Motorola Business Analysis:


VoIP and Wi-Fi Technologies




Their Impact on the Cellular Industry



* * *



December 12, 2004


BUS 754 – Information Systems in Organizations

Professor Wresch


Lana Dose

Joel Schmidt

Brian Sharapata

Executive Summary

Motorola has a rich, 76-year history as a global technology and communication leader specializing in modems, wireless phones, and other electronic communication devices.  However with Motorola’s continued erosion of market share in the cell phone industry to leaders like Nokia and Samsung (Hughlett, 2004), and given the high rate of growth and investment in new technologies that are expected to transform business and personal communication (McKeever, 2004), Motorola is faced with the opportunity to once again emerge as a leader in a growth industry.


As large telecommunication firms such as SBC, AT&T, and Vonage invest billions of dollars developing internet-based wireless networks, Motorola should leverage its marketing expertise and production economies and focus on developing hardware products for this emerging industry.  Second, as no clear leader has emerged yet that is dedicated to developing the handsets, modems, and other portable devices compatible with these new technologies, Motorola has the first-mover advantage and should actively seek out exclusivity agreements with these telecoms.  Also, by joining the IEEE work groups that are currently responsible for developing the global industry standards for Internet and wireless communication networks, Motorola can influence the adoption of standards that support the specifications of its products.  Finally, because these technologies have emerged so rapidly there currently is little government regulation.  Motorola should remain active in government lobbying to protect and promote its interests as well as those of this emerging industry.


Cellular Industry Background

Though the technology did not yet exist, the notion of a cellular phone network using defined range of service areas called cells was first introduced in 1947.  That year the Federal Communications Commission (FCC) first dedicated a set frequency range of radio spectrum for cellular phones in order to promote the development of this technology (Mehta, 2004).  Technological progress was hampered as the amount of allocated megahertz initially allowed only up to 23 calls at one time in a given cell, providing little profit incentive for companies such as AT&T to make sizeable investments (Wireless Industry Background, 2004).  In 1973 the first cellular phone call was placed using a 23-pound analog phone with a 10-minute battery life, and it took until 1978 to develop the first commercial test market of 2000 users in Chicago where signals were transmitted over a network of towers (Wireless Industry Background, 2004).


As the FCC dedicated increasingly more spectrum for cellular use and as the telecommunications industry was deregulated, new entrants surfaced.  The resulting increase in competition brought about the improvement and expansion of cellular networks and the introduction of new products and service packages, fueling consumer demand (Mills, 1993).  Today 158 million people in the US spend one trillion minutes a year using pocket sized digital phones that weigh mere ounces to talk, transmit data and images, and surf the Internet (Mehta, 2004).  Wireless service now accounts for an estimated $355 billion of the $500 billion telecommunications industry (Mehta, 2004).


In the last ten years, mobile phones evolved into very sophisticated devices.  Today's latest models are elegantly shaped pocket computers that may have a built-in camera, an alarm clock, a games console, and a music player (Economist, 2004).  Over half billion mobile phones are being sold every year, and continuous growth is mainly due to a surge of new subscribers in the developing world.  However in the developed world, where markets are so saturated and most adults already have a cell phone, existing subscribers are switching in search for the most advanced and innovative models.   In addition to the number of features, customers are looking for integrated and cost effective communication devices.


Phones and services that enable roaming between Wi-Fi and cellular networks provide benefits to consumers and businesses through uninterrupted service and very low long-distance costs.  Devices that combine LANs, IP telephony, and cellular technologies will extend the mobility of the cellular networks inside the enterprise, and provide the best available access to the user virtually anywhere in the world (Economist, 2004).  The integration of multiple wireless systems presents both a challenge and an opportunity to the cellular industry.


VoIP and Wi-Fi Industry Opportunities

The evolution of the cellular industry has transformed the way people communicate as well as how businesses operate.  UPS, for example, relies on cellular technology to track the movement of three billion packages each year (Wireless Industry Background, 2004).  Just as cellular technology acted as a change agent, emerging technologies appear to have the potential to once again redefine communication standards.  A recent Morgan Stanley survey of 225 chief information officers in the nation's 1,000 largest companies revealed that wireless infrastructure and VoIP are higher corporate priorities this year than last year.  In each year, both technologies ranked in the top six (Kharif, 2004).  However, VoIP and Wi-Fi technologies are only used by a handful of companies today due to the perceived novelty of these services.


Although Wi-Fi (short for “wireless fidelity”) is a young technology it has gained acceptance in many businesses, agencies, schools, and homes by providing broadband Internet and other traditional networking tools associated with LAN (Arnason, 2004).  Implementation to date shows widespread but shallow Wi-Fi deployment.  For example, a December 2003 Webtorials poll showed that 53% of enterprises have already deployed wireless LANs, but only one-third of those support more than 100 users (Phifer, 2004).  However, most analysts expect enterprise adoption to accelerate with WLAN purchases topping $1.7 billion by 2006, more than doubling the $702 million consumer WLAN market.


