leap and
lase at the behest of the designer.  It is quantum theory that allows
chip engineers to control with exquisite precision, gauged in tenths
of microns and trillionths of seconds, the movements of electrons at
the heart of electronics.

     At the heart of quantum theory, however, is a perplexing duality.
Most of contemporary physics seems to deal with particles -- electrons,
quarks, leptons, neutrons, protons.  In 1994, for example, scientists
at Fermilabs in Chicago announced "discovery" of the "top quark,"
which they described as the "last building block of matter."  Yet
these entities manifest themselves only in the midst of explosions in
which their wave signatures can be identified.  So-called quantum
particle theory is unintelligible without quantum wave theory.

     The elements of quantum physics intrinsically combine the
characteristics of particles--definite specks of mass -- with the
characteristics of waves -- an infinite radiance of fields and forces.
Entirely unlike particles, waves merge, mingle and mesh in vectors and
tensors propagating boundlessly through space.

     It is this paradoxical combination of the definite with the
infinite that gives the microcosm its promise as a medium, not only
for computation in one place, but for communications everywhere.
Spectrum unfolds in a global ethersphere of interpenetrating waves
that reach in a self-similar fractal pattern from the plasmas of
semi-conductor lasers through the ethers of the planet.

     Today, the telecosm of modern communications brings decisively to
the fore the wave side of the quantum duality.  Wires may seem more
solid and reliable than air.  But the distinction is largely spurious.
In proportion to the size of its nucleus, an atom in a copper wire is
as empty as the solar system is in proportion to the size of the sun.
The atmosphere and wires are alternative media, and to the electron or
photon are only arbitrarily distinguishable.  Whether insulated by air
or by plastic, both offer resistance, capacitance, inductance, noise
and interference.  In thinking about communications, the concept of
solidity is mostly a distraction.  The essence of new devices emerges
more and more as manifestations of waves.

     Whether in the air or in a wire, the electrons or photons do not
travel; they wiggle their charges, causing oscillations that pass
through the medium at close to the speed of light.  As in waves of
water, the wave moves, but the molecules of water stay in the same
place.  Thus belied is the analogy of particles or even bullets
favored by physics teachers who give primacy to the mass rather than
to the wave.  Since the age of carrier pigeons and catapults,
communications systems have transmitted masses only in the postal
services.

     Today, even in entirely stationary electronic systems, the wave
action is increasingly dominant.  The microchip itself -- a Pentium
processor, say -- now runs at 120 megahertz, a rate in cycles per
second that puts it in the middle of the FM radio band.  New computers
must pass the FCC requirements for radio emissions.  Texas Instruments
now advertises its 486 SXL-66 microprocessors as selling for under 50
cents per megahertz.  Increasingly in the world of computers, people
speak of bandwidth and cycles, reserving the discussion of mass
chiefly for the batteries.  The world of the telecosm is subtly
shifting from electronics, with its implicit primacy of electrons, to
what might be termed spectronics, seeing the particle as an expression
of the wave rather than the other way around--moving from Bohr's atom
and Heisenberg's electronic uncertainty to Maxwell's rainbow and
Schrodinger's wave equation.

     In a global marketplace increasingly unified by telecommunications
at the speed of light, the vision of waves as fundamental affords not
only a better image of physics, but also a better purchase on economic
reality than a spurious search for solid states, physical resources,
national economies and commodity products.

     Conceived as some irreducible essence, the particle of mass,
whether in the form of a top quark or Higgs boson, wire conduit or
central switch, pushes our thinking about the world toward a vision of
ultimately discrete and confinable entities, with electrons moving
through the p-n junctions of microchips like so many steel ingots
crossing a national border.  Conceived, by contrast, as a continuous
span of waves and frequencies, tossing and cresting, reflecting,
diffusing, superposing and interfering, the telecosmic vision accords
with the ever-rising global commerce in information services -- ubiquitous,
simultaneous, convergent, emergent.

     To grasp the next phases of the information economy, one begins
not with the atom or any other discrete entity, but with the wave.  In
1865, in a visionary coup that the late Richard Feynman said would
leave the American Civil War of the same decade as a mere "parochial
footnote" by comparison, Scotch physicist James Clerk Maxwell discovered
the electromagnetic spectrum.  This spread of frequencies usable for
communications is both the practical resource and the most profound
metaphor for the global information economy.

