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Historians may one day argue that a defining moment for San Diego’s 21st century economy took place on a fall day in 1988 at a giant truck lot in Green Bay, Wis. It was then and there that Qualcomm's chief executive, Irwin Jacobs, met with Don Schneider of Schneider National Inc., and essentially closed the first large OmniTracs contract. The deal, signed on Oct. 12, ensured both a steady stream of revenue and valuable tool for selling other trucking contractors on using Qualcomm's system to track their rigs in "real time" as they carried their loads near and far. As was, and is, its business strategy, Qualcomm used this fresh money to explore a new line of business — digital wireless communication.
"Once we completed that contract, then it was possible to switch our attention over to CDMA," Jacobs recalls. Today, while OmniTracs dominates the truck-tracking industry worldwide with 230,000 units sold and provides a fat chunk of Qualcomm's profit, CDMA (Code Division Multiple Access) has bloomed into an industry standard for digital wireless telephone and data systems. The youngest of the three digital standards — the other two are GSM (Global System for Mobile communications) and TDMA (Time Division Multiple Access) — CDMA is being enthusiastically embraced by a diverse lineup of service providers that include Sprint PCS in the United States and African Telecommunications Inc. in the Democratic Republic of Congo, formerly Zaire. Allied Business Intelligence, an industry analyst, predicts that by the year 2002, CDMA-based devices will have 125 million to 283 million subscribers.
Of course the "defining moment" reality is more complicated. Jacobs might point to a June 1989 day in Chicago when he presented his system at a conference of ranking telecom engineers. "When I went to do that presentation, I thought there was maybe a 10 or 20 percent probability that somebody would find the weak point that we had missed and would raise an issue that would make CDMA much less desirable," he recalls. "Luckily, that did not occur." Lucky for San Diego. Technology Directory Publishing, which gathers data for the acclaimed Technology Directory, reports that since 1994, San Diego companies that count telecom as one of their top four business categories have tripled their number of employees, adding 16,600 workers to their payrolls and growing to more than 25,000 strong. The number of companies in telecom itself has grown from 60 in 1994 to 88 in 1998.
From The Beginning
Yet no matter how the San Diego telecom story is told — the Cold War's end, two telecommunications acts and a telecom hungry third world all certainly play major roles — it is Jacobs and a handful of other early players who remain the stars.
Going back to the beginning means recounting Jacob's decision to leave MIT and, in 1966, take a teaching job at the University of California, San Diego. By 1968 he and UCLA professor Andrew Viterbi had a consulting business going out of Jacobs' home. When Jacobs in 1971 took a year sabbatical from UCSD to be the firm's second employee, it turned out to be his farewell to the academic payroll. The company the two founded, Linkabit, is the stuff of local legend. By the time it was bought in 1980 by MA/COM and later busted up — both through sales of product lines and staff defections — the Linkabit entrepreneurial environment had created in San Diego a critical mass of engineers who, although they didn’t know the terminology at the time, excelled at thinking "out of the box." And they also had a different long-term approach than past generations of San Diegans whose business acumen had similarly made them wealthy.
"The general mind-set in San Diego had been for entrepreneurs to develop a concept, bring it to fruition, raise some money, make the company palatable and become fairly wealthy," says Bruce Ahern, the founder of the Technology Directory and now an executive with Imaging technologies Corp. "They would hang around the company for a while, then move to the Ranch (Rancho Santa Fe) and go sailing. The founders of Linkabit, and its people, for some reason spawned hundreds of companies. People walked out the door not just with money but with ideas in their heads to start new companies. So Linkabit was the ultimate incubator."
One of those former Linkabit execs is Mark Dankberg, president of ViaSat, a satellite communications firm. Aside from Qualcomm, ViaSat is probably the most profitable first-generation Linkabit spin-off. When Jacobs and Viterbi exited Linkabit in 1986, Dankberg was running about $35 million of satellite communications and networking business. "When Irwin and Andy left, things definitely changed at Linkabit," says Dankberg. "It didn’t have quite the same appeal. It wasn’t growing." So Dankberg moved on, along with Steven Hart and Mark Miller. The three self-funded ViaSat, lost money the first year but made good contacts. They attracted $300,000 in venture capital money the following year and have been profitable since. Today $52.5-million, 300-employee
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ViaSat is making a push to be a player in the commercial satellite networking market, as opposed to depending essentially on defense contracts for 90 percent of its business. "The big issue on the defense side is the (slow) rate at which you can grow," Dankberg says.
