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Qualcomm JV Buys UK Network

'Back-door' CDMA conspiracy denied by new owner

June 13, 2002

5 Min Read
Qualcomm JV Buys UK  Network

A Qualcomm Inc. (Nasdaq: QCOM) joint venture company, Inquam, has acquired the U.K.'s only national digital TETRA (terrestrial trunked radio) network at a snip, but claims this is not a sneaky way of introducing CDMA services into a major European territory (see Inquam Acquires Dolphin).

Inquam, 40 percent owned by Qualcomm, has bought the network assets and corporate customer base of Dolphin Telecommunications Ltd., which had been in administration since August 2001. It was previously owned by Canadian wireless company Telesystem International Wireless Inc. (TIW) (Nasdaq: TIWI; Toronto: TIW).

Inquam, which describes itself as a "company that develops and operates innovative specialised wireless networks," paid just £25 million (US$38.9 million) for a network with 92 percent national coverage. It did not assume any debts or liabilities.

The acquisition has been mooted for some time and often reported as an opportunity for Qualcomm to sneak CDMA into Europe through the back door. Dolphin's new CEO Tony Greaves, who is also COO of Europe for Inquam, sounds as if he's had enough of the topic. "All I can say is that we have no plans to deploy CDMA on the spectrum we have." But that, he concedes, is because the license prohibits anything but Tetra services. "This whole Qualcomm conspiracy theory has been completely overdone. Dolphin has been bought as a Tetra business and it will be run as a Tetra business. It is not our intention to be the sixth mobile operator in the U.K."

But Unstrung gets the feeling this "conspiracy theory" might crop up again, as Inquam does own a CDMA operator in Europe, albeit a small service provider in Romania called Telemobil, which operates under the name Zapp Mobile. "As a minority shareholder, Qualcomm is very interested in our CDMA development in Romania. They are pleased about that," enthuses Greaves.

In addition, Inquam owns Radiomovel in Portugal and Dolphin Telecom Spain -- both Tetra operators -- and is "in negotiation" with the administrators currently running the Dolphin Tetra businesses in France and Germany.

But back to Tetra, a public mobile radio technology similar to Nextel Communications Inc.'s (Nasdaq: NXTL) iDen that offers push-to-talk and group-call functionality. For its money, Inquam has inherited 3,300 corporate customers that, in total, have 45,000 handsets connected to the Dolphin network. That infrastructure "cost just over £500 million [$736 million] to build, so we have bought the infrastructure for less than five pence in the pound," says Greaves.

It also inherited two licenses: One to operate at 410 MHz, used for the current voice and data (maximum 28 kbit/s) service; and one for 870 MHz, which has been earmarked for Tetra 2, a data-only evolution that would offer up to 384 kbit/s.

Deploying Tetra 2 is not a certainty, however, even though Greaves admits that business customers will demand more bandwidth than the current service can offer. "We have no absolute and firm plans to deploy Tetra 2. We are waiting for the standards to be settled. There is no doubt the cost would be considerable to adopt Tetra 2, but it is too early to say what those costs would be. We will be looking at our roadmap in the coming months."

So how can Inquam make a success of this niche wireless offering when the previous Dolphin management failed so spectacularly? It's all about marketing and cost control, says Greaves. "The original network was overdimensioned. The backhaul and switching layer have way too much capacity. We are going to reduce our operational expenditure significantly by optimizing the network without reducing any service levels."

Marketing was not a strong point of the previous management, adds Greaves. "We know who the potential customers are. The previous marketing was scattergun. What's the point in spending money on television advertising? It needs to be more targeted than that." The Dolphin brand will be retained.

New handset technology will also help. "Dolphin went into administration just as the second generation of handsets was coming out. We have those now, and they are smaller and have a longer battery life. I am not saying the company went under because of the old handsets, but they would not have helped."

But the business has a way to go to break even. "We are still losing a couple of million pounds each month, but we are confident we can turn this business around. We are fully funded, with $200 million each from Qualcomm and privately-held Middle East investor Omnia." Omnia also owns 40 percent of Inquam.

Greaves says the current revenues amount to little more than the fixed monthly income from connection of £25 ($37) per handset, as most users use just the push-to-talk service, which comes free as part of the subscription, though there are small amounts from messaging and calls made out to the public telecom network from the Tetra handsets. That gives the business an annual current revenue of about £13.5 million ($19.9 million) at current user levels.

So how will the revenue grow? "Of course we would like to increase the average revenue per user, and believe that's possible just by marketing existing services. But the market is under-penetrated, so the most important growth will come from adding new customers."

From where? "A lot of industry sectors value push-to-talk and group calls," says Greaves. "Emergency services, security firms, utilities, breakdown services, construction, logistics, transport, and taxi companies, for example. As well as the voice functions, one asset to these types of companies is the guaranteed data delivery. It is not store-and-forward, like SMS. The data goes direct to its destination and the sender gets a confirmation, which is important in a business environment."

— Ray Le Maistre, European Editor, Unstrung

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