     Is it a domain of limits, to be husbanded by governments and
appropriately allocated by auctions at a price of billions of dollars
for a tiny span of wiggle rates?  Is it beachfront property to be
coveted as a finite and unrenewable resource?  Is it a constricted
domain to be exploited under the iron laws of diminishing returns?  Is
it a zero-sum game to erupt in Star Wars and street fights as
satellite magnates and personal communications entrepreneurs crowd
into a feudal fray of frequencies?  At the heart of the gathering
abundance of the information economy, would it sustain a new economics
of scarcity?

     So one might imagine from today's conventional wisdom.
Contemplating these limits, diminishing returns and zero-sum economics
at Richard Shaffer's Mobile Forum in March was industry guru Carl
Robert Aron.  He sees the world of wireless entering a "new ice age,"
like the recent ordeal of the tire industry in the face of radials.
He predicts that customers, capital and revenues will become
increasingly scarce and many species of company will become extinct.
Offering a similarly grim vision, BellSouth Vice President of
Corporate Development Mark Feidler declares that the price elasticity
of demand for telephony is negative -- you lower the price and revenues
will sink.  On the same panel, AT&T-McCaw executive Rod Nelson
asserted that he could see no threat from personal communications
services, because McCaw was already offering "a low-priced,
high-quality service."  Even Martin Cooper of ArrayComm saw spectrum
as a limited resource sure to grow more valuable over time.

     What would Maxwell say?  As he discovered it, the spectrum is
infinite, ubiquitous, instantaneous and cornucopian.  Infinite wave
action, not the movement of masses, is the foundation of all physics.
It ushers in an age of boundless bandwidth beyond the dreams of most
communications prophets.  As industry guru Ira Brodsky concludes in
his authoritative new book, Wireless: The Revolution in Personal
Communications, "We are quickly moving from the era of spectrum
shortage to the age of spectrum glut."  This expanding wavescape is
the most fertile frontier of the information economy.  In its actions
are the essential character of the coming economics of abundance and
increasing returns.

     In contemporary networks, as Nicholas Negroponte stresses in his
best-selling book, Being Digital, all bits are fungible.  In
spectronics, all spectrum is fungible.  In particular, the distinction
between wireline and wireless service dissolves.  A wire is just a
means of spectrum reuse.  Down adjacent wires, appropriately twisted
or insulated, you can transmit the same frequencies without fear of
interference or noise.

     Using new digital radio technologies, such as code division
multiple access or smart and directional antenna systems, you can
similarly beam the same frequencies through the atmosphere, insulated
by air.  The chief difference is that the wire system costs far more
to install and inhibits mobility.

     The only wire technology commanding a decisive edge over wireless
for critical applications is fiber optics.  The intrinsic bandwidth of
a fiber thread is nearly 1,000 times larger than the bandwidth of all
the "air" currently used for terrestrial radio communications.  In
both media, capacity is largely governed by the need to avoid the
water molecules that absorb many frequencies of electromagnetic
waves -- in air, from humidity or precipitation; in fiber, from the
unremovable residue of water in the structure of the glass.

     Compared with perhaps 30 gigahertz of currently accessible
frequencies in the air, every fiber thread can potentially bear 25,000
gigahertz.  This huge bandwidth derives from the possibility of using
infrared light frequencies for long-distance communications rather
than radio or microwave frequencies.  When you are dealing in
terahertz (infrared light encompasses some 50 trillion hertz worth of
frequencies between 7.5 X 10[11] and 3.5 X 10[14]), there is a lot of
room for sending messages.

     One fiber thread the width of a human hair can potentially use
about 25 trillion of those hertz for communications (the rest tend to
be fraught with moisture).  This span is enough to carry all the phone
calls in America on the peak moment of Mother's Day, or to bear three
million six-megahertz high-definition television channels -- all down
one fiber thread the width of a human hair.  As Paul Green sums it up,
fiber commands 10 orders of magnitude greater bandwidth than copper
telephone lines and 10 orders of magnitude lower bit-error rates.
Optical engineers have packed as many as a million such threads in one
bundle with a cross-section a centimeter square.  Such feats plausibly
support the assertion that, as a practical matter, spectrum is
infinite.

