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ARTICLES AND THINKPIECES

THE GOLDEN AGE OF WIRELESS

December, 2002

As the word "Wireless" replaces previous buzzwords like "Push," "B2B," "Broadband," and "New Economy" as the Next Big Thing, it is appropriate to examine the legal (and business) issues likely to confront the wireless industry and those who intend to be players in wireless over the next two to three years. First of all, what do we mean when we use the term "wireless?" Technology resource www.techweb.com defines wireless as: "Radio transmission via the airwaves. Various communications techniques are used to provide wireless transmission including infrared line of sight, cellular, microwave, satellite, packet radio and spread spectrum." Wireless devices include wireless phones, Personal Digital Assistants (PDAs) -- such as the Palm series, Handspring Visor, Compaq iPaq -- connected with modems, two way pagers such as Research in Motion's popular Blackberry device, and laptops accessing the conventional Web via technologies such as now bankrupt Metricom's Ricochet service, 802.11b LANs (known as Wi-Fi), as well as competing technology standard Bluetooth.

The networks on which data is being transmitted vary. Different technological standards co-exist uneasily, such as CDMA (Code Division Multiple Access), GSM (Global System for Mobile Communication), and TDMA (Time Division Multiple Access). All of these are what is known as Second Generation systems. They are not necessarily compatible with each other, so subscribers to AT&T Wireless, which does not use CDMA, will have different experiences than subscribers to Verizon Wireless, which does. The near future goal is to move from these "2G" technologies to 2.5G networks, using systems such as General Packet Radio Service (GPRS). From there, or directly from 2G networks, we move on to the big, bright future of 3G networks, using technologies sometimes evolved from current standards, such as W-CDMA (Wideband CDMA). These will be high-speed networks, capable of supporting all sorts of bells and whistles not yet contemplated, as well as those which engineers are currently implementing into prototypes. Examples of these are voice activation/recognition, The Moving Picture Expert Group's MPEG 4 video with its myriad interactive capabilities, and Global Positioning System functionality.

The types of data to be transmitted can be broken down into 2 categories; what might be called Traditional and Non-Traditional. Traditional includes (1) communication services such as voice, email, Short Message Service and instant messaging, (2) information services such as traffic reports, movie times, sports scores and stock quotes, (3) entertainment such as single and multi-player interactive games, music downloads and streams and even, potentially, video programming and (4) business utilities. The thus far Non-Traditional includes (1) location based advertising and (2) "mCommerce" (using the wireless device to effect financial transactions such as purchases of goods or services and monetary transfers).

Now that we know what wireless is, the following is a brief and necessarily incomplete overview of issues to watch out for. "Necessarily incomplete" because of the rapid changes and developments in the industry.

PRIVACY

Privacy as it relates to wireless devices can be broken down into two categories: traditional Internet privacy and location privacy.

"Internet privacy" refers to the standard issues raised constantly, which do not require extended rehashing here. Suffice to say that they include the provider's use of data, unsolicited commercial email (spam) and data collection from children, among other items. While Congress and the states are addressing these concerns in the larger context of Internet data collection/privacy issues, much of what is going on now relates to the use of privacy policies; the requirement that a site have one, that it be specific and that the site abide by it. A specific challenge for the wireless industry is that, while the FTC is focused on having every destination clearly and completely articulate (and then abide by) its privacy/data collection policies, having a several page privacy policy scroll by on a cell phone display is thus far unworkable.

"Location privacy" presents issues unique to wireless devices. Privacy on the wireless Internet becomes an even larger issue than it has been for the wired Internet because of the ability of some wireless devices to transmit data regarding the exact physical location of its users. This enables corporate entities and law enforcement organizations interested in obtaining a user's data to track his or her movements. In other words, your phone becomes a personal Lojack courtesy of The Communications Assistance for Law Enforcement Act (CALEA), which empowers law enforcement to intercept wireless transmissions, including location information. Private individuals who have no legitimate business tracking any other citizen's movements also gain the technological capability to do exactly that. One can easily imagine the issues this capability raises. As of this writing, legislation has just been introduced into the US Senate to prevent location-enabled cell phones from becoming "digital dog tags." The proposed legislation appears to be based upon the FTC guidelines applying to privacy, which are as follows:

v Notice - Inform the customer of practices governing collection and use of data before disclosure of customer's location takes place.

v Consent - Obtain the customer's express authorization prior to data collection or use. Consent may be oral, electronic or in another form, as long as it manifests the customer's desire to participate.

v Security/integrity of the data - Protect data from unauthorized access by, and disclosure to 3rd parties and ensure that authorized 3rd parties adhere to policies communicated to the customer.

v Technology neutral tech solutions - Employ standards that are the same for each handset or network, offering users some expectation of privacy, regardless of the device.
Also, because of the nature of the process in which signals are sent and received by wireless devices, the tracking of each use becomes much easier than it is for a standard connected PC. Given the plethora of emerging uses for wireless devices, the potential for invasive information gathering relating to private transactions skyrockets.