Voice over Internet Protocol (VoIP), a delivery system for phone conversations, has made significant inroads among consumers eager to trim their long-distance bills.  Furthermore, businesses are also taking note.  According to Access Markets International research firm, 20% of companies that have fewer than 99 employees already have some sort of VoIP service, while 39% of all firms with 100 to 1,000 workers are making plans to purchase the technology (Fitzerald, 2004).  VoIP is predicted to carry 75% of voice traffic globally by 2007 (McKeever, 2004).  By 2008, wireless LAN devices with voice compliance are expected to exceed the number of Wi-Fi access devices that are data only (O’Shea, 2004).


As Wi-Fi and VoIP technologies have taken hold over in recent years, a greater number of telecom companies and potential customers are exploring the combination of the two technologies – wireless calls carried over the Internet.


Technical Description of Wi-Fi and VoIP

Wi-Fi is a term for certain types of wireless local area network (WLAN) (, 2004).  Wi-Fi utilizes the airwave spectrum that hasn’t been auctioned or allocated to an exclusive user, and is the same spectrum used by wireless phones and microwave ovens.  Wi-Fi communications follow the Institute of Electrical and Electronics Engineers (IEEE) 802.11 standards.  IEEE first approved 802.11b in 1999.  In 802.11b, data transfer occurs at 11 Mbps at frequencies of 2.4-2.497 GHz. (a typical home cable connection transfers data at 3-10 Mbps.)  802.11g was approved in June, 2003, with speeds up to 54 Mbps and is backwards compatible with 802.11b.  Both 802.11b and g are limited to three non-overlapping channels.  However, 802.11a, also approved in July, 1999, offers up to 12 non-overlapping channels operating at a higher frequency, 5-6 GHz, to avoid interference with microwaves and popular short-range devices, such as those equipped with Bluetooth.  Unfortunately, 802.11a is not compatible with b or g technology and is not yet approved in Europe (Teresko, 2004).  Wi-Fi technology continues to evolve as semiconductor companies and equipment firms are already working on a new Wi-Fi standard, 802.11n, which will more than double the data transmission speed of 802.11g.


The key component in a wireless network is the access point, typically a combined access point and router which connects directly to a cable or DSL modem (Wildstrom, 2004).  Additional network components such as a printer or scanner can be plugged in to it.  Each computer that connects to the Wi-Fi network needs its own wireless adapter.  Companies producing wireless routers and adapters include Linksys, NetGear, D-Link, Apple Computer, and others.  Many notebooks now come with a wireless adapter built in.


Many airports, hotels and other facilities offer public access to Wi-Fi networks.  These locations are known as hot spots.  Typically a daily or hourly rate is charged for access.  An interconnected area of hot spots and network access points is known as a hot zone.  However, Wi-Fi works only in a limited range – usually 100-300 feet and thus is not available outside of hot zones in rural areas.


Transmitting calls via the InternetVoice over Internet Protocol (VoIP) technology allows users to make telephone calls over the Internet via a broadband connection (See Figure 1).  A standard phone is plugged into a VoIP modem, which can be plugged into a standard high-speed cable modem.  VoIP technology takes phone calls and turns them into digital files, which are broken into packets of data, sent over the internet network, reassembled, and then converted back to voice calls on the other end (Fitzgerald, 2004), similar to how email is sent over the Web.  The advantage of VoIP technology is that a user no longer needs a separate phone line to make a phone call if a broadband connection is already in place.  In fact, many companies are now combining cable modems, VoIP modems, and Wi-Fi access points in one, small container (Krakow, 2004).

                     (Figure 1)




Strengths & Limitations of the Technology

The 2004 VoIP State of the Market survey identified the top benefits of VoIP as the cost of moves/adds/changes will drop significantly and that it is easier to deploy new integrated applications.  “For providers of VOIP services, the infrastructure costs are lower, because calls are routed through Internet devices rather than over telephone lines or cellular networks” (Drucker, 2004).  Organizations also see capital and operational expenses reduced by converging systems and leveraging existing IP networks to carry voice, video, and data services.  The average cost for each cable drop is $150, while adding additional wireless connections requires only a wireless network card, which is standard in most new laptops.  Also, using the “free” Internet network eliminates cellular network access charges when mobile phones are used within the enterprise.


While cost savings are estimated to be around 30% for some companies, there is a downside to low cost.  The service is so inexpensive largely because it runs over the public Internet, which means that it can have frequent service interruptions.  Another issue to consider is what would happen during a blackout.  Phone lines are available during a blackout because phone companies run their own power generators (Fitzgerald, 2004).  Businesses that require absolutely rock solid reliability in service should operate VoIP on a hosted Internet service, which is higher in cost.