      The capacity of fiber is so large that the best way to think of
it is as a radio system in glass -- a fibersphere that can potentially
accommodate as many as 10,000 separate wavelength bitstreams.  Under a
system called wavelength division multiplexing, users will tune in to
a chosen frequency band in the same way they currently tune in to a
chosen radio or television channel, whether in the air or in a coaxial
cable.  Indeed, engineers can take the same infrared frequencies used
in fiber and move them to the air for shorter distance applications
such as local-area networks, point-to-point connections between
buildings, links between handheld computers and desktop hosts, and
even television remote controls.  As tunable laser transmitters and
photodiodes, along with other optoelectronic gear, become more
sensitive and efficient, airborne infrared will become more robust and
useful.  Experiments by the Israelis with ultraviolet frequencies
suggest that even these superhigh frequencies above visible light
might someday be used for communications through the atmosphere
(offering tens of thousands of TV channels, for example).

     Now the FCC has auctioned off 120 megahertz of frequencies for
personal communications services.  The most prominent winning bidders
were consortia led by Sprint, TCI, Comcast and Cox (a long-distance
carrier and three cable companies going under the name Wireless Co.);
by AT&T; and by AirTouch, Bell Atlantic, NYNEX and U S West as PCS
PrimeCo.  Most analysis has focused on what is called the wireless
market and has assumed the major competitor to PCS to be the current
cellular companies.  Aron's ice-age ruminations stemmed from
contemplation of this radical increase in competition for a limited
number of cellular customers who currently cost some $540 each to sign
up (counting handset subsidies) and whose per-capita revenues are
declining at a pace of some 8% per year.  Remember BellSouth's
Feidler's vision of a negative elasticity of phone markets, meaning
that lower prices bring lower revenues?

     From a spectronic perspective, all this analysis is deeply
misleading. Whether channeled down wires or through the air, spectrum
is spectrum.  Digital wireless is a cheaper and better way of
delivering service.  The market for PCS is not the cellular customer,
but the one billion wireline customers in rich countries and the
several billions of potential phone and teleputer customers around the
globe.  In pursuing these customers, the price elasticities will be
dramatically positive, with various price points reachable with new
wireless technologies releasing torrents of new demand and new
revenues.  What Aron calls an ice age will in fact prove to be a
gigantic global warming, unleashing huge new growth in telephony,
using spectrum in all its various forms (except perhaps the
twisted-pair copper wires that currently dominate the installed base
of the industry).

     The winning bidders from AT&T and Sprint did not put up their
$3.7 billion in order to join a zero-sum straggle for new cellular
customers.  These bidders are dominated by long-distance businesses
that can use PCS to reduce their some $30 billion in access charges to
the local exchange carriers by creating an alternative local loop.
Similarly, MCI, though avoiding the auction, created a subsidiary
called MCI Metro that may seek to manage service for spectrum winners
in 17 cities, again harvesting the benefits of obviated access
charges.  Then all these companies can use their PCS technologies to
pursue customers around the world without any thought of wire.

     A chart created by industry analyst Herschel Shosteck illustrates
the opportunity.  The Shosteck chart is a bell curve relating the
incomes of the world's households to telephone penetration rates.  He
shows that telephony has so far penetrated only to countries representing
the top tail of the curve, where national wealth suffices to reduce
the cost of telephony to a threshold of between 4% and 5% of incomes.
As incomes rise around the globe, more and more people cross the
telecom threshold.  A chart of GDP in real dollars per capita versus
telephone penetration shows that a 40% rise in incomes could bring a
1,600% increase in potential customers.

     Compounding the surge in incomes, however, will be the plummeting
cost of wireless telephony.  Shosteck estimates that between 1985 and
1994 the price per customer dropped 80%, from $5,000 to $1,000.
Combining these two trends, he calculates that there will be between
400 million and 800 million new wireless subscribers by the end of the
year 2000.  These numbers represent an awesome upsurge from the
world's current level of some 60 million cellular customers.  Any
further acceleration in income growth or decline in telephone prices
will increase these numbers.  A 50% further drop in telephone prices
combined with a 50% rise in incomes would quickly thrust the vast bulk
of the world's population above the Shosteck threshold.  Far from the
negative elasticities that U.S. phone executives see in their
saturated wireline voice business, the world-wide communications
market will be a financial trampoline.