PIRACY

The ever-present piracy concerns confronting all digital content formats exist in the wireless space as well. The jurisdictional issues (in what country is the piracy taking place? which country's laws should be applied? where should an enforcement action take place?) continue to exist, and, because the end-user terminal (i.e., cell phone, connected PDA, etc.) can more easily move from jurisdiction to jurisdiction, a new wrinkle is added to an already complicated debate.

As with many of the issues created by technology, piracy may have a technological, rather than a legal, solution. Some wireless Internet enabled cell phones (such as the Samsung Uproar) are built with read only memory, so that no recording can be done, and, arguably, less unauthorized transfers of data can be effected. The industry (and any content company wishing to distribute its intellectual property to wireless devices) will have to decide on an acceptable level of piracy and attempt to create legal, technical and/or business impediments to the proliferation of unauthorized and, hence, unpaid access to its content. As in the wired world, delays in making this determination and effecting appropriate solutions will delay the roll-out of mobile content, which may suppress product and service sales until the dilemma is resolved.

PERSONAL DATA

This is the data security issue, as opposed to data collection and use by collector issue. Encryption is provided in the transmission process for all digital wireless transmissions. Additionally, some services use additional encryption protocols from 40 bit to 128 bit to enhance security offered to Internet customers. iMode, for example, uses Secure Socket Layer (SSL), a transaction security standard developed by Netscape Communications to enable secure commercial transactions to take place over the Internet. As with all other emerging technologies, hackers are getting more sophisticated and the industry must try to stay a step ahead by upgrading security measures. The industry must also continue to educate the consumer as to the dangers of insecure transactions and methods of inhibiting security breaches.

Recently, Wi-Fi security flaws have been exposed. The 802.11 specification includes a security protocol called Wired Equivalent Privacy (WEP). However, WEP is quite easily crackable. In fact, software programs such as AirSnort have been developed with the ability to surreptitiously grab and analyze data moving across just about every major wireless network. When enough information has been captured, AirSnort can piece together the system's master password and security is breached. This technology is not new, but easy access to it is. AirSnort's creators say that is the point. They want to increase Internet users' awareness of the fact that WEP is easily crackable. A follow up protocol (WEP2) is being developed, but may not be on the market until mid-2002, at the earliest. It is expected that the revised version will address the latest hacks, but, until then, the system is clearly subject to security breaches.

LICENSING

Hearkening back to presentations I gave in the mid-90's, entitled "Speed bumps on the Information Superhighway" regarding the difficulty in obtaining rights to content needed for the then new medium of the wired Internet, licensing issues promise to be as complex in the wireless space, if not more so. The following is a list of some of the types of issues that have already come up in wireless content licensing transactions.

v Rights/uses - which of the "bundle" of copyrights will be licensed? The bundle consists of the following rights: performance, display, modification, reproduction, distribution, and performance by means of digital audio transmission (sound recordings only). After determining which of the bundle of rights will be licensed, the following issues regarding limits on the licenses will need to be resolved:

§ Exclusivity -- Will other parties be entitled to license the same content?

§ Term -- What is the term of the license? Will it be exclusive throughout the term?

§ Territories -- How does an entity control the territories in which content is licensed? Or does the licensor do away with territories and license by language? Because the infrastructure of the wireless Internet is built around limited access points, rather than the nearly unlimited access points of the wired Internet, territorial licensing may not be as difficult as it is on the traditional wired web.

§ Right to sublicense -- Can the rights be resold by the licensee (known as reseller rights)? Is the license going to the end user or to resellers?

§ Style manual guidelines -- What sort of guidelines will be imposed? A copyright or trademark notice can take up more than an entire screen on a cell phone.

§ Download or stream -- Is the content going to be delivered by download for storage by the end-user or will it be ephemeral, delivered by stream? The "celestial jukebox" (any song streamed to your device for listening, any time, anywhere) is ephemeral, but not all content services are. For example, ring tones and mp3s are downloaded for storage and re-use.