The second category of benefits identified in the WLAN survey is enhanced/converged business processes and improved Knowledge-Worker access and productivity.  Not only are costs reduced by consolidation of communication devices (land-line, cellular phone, PDA) but more importantly, employees are able to work more efficiently.  For example, employees can use a wireless VoIP phone while traveling away from the office to make calls, send e-mail messages, and send e-mail with voice messages attached.  As long as workers have secure and high-speed Web access, they can basically work from anywhere.


A number of companies have found benefits in utilizing VoIP technology as they update and streamline their call-center operations.  Some of the biggest advantages in switching over to a VoIP system are that it is flexible and can be easily scaled to bring centralized administration.  Moreover, the core benefit stems from the ability to converge both voice and data networks onto one platform (Haeberie, 2004).  The technology also allows for more intelligent routing of contacts to handle the incoming calls regardless of where they come from, creating a seamless experience in servicing customers.  Because IP-based call centers can better support remote or mobile agents, they also expand the pool of available talent for companies (Haeberie, 2004).  Under a VoIP system, calls or requests can come either over the phone or via e-mail, allowing the next available agent to answer the call.


However, safety and security remain the top concerns identified by the 2004 VoIP survey.  Data protection is one component.  Because radio frequency signals radiate in three dimensions (through walls, floors, and ceilings) signals must be protected to ensure that outsiders do not steal packets.  On the flipside, a wireless network must also be secured against unauthorized network use and intentional interference - rogue packets bombarding and overloading the network.  While it is relatively easy to set up a perimeter around a wireless networks contained within a corporate headquarters for example, the free-roaming nature of voice over Wi-Fi (VoWiFi) presents additional challenges.


Industry players currently address these security issues in a multitude of ways.  Many Wi-Fi users have implemented virtual private network (VPN) technology to protect their systems.  Also, according to the Wi-Fi Alliance, more than 400 products now support Wi-Fi Protected Access (WPA), which replaces the use of static encryption keys in the Wired Equivalent Privacy (WEP) component of the standard with dynamic, rotating keys.  A third measure includes using the industry-standard 802.1x authentication framework and an IEEE mandate for products to migrate from RC4 to Advanced Encryption Standard (AES)” (Wexler & Taylor, 2004).


Another issue centers around the ability to navigate multiple authentication systems commonly used by laptops on a wireless network.  This can take several minutes to complete, which will not be acceptable to the average person used to receiving an immediate connection upon dialing his phone.  This same authentication process presents obstacles to seamless transfer of calls from one wireless network to another if the consumer is mobile during a call.  Today, the call would be dropped as soon as one moved out of range of the initial access point (AP).  However, the IEEE 802.11r working group was recently developed to address this issue and improve VoWiFi roaming.


According to Aaron (2004), “There are fundamental capabilities that are required in a WLAN to support a mixed voice and data environment, such as quality of service (QoS), fast roaming, RF management and security.”  In general, QoS refers to a set of traffic characteristics (e.g. throughput, service interval, packet size, delay, priority, etc…), which describes a traffic flow in support of a particular application.  Today, there is no unified QoS standard.  In order to maintain a quality signal without interruption, the packets containing voice messages must receive priority routing across the internet network.  The 802.11e standard for QoS, currently being worked on by the IEEE, addresses traffic prioritization marking and queuing to reduce latency.  This standard introduces two options for handling real-time traffic: Enhanced Distribution Coordination Function (EDCF) and Hybrid Coordination Function (HCF).


Finally, powering a combined cellular / Wi-Fi device presents another challenge since Wi-Fi consumes much more power than cellular technology.  With current technology there is a trade off between an acceptable size and weight of a battery and its ability to maintain a charge.  Cell phone manufacturers and service providers are already addressing this issue through continued research.


Principle Impacts on the Industry

With potential rewards of lower costs and higher customer satisfaction, combination of VoWLAN and cellular technology presents not only immense growth opportunity but also a true revolutionary way of communication.  According to In-Stat/MDR market research firm, by 2006 VoWLAN and cellular handsets will be in many business customer hands, and starting to enter the home market as well (See Figure 2).


Proprietary wireless voice systems have been deployed for years, providing significant benefits to organizations where large numbers of employees are extremely mobile but need to be accessible on a moment's

notice. These solutions have great appeal to vertical                                  (Figure 2)

markets like retail, warehousing, manufacturing and

health care. However, almost every organization has certain functions, such as maintenance and safety, where mobile voice services are also important (In-Stat/MDR, 2004).