Just Chips And Antennas

     In an ordinary industry, a 50% drop in price seems a major
obstacle.  But telephony is becoming a branch of the computer
industry, which doubles its cost effectiveness every 18 months.  The
wireless convergence of digital electronics and spectronics will allow
the industry to escape its copper cage and achieve at least a tenfold
drop in the real price of telephony in the next seven years.

     Sen. Stevens should meet Martin Cooper, a former research chief
at Motorola and now CEO of ArrayComm.  Located in San Jose, ArrayComm
is devoted to drastically reducing the cost of telephone access over
the next two years while entirely obviating the problems of
twisted-pair wiring that afflict Alaska.

     The current pitch of ice-age cellular providers is "pay more and
get less ... and don't even think about universal service."  Although
they claim penetration rates in industrial countries of nearly 10%,
most cellular users make most of their calls on wireline systems.  The
real market share of cellular is in fact under 1% in the industrial
world.  The cellular companies' formula for success is to exploit the
public hunger for mobility by charging more money for worse service --
extracting premium prices for calls with acoustics and reliability far
inferior to wireline telephony.  Followed by both sides of the
cellular duopoly -- by Bells, McCaws and other suppliers -- this
pay-more- for-less-and-worse formula has concealed from much of the
industry the basic technological fact that wireless will soon be
acoustically better than wireline and drastically cheaper as well.  As
the CD example shows, after all, digital sound systems are superior to
analog.  And without wires, phones finesse the largest capital and
labor costs of conventional telephony.

     In economic terms, the intrinsic cost advantage of wireless is
concealed by the colossal installed base of copper.  Already mostly
paid for and largely written off, the 154 million twisted-pair access
lines will allow the Bells to compete in price for some time with
wireless rivals that have lower real costs.

     Nonetheless, technical reality will prevail in the end. Spectronics
offers technologies in four dimensions for dividing and conquering
spectrum: Frequency division, time division, code division and space
division.  All address in various ways the issue of frequency reuse --
how many times in a system particular frequencies can be reused
without causing interference in other calls using the same frequencies.
Of the four techniques, so far only frequency division has been widely
exploited.  As these other methods come on line, the cost of telephony
will go over the same kind of digital cliff long familiar in computers.

     Surveying all these proposed schemes and their promised upgrades
(see sidebar next page), it is safe to project between a 60% and 90%
drop in the cost of wireless telephony over the next five years,
depending mostly on the progress of CDMA.  Qualcomm's CDMA could
reduce costs tenfold, compared with the threefold gains from current
global services mobile (GSM) technology, which contemplates an upgrade
path chiefly through downgrading the voice quality with a half-rate
vocoder.

     All these gains in wireless efficiency from dividing by time,
code or frequency are compounded by dividing spectrum by space.
Mathematically, every 50% reduction in the cell radius yields a 400%
increase in the number of customers who can be served in a given area
with a given technology.  Huge theoretical gains accrue from
cell-splitting -- reducing the physical extent of cells and
multiplying their number -- converting current macrocells as large as
35 miles in diameter into microcells a mile or so in width, and into
picocells measured in hundreds of yards in buildings, shopping centers
or congested urban streets.

     All these gains, however, could be nullified by the expense and
difficulty of implanting base stations all over cities and
neighborhoods.  The key to the gains of space division, therefore, is
creation of base stations drastically cheaper, smaller, more discreet
and more functional than the current cell sites, costing between
$500,000 and $1 million, occupying 1,000 square feet and containing
between 55 and 416 radios, depending on the frequency reuse factor.
The most notable breakthrough in base stations is the Steinbrecher
MiniCell, to be demonstrated in July and launched at the end of the
year.

     Putting a base station into a briefcase, Steinbrecher uses a
single broadband digital radio to perform the functions of between 55
and 416 analog transceivers.  The key breakthrough is a proprietary
mixer that can flawlessly down-convert all the waveforms in the entire
cellular spectrum into a stream of baseband digital bits without
losing any information or introducing spurious signals.  Containing
all the electromagnetic contents of the cell, this digital bitstream
is broken into channels by a 0.4-micron technology application-specific
integrated circuit and is interpreted by digital signal processors.
Governed by the learning curves of semiconductors, the MiniCell
promises to reduce the cost of a cell site by an initial factor of 10
and by an eventual factor governed chiefly by the Moore's Law
exponentials manifested in the PC industry.