As to the explosive growth of telecom in San Diego, Dankberg points to many factors, including Linkabit’s being ahead of the curve in working with digital telecommunications systems, the free-fall in silicon chip prices and the "Jacobs" philosophy of gathering smart people in a good environment. "I’ll bet that of the 1,500 employees there when I left, there can’t be more than 100 still at Titan/Linkabit. They have all gone off and created new companies. And then those companies have the same mind-set as the old Linkabit. It is a mini version of what happened in Silicon Valley."
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The CD-3000, Qualcomm's first mobile, was
manufactured in 1992.
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Another Linkabit veteran is Rick Kornfeld, president of Dot Wireless Inc., a year-old company looking to build and manufacture the "heart" of the next generation CDMA device, then sell that chip to product manufacturers. After five years with Linkabit, Kornfeld in 1986 became Qualcomm employee No. 20 and helped lead development of the first generation CDMA handset, a device that saw limited production since there was no commercial network on which it could be used. Among his clearest memories is a lecture by Klein Gilhousen, Qualcomm's senior vice president of technology, that laid out the CDMA challenge. "One of the things that struck me was that, at that time, CDMA was not possible. The complexity of it all made it not possible." What Kornfeld learned from that experience is to develop products that depend on technological achievements that are logical but have not yet been attained.
In 1989, the first version of a CDMA phone
was driven around in a van.
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Kornfeld arrived at Dot Wireless in a circuitous route. He left Qualcomm in 1996 to help NextWave start its consumer products division. That company’s ongoing negotiations with the government over licensing revenue resulted in Kornfeld's division being spun off a year ago as its own company.
Linkabit’s technology also influences other larger companies. For example, General Instrument's 500-employee satellite division in San Diego was built in large part from the VideoCipher system developed by Jacobs, Gilhousen and Jerry Heller at Linkabit. (Jacobs came up with the name.) Born of work done for NASA, the digital — there's that word again — technology was embraced by HBO as a way to get its scrambled programming feeds to far-flung cable operators and apartment buildings which would then unscramble the signals before delivering them to
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viewers. At the proverbial last minute, Linkabit was forced to modify the technology so the burgeoning number of backyard satellite dish owners would not be left out. "Just before we were about to enter into the manufacturing, it became clear there were efforts in Congress to block it unless the opportunity was there for people to buy a descrambler for their own dishes," Jacobs recalls. "So we stopped and developed a consumer grade of equipment that would do that." The technology used had just been developed by universities. It allowed Linkabit to put complex circuitry on silicon chips. "There were three chips we had to make," Jacobs says. "Essentially those three chips worked the first time."
Telecom And Convergence
As circuitry gets smaller, more powerful and its costs shrink, the buzz word in telecom has become convergence — merging communications features into existing products like cars or into products yet to be conceived. Consumer electronics powerhouse Sony recognizes that trend and has chosen San Diego as the headquarters for its Wireless Telecommunications Co. Headed by Yutaka Sato, the man who brought the Walkman to the U.S. market, Sony Wireless partnered with Qualcomm on the first mass production of CDMA telephone handsets. Earlier this year Sony sparked industry attention when it unveiled its flip phone-sized "Cosm," a prototype device with more features — Web page viewing and photo taking are just two — than commercial services exist to support. The Cosm was designed in San Diego, as were Sony's D-WAVE (Digital Wireless Audio Visual Entertainment) phones and pagers now just hitting the market.
Other San Diego high techs are preparing to take advantage of convergence and incorporate telecom functions into their services. One example is Daou Systems, which builds computer networks for hospital systems. "You can’t ignore the infrastructure part of any computer system today," says Georges Daou, CEO of the $42 million company. "The reason is, we believe the convergence of voice, video and data is imminent. And one of the first industries that will start using that is health care." Daou already is building telecom capabilities into the systems of some clients and is waiting to see what the service providers will offer, and at what cost, before broadening its offerings.
