Motorola Business Analysis:
VoIP
and Wi-Fi Technologies
&
Their Impact on the Cellular Industry
* * *
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
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) (Whatis.com, 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
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.
Voice 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 (
(Figure 1)
Strengths & Limitations of the
Technology
The 2004
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.
Recommendations
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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