     In an important article in the April issue of IEEE Personal
Communications, Donald Cox, former Bellcore wireless leader who is now
at Stanford, calculated that such digital base station technologies
soon could lower capital costs per wireless customer to $14, compared
with a current cellular cost of $5,555 (assuming, in both cases, 180
channels per unit).

     Using leading-edge silicon technology, the broadband digital
radio can transform the entire landscape of wireless.  It takes the
channeling, tuning, filtering, modulation, demodulation, coding,
decoding and other processing out of the analog radio domain, where a
different radio system is needed for each frequency band or modulation
scheme.  Moved into a digital signal processor or ASIC, these
functions yield to the huge efficiencies of the computer.

     The ultimate in space division, for example, is devoting the
entire available spectrum to every caller.  Using broadband digital
radios fed by arrays of smart antennas, Cooper's ArrayComm is
approaching this ultimate.  "We believe that over the next few years,
everyone will be using broadband radios," Cooper says, pointing to
Watkins-Johnson and Airnet joining Steinbrecher in this business
(though with far narrower bandwidths).

     All base stations, one way or another, have to find all the
callers in a cell and link them to callers outside.  Broadband digital
radios move the search function from an array of radios to a single
computer.  Cooper contrasts the technology with radar.  As he puts it,
traditional radar systems use active beams to scan a location and find
a targeted object; ArrayComm uses a passive array of antennas and a
digital radio to provide a broadband snapshot of a cell 20 times a
second, and employs computers to locate the targeted object, in this
case a handset.

     Like the Craig McCaw-Bill Gates low-earth-orbit satellite scheme
called Teledesic, the ArrayComm IntelliCell originated with work done
for the Strategic Defense Initiative program.  Inventor Richard Roy
developed algorithms for rapidly calculating the source and trajectory
of missiles from their electromagnetic emissions as detected by
satellite antennas scanning the surface of the earth.  Now he is using
similar algorithms to identify the position, direction, distance and
amplitude of electromagnetic emissions from handsets in a wireless
cell, as collected by arrays of smart antennas at a base station. Once
the information is digitized, Roy's algorithms can sort out all the
calls by their location in the cell, excavating signals otherwise
buried in neighboring noise or shrouded in cross-talk, and conducting
several calls at once on the same frequencies.

     Cooper gives the analogy of human hearing.  "You close your eyes
and I walk around talking, and you can point to me at any moment.  Add
another voice and you can still listen to me, or shift to the other
voice.  You can hear the voice you want to hear twice as loudly as the
voice you want to suppress.  You null out the interference.  This is
not a physical process.  You don't move your ears.  Your brain
calculates and correlates the different sounds or signals.  That's
what Dick Roy's algorithms do in our smart base stations."

     Roy explains further: "That works if you have a variety of
frequencies.  Suppose, though, you were faced with a chorus of monks
all chanting in monotone in the same frequencies.  This is more like
the cellular telephone or PCS situation in the presence of
interference or cross-talk.  This is what prevents frequency reuse in
adjacent cells.  Amid the drone of the monks, you could not isolate
the sound of one monk.  What you need is more ears.  Then you could
resolve the source of a particular sound by its location.  That is
what we do with antenna arrays."

     Adding a spatial dimension to the frequencies, time slots or
codes tracked by ordinary cell sites, an ArrayComm system can
distinguish signals entirely unintelligible to other systems.  For
example, an array with eight antennas can effectively magnify the
signal by a factor of eight.  There is no theoretical limit to the
number of antennas, but as a practical matter, the size of the array
becomes a problem in urban cells.  By moving up spectrum from 900
megahertz 15 centimeters to 1,800 megahertz, PCS reduces the size of
the antenna array from two meters across to one meter across (antenna
size drops in proportion to the decline in wavelength at higher
frequencies).

     As a result of the effective magnification of signals, an
eight-antenna array could double the range of a base station,
quadruple the area covered, reduce to one-third or one-fourth the
number of cell sites, and raise frequency reuse to 100%, without CDMA.
Because CDMA doesn't define channels by frequency at all, but by
codes, its limit is the number of codes that can be differentiated in
the cell.  Thus, Roy believes that among all the competing
technologies, CDMA can benefit most from using the spatial dimension.
Spatial processing can help differentiate the calls in a cell as the
noise of call codes accumulates toward the limit where further traffic
is impossible.  As Qualcomm leader Andrew Viterbi declared in a paper
released on Jan. 13: "Spatial processing remains as the most
promising, if not the last frontier, in the evolution of multiple
access systems."