Another sign of San Diego’s telecom stature was February's merger of CommQuest into IBM. Run by Hussein El-Ghoroury, president and CEO, CommQuest provides all the parts necessary to build a wireless telephone. In addition, the 200-employee firm has come up with a way of having a single chip work with signals from three frequencies of GSM. The achievement is a big step toward production of a true global telephone. IBM's purchase is expected to bring hundreds of jobs to San Diego this year.
A very big "if" on the San Diego telecommunications scene's future is NextWave Telecom Inc., a reseller of digital wireless service that, by some accounts, will have to grow into a $4 billion a year firm to cover the licensing fees it owes as a result of its bids when the federal government was auctioning off bandwidth in 1996. The company, headed by former Qualcomm executive Allen Salmasi, remains engaged in complicated discussions with the Federal Communications Commission and others as to the ultimate price of those licenses. Salmasi's telecom prowess is legend in industry circles. Among his accomplishments at Qualcomm was convincing Korea to adopt CDMA as the country's national wireless standard.
NextWave's predicament also illustrates that even with a hot telecom product, in this case the rights to sell digital wireless service in some of the nation's largest markets, it’s money that makes the data flow around. Good venture capitalists smell opportunity, so it’s no surprise that investment in San Diego’s telecoms is soaring. In the last three years, Coopers & Lybrand reports, telecom venture capital investment went from $5.3 million in 1995, to $32.1 million in 1996 and $103 million in 1997.
A veteran venture capital firm with deep San Diego telecom experience is Enterprise Partners. Among its investments were Applied Digital Access, which grew to 236 employees and $34 million in revenue; and Primary Access, a Linkabit spin-off that when sold three years ago to 3Com had 130 employees and $100 million in revenue. Bill Stensrud is among San Diego’s newest venture capitalists, having come here from Silicon Valley to run Primary Access and then staying on a year after it was sold. Early last year, Stensrud, who sits on four local telecom boards, signed on as chief executive of Enterprise Partners.
"The difference between the (telecom) market when I first saw it six years ago, is that we were really on the very first generation of companies spun out of Linkabit," he says. "We are now well into the second generation and it has a multiplicative effect. Each generation spins off another factor of 'N' companies. The number of companies you see in San Diego today is six or seven times what it was six years ago, which in turn was six or seven times what it was six years before that. We are now a very solid and enduring center of communications excellence. Certainly the heart of it is wireless communications. But there are many other niches that we are developing considerable expertise in. Particularly niches that have to deal with digital signal processing in communications."
Among the factors driving the industry in San Diego is the $300 billion worth of obsolete equipment in the United States that needs to be replaced to keep up with the voracious "need for speed" and bandwidth in all aspects of telecommunications. Also, second and third world countries are not looking at wireless systems as a novelty, perk or business accessory. Instead, these systems are going in where no land lines exist, so they are a necessity. That's why Qualcomm is down in South America, over in Africa, building networks in India and partnering with a Chinese university. "The developing and undeveloped countries have realized that building communications networks is key," Stensrud says. "They have to have that infrastructure. They are making huge investments in the development of that infrastructure. That is uniquely important for San Diego because the build out of that infrastructure is wireless."
The Growing Support Industry
The jobs with a direct hardware or software tie to telecommunications are only part of the story in San Diego. Entire industry sectors have sprung up to support these efforts, especially in the legal, accounting and banking industries. For example, the Silicon Valley-based Cooley Godward Castro Huddleson & Tatum sent five attorneys to San Diego six years ago to check out the area's high-tech growth. Today Cooley's office here employs 106. Similarly, Silicon Valley Bank came to town and grew by showing small technology companies it understood their business and could make them a loan. On the public relations/marketing sides of the business, two early telecom insiders, Jacqueline Townsend Konstanturos and Greg McQuerter, built thriving businesses, primarily by serving technology firms and mainly the telecoms. Of the 18 accounts McQuerter Group's 23 employees are working, 11 are in telecom. At the 40-employee Townsend Agency, about 45 percent of the business is telecom-related.