Cellular/VoWLAN solutions will be provided through the mutual effort of cellular carriers, mobile network providers, and device manufacturers.  According to In-Stat, the two main challenges that carriers face are that the technology has to mature and become very inexpensive.  In addition, cellular carriers will likely have to partner with VoIP experts to ensure that VoIP supports all of the features that they currently offer through cellular services.


Meanwhile, wireless network providers are working to develop phone platforms that carry Wi-Fi chip enabling users to move seamlessly from hotspot to cellular network and then back again.  VoWiFi technology has several emerging market players.  HP’s iPaq Pocket PC h6315 is a cellphone that can seamlessly tap into Wi-Fi networks.  This device is sold through T-Mobile and combines PDA, cellphone and Wi-Fi connection.  H6315 detects available Wi-Fi networks and then automatically switches over to the faster network.  However, iPaq cannot place voice calls over a Wi-Fi network.  Cisco offers a wireless IP phone using 802.11b protocol for hospitals and universities.  Also, SpectraLink and Vocera have produced gear for early adopter markets such as hospitals where cellular technology can’t be used.  Nokia plans to start offering a phone that combines Wi-Fi capability with cellular technology later this year or early 2005.  This phone will allow customers to browse the Web and access other data from the device.  However, Nokia does not believe Wi-Fi is yet practical for voice communication (Drucker, 2004).


Wireless technologies that promise increased user flexibility and lower cost of network ownership also expose network-based assets to considerable risks.  As mentioned earlier the risks stem from security issues, quality of service and powering capability.  In addition, there are also risks that revolve around legal issues.  In a recent FCC ruling VoIP was identified as non-telecommunication service for federal regulatory purposes putting it in the same category as Internet access service free from most fees and taxes.  It is important to note, however, that FCC recognized that the subject matter pertains to “emerging services” and as such may be reexamined at any time (Kerben, 2003). 

Wireless providers that couple their services with regulated services run the risk of triggering FCC regulation.  Some of the potential commission regulations include regulatory fees, obligations to charge certain rates, and the requirements to submit to the FCC’s formal and informal complaint rules (Kerben, 2003).  Applying traditional telecom regulations could limit new services, increased choices and competitive prices that VoIP can deliver.


VoWi-Fi technology poses great opportunity for the wireless communication industry.  As the new technology develops and evolves it may also pose threats to traditional telecommunication services.  Estimated market opportunity coupled with the accelerating market growth implies intense competition from existing and emerging business players.  Many issues need to be resolved before the full integration takes place but once the issues have been properly addressed and the standards settle down, VoWLAN with its potential to merge data, voice and mobility into one neat package, promises to be something that could transform how companies and consumers communicate.



Though VoIP and Wi-Fi technologies are new, significant investment is being made to develop networks for business and home use by large telecom companies.  Motorola has an opportunity to capitalize on the industry’s expected high rate of growth and reestablish itself as a leader in the communication products industry.  By seeking out exclusive supplier agreements with those companies who are currently shifting investment dollars to these technologies (primarily SBC, AT&T, and Vonage), Motorola can emerge as the leader in handsets, modems, and other portable devices which are critical components for VoIP and Wi-Fi use.  The company can expect to secure a majority of the market share by establishing itself as a first-mover as there currently are no sizeable competitors for these hardware products.  By leveraging its global sales force, extensive marketing resources, and production capabilities Motorola can dominate this market.


A discussed earlier, the IEEE has several 802.11_ working groups that are actively developing the global industry standards for Internet and wireless communication networks.  IEEE is the world’s largest technical organization with over 360,000 members.  Membership is open to electrical and computer industry professionals.  The IEEE Standards Association provides a standards program to serve the needs of global industry, government and the public.  Approval of a standard by IEEE signifies that IEEE believes the practices described therein represent good engineering practice and represent a consensus of representatives from materially affected industries, governments, or public interests.  Most recently, the 802.11i group rolled out their work in June 2004 to address wireless network security.  In November 2004, the 802.11n group began meeting to develop the next generation standard, which will increase transmission speeds.  Two industry consortiums created the two top proposals.  However, Motorola was not a member of either group.  By participating in the IEEE working groups, Motorola can ensure they have the most current technology design in their products and also influence the adoption of standards that support its products.


Motorola also needs to understand the legal environment and possible regulatory policies that could stall the development and wide spread use and acceptance of VoIP technology.  The company needs to support lobbying efforts to develop new policy solutions that will foster the development and deployment of VoIP.  One of such industry alliances is Voice on the Net, or VON Coalition.  VON is a group of companies concerned with potential regulatory barriers and intending to develop new policy solutions for VoIP technologies.  Another major initiative of this alliance is to address a number of critical issues such as the availability of 911 emergency services and law enforcement surveillance.  Motorola should be actively involved in such lobbying efforts to support the VoIP community and to extend the benefits of VoIP to more consumers.





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