     ArrayComm is part of what Don Steinbrecher calls "the transformation
of wireless from a radio business to a computer business."  As a
computer business, wireless will share in the gains of Moore's Law.
It will double cost effectiveness every 18 months, rather than
continuing on the stagnant price curves of wireline telephony in its
cage of copper, dominated by the costs of rolling out trucks, digging
trenches, laying wire and climbing poles.

     Cooper predicts that over the next five years, the combination of
broadband digital radios, ArrayComm smart antennas and a stream of
other advances in wireless telephony will reduce the cost per minute
of wireless phone calls to a penny a minute, one-quarter the average
wireline level and one-twelfth the current cellular price.  This price
collapse will ignite huge positive elasticities in demand, reaching
for the first time billions of new customers in India, China and Latin
America who are now untouched by telephony.

     ArrayComm's first customers are Alcatel in Europe, which is
creating a system for GSM, and DDI Tokyo Pocket Telephone.  The
fastest growing company on the Tokyo stock exchange for the last five
years, DDI is often termed the MCI of Japan.  Using transceiver
chipsets from Cirrus Logic's PCSI subsidiary, DDI is already the world
leader in low-cost wireless telephony.  The ArrayComm technology
should lower its costs to the point where these pocket telephones can
break through as a wireless local loop throughout the huge new markets
of Asia and elsewhere.  Earlier this year, the DDI technology, called
Personal Handy Phone, was combined with a Bellcore-Motorola proposal
as a new low-end wireless standard under the name Personal Access
Communications Systems.

     By transforming the technical landscape of communications,
spectronics are also transforming the lawscape.  Indeed, by entirely
closing the gap between the costs of serving rural and urban
customers, digital wireless phones will obliterate the need for
cross-subsidies that underlie the entire regulatory edifice.  In the
new world of bandwidth abundance, the only group that will need cross-
subsidies and emergency aid is the communications bar.

     As a guide to the era ahead, telephone executives, regulators and
Washington politicians should contemplate the computer industry.  The
market share of centralized time-shared computer systems dropped from
100% in 1977 to less than 1% in 1987.  International Business Machines
and Digital Equipment Corp. lost nearly $100 billion in market cap in
five years.

     Or, for a more recent example of the power of wireless technology
in the digital age, the telcos, regulators and politicians should
consider the video distribution industry, Last year, Washington was so
obsessed with the cable industry and its apparent monopoly power that
Congress enacted a reregulation bill that ultimately imposed 700 pages
of new rules on the distribution of video news and entertainment.
Politicians and pundits let forth a stream of lamentations about the
future access of the poor and the rural to the new services of digital
television and proposed a series of new requirements for universal
service.

     A year later, however, the very survival of the cable industry as
a distributor of point-multipoint video is in doubt.  Before Congress
could enact broadband universal service rules, Direct Broadcast
Satellites were propagating 150 channels of digital video with supreme
universality over the entire expanse of the continental United States.
Attaching 18-inch dishes to the tops of their igloos, the Inuits might
acquire television images of a variety and resolution far excelling
any offering of cable television in the midst of the nation's capital.
With a software upgrade to MPEG-2 video planned later this year, the
number of channels will rise to some 200.

     Privately dubbed "deathstar" by cable industry executives,
digital DBS became the fastest growing product in the history of
consumer electronics.  Just seven months after its introduction, it
had already surpassed the combined first-year sales of VCRs, CD
players and big-screen TVs.

     Today, in the name of deregulation, politicians are preparing to
impose a series of new competitive requirements upon the Bell
operating companies, on the assumption that they still wield monopoly
power.  Pundits still seem to believe that the copper cage protects
local telephone companies from outside competition.  But in fact, the
cage incarcerates them in copper wires, while the world prepares to
pass them by.

     The digital future is not wired or wireless.  It is spectronic
and spectacular.  To participate in this explosive market, all
telephone companies will have to escape from their copper cages into
the infinite reaches of the spectrum.

                            #####

Regards,


                            Gordon Jacobson
                     Portman Communication Services
                            [phone]

           [e-mail]               MCI Mail ID:  385-1533
           Home Page: http://www.seas.upenn.edu/~gaj1/home.html
                    Channel One BBS - Cambridge, MA