§ Technological standard -- Which standards will be useable by the licensee? Examples are WAP, iMode, GSM v. CDMA, WCDMA (a 2.5G transmission standard) and 3G. Who will customize the content for each technology?

§ Terminal - To what type of terminal will the content be delivered? Are some properties viewable on a wired PDA but impossible to view properly on a web-phone? The Kyocera Smartphone is bridging the gap between the two formats, as it is a wireless phone with a Palm OS PDA that is slightly smaller than a Palm, but larger than the latest wireless phones.

§ Payment scheme - Which pricing model will apply? Common methods of billing licensors include:

· by the song or composition (customized rings, etc.)
· by the amount of time on the system
· flat rate for a period of unlimited access or per use
· tiered access (i.e., premium services for a premium)
· billing the sender vs. billing the receiver (as used by SMS services)
· Revenue sharing between the licensor/reseller and licensee



BROADCAST SPECTRUM

Can wireless enterprises obtain clearance for the same spectrum throughout the world, or must they use different spectra for different regions? The use of different spectra can lead to compatibility problems and attendant business challenges, the issue of spectrum now has the US legislature's attention. The Senate Commerce Communications Subcommittee held hearings in early August, 2001 regarding spectrum allocation and additional hearings had been scheduled for September, 2001. The US military, schools and healthcare centers currently use the airwaves in question. Verizon Wireless and Cingular Wireless have said they need the additional spectrum to offer 3G services, while Sprint and AT&T believe their current spectrum allotments will be sufficient to roll out next-generation networks. "It is apparent that additional time is necessary to allow the Commission and Executive Branch to complete a careful and complete evaluation of the various possible options for making additional spectrum available for advanced wireless services," FCC Chairman Michael Powell stated in a letter to the Commerce Department in late June, 2001.

The FCC also faces problems regarding the NextWave spectrum that it auctioned off to other parties. NextWave appears to be mounting a successful effort to reclaim the spectrum taken away from it by the FCC when NextWave experienced severe financial problems. This dispute will further delay the distribution of the spectrum which may be required for next-generation wireless networks. In Europe, the staggering sum of over $96 billion spent by telcos on the rights to necessary 3G spectrum will interfere with the same companies' ability to fund the roll-out of services utilizing these airwaves.

LITIGATION

Of course, massive litigation itself, without regard to the success of the plaintiffs, can pose a serious problem for any new industry. Will product related litigation interfere with the growth of the industry? The types of matters causing the greatest concern include:

Product liability - Is your cell phone sending carcinogenic waves into your brain? Experts are debating the dangers of radiation exposure from wireless devices. Many studies have found no evidence of such a phenomenon, but the body of studies which disagree is growing, and there have been safety standards regulating wireless phone transmissions for many years. With the Bluetooth and 802.11b wireless local networking developments looming, will people spend their days walking around inside radioactive fields? Even if the answer is no, will that fact prevent litigation from occurring on a large scale? Consumer adoption may be affected by fears relating to this issue.

Liability to service/content providers for auto accidents - Litigation has been attempted with billboards and other outdoor driving distractions with varied success. Municipalities have already passed laws against the use of wireless phones while driving within their own jurisdictional limits. State or National regulation of such behavior is currently being debated. The New York legislature has recently outlawed the use of cell phones by drivers, unless the drivers are using hands-free kits. Is this legitimate? A recent study by the California Highway Patrol revealed that, during the survey period, more people were involved in automobile accidents as a result of fooling with the car stereo than the cell phone. Nonetheless, the movement is growing.

Reliability of transactions - Will the industry be responsible for consumer and business losses caused by flaws in the infrastructure? For example, day traders may attempt to pin liability on carriers for failing to execute a trade. Any other time sensitive transactions can raise similar liability issues.

CONSOLIDATION ISSUES (TELCO CONTROL OF ACCESS)

As opposed to the wired Internet, access to the wireless Internet can be controlled by the carrier, by virtue of the device used to access the wireless Internet. Use of a particular handset/terminal can be coupled with access through a specific telco, and an individual may have difficulty accessing the wireless Internet through any portal other than that which the controlling telco allows. As wireless entities continue to consolidate (witness Cingular and Verizon within the last several years) and global brands continue to strengthen, there are fewer and fewer options for accessing the wireless Internet.

