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Europe is hot on Japan's trail in 3G. North America, however, is four or five years behind -- partly because primitive, analog cell phones were already widespread when the first digital cellular wave hit the U.S. But sometimes a liability can become an opportunity. While Japan and Europe rush into 3G, a handful of Canadian and U.S. companies are hoping to leapfrog the rest of the world with fourth-generation technology. Leading the pack is tiny Wi-LAN Inc. in Calgary, Alberta. The company was founded in 1992 by Egyptian-born Hatim Zaghloul, a PhD physicist from the University of Calgary. Since then, Wi-LAN has received several key patents on a technology called W-OFDM, or wideband orthogonal frequency division multiplexing. Wi-LAN builds this technology -- a mixture of mathematics and software -- into equipment for telecom-service providers. The gear lets them provide fast, wireless Internet access to small businesses. Wi-LAN also makes money licensing its technology to telecom and consumer-electronics makers, which incorporate it into products. HOT TOPIC. The real excitement with 4G is in the consumer arena. When it comes to large data downloads, handheld devices using W-OFDM will someday behave like 3G phones on amphetamines. They'll offer Net access at speeds as high as 30 megabits per second, or about 3,000 times faster than today's Web-ready cell phones. With a 4G wireless notebook computer or video player, you could download whole movies in just a few seconds (though the more people online, the slower the network). If you tried to do that today with a 9.8-kilobit dial-up connection, you'd tie up the line for at least most of the evening. W-OFDM is already a hot topic in cellular circles. European giants such as Nokia, Ericsson, and Philips have joined Wi-LAN in a technical forum to promote W-OFDM as an international standard. Across the Atlantic, AT&T, Lucent, and Cisco, are pursuing their own approaches to W-OFDM technology. All of these players have financial and technical resources that make Wi-LAN, with $15.5 million in revenue for the six months ending Apr. 30, look truly puny. What's more, some of the telecom giants have obtained patents on their versions of OFDM. Those patents could threaten Wi-LAN's revenue stream. TIGHTLY PACKED. But for a startup in a new technology arena, Wi-LAN is no slouch. The $15.5 million sales figure is a five-fold increase over the previous six months, although most of that came from acquiring two small companies. Wi-LAN, which spends as much as $22 million a year on research, will lose about $9.8 million in its fiscal year ending Oct. 31, estimates Robert Millham of Research Capital Corp., a Toronto-based brokerage. Still, he says, consolidated revenues in the same period will be about $88 million. And Millham thinks the company could turn profitable in 2003 -- when revenues from OFDM licenses and equipment sales could hit $400 million. Wi-LAN's technology relies on a collection of clever mathematical tricks. The first is to pack digital signals onto frequency channels as tightly as the laws of physics will allow. On top of this, a system built to Wi-LAN's specifications constantly measures the amount of bandwidth each user on the network is consuming in a given swath of frequency. The system allocates less bandwidth to those transmitting or receiving the fewest number of bits, thus reserving fatter pipes for those who need it most. Zaghloul calls this "adaptive polling," something that none of today's 3G systems know how to do. But he admits that this approach is vulnerable to some of the same problems that plague Internet communities using cable modems. In short, the more people online, the slower the network will run. It will also be tough to conduct conventional phone calls using W-OFDM, since there will be no dedicated connections such as today's cellular systems guarantee. The reason is, today's cell phones still use old-style circuit-switched phone connections, whereas 4G will use the packet-switched technology of the Internet. Like everything on the Net, there are delays, which cause quality to plummet. MEDIA ACTION. Zaghloul believes Internet telephony will improve over the next five years. Meanwhile, under ideal conditions, W-OFDM will do wonderful things for wireless data applications, including compressed music and video. "In the early morning, when there are few other users, you might have 30 megabits per second all to yourself," says Zaghloul. Consumer-electronics companies think that these high speeds will appeal to audio and video fanatics. The semiconductor unit of Philips Electronics, for instance, paid Wi-LAN $1 million for the right to build chips for household electronic products that might use W-OFDM. "People always think about connecting phones or personal digital assistants to the Internet," says Scott A. McGregor, executive vice-president for emerging businesses at Philips Semiconductor. "But that's just one piece of the wireless revolution, and maybe not the biggest piece." The real action could be the distribution of music and video over wireless home networks, to be enjoyed on large, wireless TVs and stereos. For Wi-LAN, wireless homes are only one application. Zaghloul is already selling fixed-wireless gear to telcos such as Tele2 in Britain. Down the road, he believes that people toting 4G notebook computers and portable, flat-screened "media players" will access the Net over high-speed wireless pipes in restaurants, airports, sports stadiums, and other public spaces. SINGLE STANDARD? How to deal with the competition? Zaghloul feels he is on solid ground patent-wise. In July, Wi-LAN announced the results of a legal patent review: It concluded that other companies trying to market broadband OFDM products will have to fork over license fees on two separate U.S. patents that Wi-LAN holds. "We aren't trying to be a monopolist," Zaghloul insists. But for other companies that are pursuing W-OFDM, he says: "We may be a problem." Analysts who have studied the company tend to agree. "Wi-LAN has a head start in this area," says Millham of Research Capital Corp. Now, with partners such as Nokia and Ericsson, Wi-LAN is lobbying for a single, global standard in 4G, based on OFDM. That way, makers of computers, media players, and other gadgets could all design their devices around the same set of low-cost wireless chips. And the products would work in any public space with a shared wireless LAN. If Wi-LAN sticks to its guns and its patents prove durable, Zaghloul may be able to ensure that 4G means the same thing worldwide. Gross is Business Week's senior editor for science and technology |