A pivotal role in growing the telecom and other high-tech firms is being played by UCSD Connect, a technology nurturing program that has gained international acclaim. Since its founding in 1985, Connect has brought together thousands of like-minded individuals, allowing them to meet and learn from each other. And UCSD itself has grown into a leading institution for training telecommunications engineers, in particular its Center for Wireless Communications. Meanwhile, San Diego State University is developing programs that train engineers and scientists to be good managers and executives.
The telecom-friendly environment spills in many other ways too. For example, after six years in business with small long-distance firms, Derek Geetsen formed his own company, Genesis Corp., in June of 1995. "We started exclusively as a long-distance service provider, competing in the long-distance market. Then in June of 1996 we entered in the local market and began competing with Pacific Bell." Offering service in California, Arizona, Colorado and Oregon, Genesis is a $20-million company with about 55,000 customers. And although Geetsen's business shares little in common with the manufacturing and research and development bent of most of San Diego’s telecom, his entrepreneurial abilities are right along the same line.
In a similar service-providing vein is Rhythms NetConnections, one of San Diego’s newest telecoms. The company is offering businesses high-speed data connections over existing copper lines. The pitch to businesses is that they only have to buy the "bandwidth" they need. Again, the technology is digital, and the speed in which the company was up and going, blazing. Eric Geis, the company’s vice president, put the business plan together in April 1997. Venture capital funding came through in July and by December the first customer, an Internet Service Provider, had signed on. In less than a year, the company has grown to 52 employees.
Geis says San Diego had all the ingredients necessary to launch the company, both from an employee and customer standpoint. "People in San Diego are very tuned to computers and Internet usage, and are receptive to new technologies," he says. "We are drawing employees to work here who love this new advancement in the technology. If you talk about who our prime customers are, they are here. So for us, being in San Diego is a no brainer. We have officially been offering service since March 1 and in April moved to the Bay area. We’ll move down into the Los Angeles and Orange County areas by mid-summer. We will have the major California metro areas covered in the next six months."
Finally, no matter when it’s told, the story must go full circle, from today’s newcomers like Rhythms back to Qualcomm's storied past. Regardless of the ups and downs of markets and economies, San Diego is the birthplace and home of CDMA. It’s where thousands of engineers and others who know the technology's architecture have been duly seduced by the region's lifestyle and are likely to remain.
"We have a very key core technology that we own, CDMA," says Ahern. He has a unique perspective on San Diego’s flirtation with technology industries, having tracked first our romance with biotech — its drugs may save the world but will never bring San Diego 200,000 jobs — and then, software — Seattle and the Internet crushed the region's CD-ROM-based multimedia dreams. "Had Qualcomm been the purveyor of satellite based downlink communications systems for trucks, and only that, it never would have happened. Telecom would have passed us by. Qualcomm would have been a nice company that produced nifty systems for truck drivers. But their business model, and their technical structure, permitted them to capitalize their initial development work on truck communications into what has become CDMA. From that we saw a clustering of telecommunications operations around the core technology. It isn’t necessarily that they are all there to develop offshoots of CDMA. But the telecommunications environment is pervasive for the continued growth of that discipline in the region."
Not only should San Diego’s economic romance with telecommunications last a while, but it will also give historians plenty to write about.
George Gilder To Talk Telecom
The burgeoning telecommunications industry, and what it will mean to both investors and the world, is the topic of a day-long conference May 27 at the Sheraton Grande Torrey Pines.
Sponsored by UCSD Connect and the San Diego Venture Group, the "Evolving Markets & Marketplaces In Telecommunications" conference will feature telecom guru George Gilder as the keynote speaker. Gilder, recently named seventh on Upside magazine's list of the most influential revolutionaries, is widely quoted for his claims that the plummeting price of bandwidth will define the next technology era.
"Whether you love or hate him — or both — George Gilder offers a riveting view of the information age," says Bill Otterson, director of Connect.
Gilder is very familiar with San Diego’s telecom industry. "San Diego is the worldwide capital of leading-edge wireless communications and serves as an excellent backdrop for a lively exchange of ideas, opinions and future forecasts," he says.
For information about the conference, call (619) 534-6114.
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