CAPABILITY OF SYSTEM

The bandwidth issue of the web returns (as if it has ever actually been resolved). Today, most wireless Internet users are accessing the system at 9600 baud, with higher speed access -- 384k and beyond -- still one to three years away. Of course, speed affects the user's experience, enabling text, then audio and later, video, as bandwidth increases. Expect the increases to track those of the wired web over the last seven to eight years. This situation recreates the chicken and egg problem witnessed on the Internet since the early 90's: network companies will be reticent about investing heavily in bandwidth until bandwidth sucking content is available and desirable; content companies will not create bandwidth intensive content until the network is in place and; hardware companies will be slow to roll out expensive terminals until there is something to use them for.

MULTIPLE PLATFORMS/STANDARDS

As in any nascent technology-based industry, multiple standards cause confusion and slow consumer adoption. The use of various standards complicates licensing agreements, affects consumers' ability to use wireless devices when traveling and creates uncertainty among manufacturers of hardware and producers of software. Next generation services must resolve these inconsistencies or suffer the consequence of dramatically slower consumer adoption and higher costs of implementation.

CONSUMER CREDIT

Using your phone as a credit card (picture the commercial with the Italian woman buying a soft drink from a vending machine with her phone, as a dignified man fishes for coins in a fountain) will implicate various laws, including the Gramm-Leach-Bailey Act, which requires entities enabling credit purchases to disclose interest, fees, penalties and privacy policies. Federal Reserve and FTC regulations can apply to wireless carriers as well. California's Public Utilities Commission recently issued a ruling allowing for the use of phone bills for non-communications-related services. This was the first such ruling in the United States. Expect to see more agencies moving to allow financial transactions through a wireless device.

MISCELLANEOUS

Numerous other challenges exist on the way to making the wireless industry successful and useful for businesses and individual consumers. Among these challenges are: the implementation of text to speech services; streamlining the process of buying content; dealing with navigation/design challenges, such as ensuring that a home dec (page) is no more than one click away, and never more than 2; determining and implementing online and offline marketing requirements; and figuring out the logistics of driving traffic from a phone to a website. As these issues resolve and the end-user finds more convenience in using the device, the industry will grow.

PATENT ISSUES

The patent issues already facing the wireless industry are properly the subjects of lengthy articles by themselves, and books as these issues mount. For the purposes of this article, the following is a list of a few types of current patent issues which may complicate the growth of the wireless industry:

v Qualcomm's gateway - Qualcomm owns CDMA patents, requiring carriers that use the CDMA protocol to license the technology from Qualcomm. Qualcomm also requires carriers to buy circuits employing the patents from them. Other companies also have patents covering certain aspects of such CDMA and alternative technologies.

v Interfaces - The interfaces for wireless devices are patented.

v Convergent wireless devices - The insertion of digital cameras into cellular phones raises numerous patent issues, as does the combination of a cell phone and mp3 device, voice activation and any other hardware (e.g. - special printers) or software based technology which is combined with either a cell phone or PDA.
Patent issues are also raised by the use of compression technologies, encryption software, and other software utilities.

In general, infringement issues arise every time a new innovation is implemented. Letters come to the manufacturer or substantial seller offering a license, or demanding that the entity cease and desist. Expensive and time-consuming dialogue, negotiations and, perhaps, litigation, take place; uncertainty stifles innovation. This process relates to everything from a format for transmitting data, to the hardware and software required to run the device and/or deliver the services promised by the carrier. Also complicating the situation is the territorial issue. Patents may be issued in various countries to the US patentee or to a totally unrelated entity, enforcement of patents may vary territory by territory and manufacture or sale in one country may infringe a patent in another (as well as the country of origin) when imported into such country.

CONCLUSION

It is important that the technology/telecommunications/entertainment/media industries, and the service industries that support them, learn the lessons of the dotcom expansion and implosion. As with the Internet, the wireless industries have a potential to improve lives, change the world for the better and create a great deal of wealth. However, many obstacles stand in the way of this result. Businesses will face challenges in the areas of creation of technology, the adoption of the same by consumers, business considerations, global and local legal issues and consumer fears and resistance to the constant change around us. These obstacles can be overcome by understanding them and addressing them systematically. Businesses must be aware of the challenges in order to effectively plan the future and responsibly take in investment capital to drive the wireless industries. If these steps are taken with an eye on lessons-learned we will continue to learn about the networked economy and wonderful and exciting times will await those in the wireless industries and any business that benefits from new technologies.