Wang Yuan-li (Editor: Scott Partridge)
In 1996, there were over 75 million cellular customers worldwide. Predictions are that the number will increase to over 300 million by the year 2000. There are many reasons why cellular phones have so effectively captured the market. However, the most important factors are the continuing advancement of technology and competition, which enables the costs of wireless service to be decreased. There are two kinds of cellular phones available in today's market: analog and digital. Although digital cellular phones have more features and advantages than analog (such as preventing eavesdropping, clearer voice quality and the capacity for supporting more advanced services), analog cellular phones still dominate the market.
TECHNOLOGY: CAPACITY EXPANSION
Cellular phones use the radio frequency to transmit and receive voice and data information over the air. Due to the limited available frequencies, it was impossible to serve many customers at the same time, so technologies allowing expanded capacity were developed; one involves increasing the number of cells and the other has to do with multiplexing the frequencies.
Today's cellular systems consist of three basic elements: a mobile phone, cell sites, and a Mobile Switching Center (MSC). By dividing the former big cellular systems coverage into many small cells, frequencies can be reused in the non-adjacent cells, allowing for more customers to be served. If the customers roam to another cell, the MSC will automatically change the frequency to whichever is most suitable at that time.
As for the multiplexing of frequencies, two different schemes are now being used in the digital cellular phone. These different schemes are Time Division Multiple Access (TDMA) and Code Division Multiple Access (CDMA). TDMA is achieved by dividing a single frequency into a number of timeslots, with each user getting one out of every few slots. CDMA is a newly invented technology in which users may share the same time and frequency allocations, and are distinguished from each other by different assigned codes. Analog cellular phones use the Advanced Mobile Phone Service (AMPS) standard, in which each customer uses only one frequency. The capacity of digital cellular phones is significantly larger. Of course, there are still other technologies that can expand the capacity, such as Narrowband Advanced Mobile Phone Service (AMPS), which was introduced by Motorola in late 1991. It uses only a third of the size of AMPS channels -- 10 KHz bandwidth. Hence, NAMPS systems can serve more customers than AMPS systems without adding new cell sites. It is assumed that other new technologies will be invented to meet the increased market demand.
Analog cellular services in the United States (U.S.) were developed in the 1970s by AT&T, and service began in Chicago in October 1983. In the late 1990s, cellular telephony is a very competitive business, with numerous producers and service providers coexisting in the limited market. Motorola, Nokia and Samsung are the producers; MCI, Sprint and AT&T are the service providers; Qualcomm is the technology provider with a patent on CDMA chip. The costs of developing the cellular phone business are enormous, including development, production, patent royalty, marketing and post-sales service costs. Despite these high expenditures, the cellular phone business is still profitable. The main revenues of the producers and service/technology providers are naturally different. For example, the main revenue of the service provider is from the fee for telecommunications service. These costs are dropping due to increased competition between companies. The price of the analog phone has dropped from $307 in 1992 to approximately $104 in 1996, largely due to the threat of the digital cellular phone.
Cellular phones were originally used primarily by businessmen for mobility and accessibility, but even teenagers now have them. The reason they buy phones now is for safety and status. In order to attract more customers, many features have been invented, such as caller ID, two-way paging, call waiting, and short message services. Cellular phones can also be used for data transmission (circuit switched data and packet switched data), accessing the Internet and faxing.
The strategy of cellular phone advertising is to emphasize convenience, mobility, and use in an emergency. People buy cellular phones for safety, instead of just for routine communication, such as enabling calls if you are out of gas or lost. In order to attract more customers, many different features and applications were invented to meet various user needs. The pre-paid cellular phone utilizes the pre-paid service to control the cellular airtime costs by users. Among all these new features, one of the most significant changes is in size and weight. The newly developed Motorola StarTAC 8600 weighs only 3.1 ounces. Although all of these changes affected the function and appearance of cellular phones, decreasing cost was the most important factor causing the market to successfully develop.
POLICY: CATALYST OF BUSINESS AND TECHNOLOGY
The Federal Communications Commission (FCC) established rules and procedures for licensing cellular systems in the U.S. and encouraged competition by creating two competing cellular licenses in every major market. This increasing competition drives prices down. In addition to government pressure, some industry associations have also facilitated the implementation and invention of new technologies. In 1988, the Cellular Technology Industry Association (CTIA) and Advanced Radio Technology Subcommittee (ARTS) were established to set and develop requirements for the next generation of cellular technology. They created a User Performance Requirement (UPR) document that provided goals for the new technology. These goals include a tenfold increase in system capacity compared to AMPS, dual mode during transition, new features, high quality service standards, etc. In order to reach these goals, many new technologies appeared one after the other, like TDMA and CDMA.
One problem that hinders the diffusion of cellular phones is the lack of a single standard. In Europe the cellular phones use the GSM standard; people can travel throughout Europe without worrying about phone usage problems. However, in the U.S., the different standards have caused an incompatibility problem. The FCC now requires all cellular systems to maintain AMPS service. In order to be able to roam in all the systems, some cellular phones have dual capacity, which can fit into both the analog and digital systems.
OPPORTUNITIES, PROBLEMS, AND PROSPECTS
The cellular industry is one of the fastest growing businesses in the world. In the future, more multi-media capabilities will be added to cellular phones, which could allow them to effectively replace wired telephone systems or offer more cost-efficient data message transmission. The wireless marketplace is undergoing a change because of Personal Communication Systems (PCS) and Specialized Mobile Radios (SMR). It's not difficult to imagine that competition in the cellular industry will become fiercer in the future. However, the final winner and beneficiary will be the customers.
Although cellular phones can benefit people a great deal, there are still many problems. The cellular industry estimates that it loses more than $400 million per year to cellular fraud. The effective prevention of piracy is vital to the success of the industry. Incompatibility raises additional concerns. Developing a universal standard in order to reach the goal of ‘global roaming’ is a challenge to the cellular industry and policy makers. Lastly, driving safety is another important issue arising from the use of cellular phones; some states prohibit the use of cellular phones while driving. In short, the successful resolution of these problems is essential to gain customer acceptance and keep the cellular industry growing.
Baldwin, T.F., McVoy, D.S. and Steinfield, C. (1996) Convergence: Integrating media, information & communicaion, USA: Sage Publicaions,Inc.
Dodd. A.Z. (1997) The Essential Guide to Telecommunications, NJ: Upper Saddle River.
Harte,L., Levine, R. and Prokup, S. (1997) Cellular and PCS, USA:APDG.
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