Motorola Inc.’s Cellular Infrastructure Group is struggling to keep PrimeCo Personal Communications L.P. from giving future contracts to another vendor for more personal communications services equipment.
PrimeCo reportedly is dissatisfied with the performance of Motorola’s Code Division Multiple Access equipment currently installed, but contrary to published reports, has not canceled a $500-million contract, said executives close to the matter. That contract has been fulfilled, and PrimeCo has paid for the equipment.
Future business between the two, however, is in jeopardy and executives from both companies have been in heavy negotiations to rectify the situation.
“[Motorola] has a chance for the expansion business, but you can see the way the wind is blowing,” said one source familiar with the discussions.
A Motorola spokesman would not comment on the situation, but maintains that it expects PrimeCo to remain a valued customer in the future. Motorola’s stock plummeted about 5 percent to $57.63 a share Tuesday after news of the supposed canceled contract broke. At press time mid-day Friday, the company’s stock was trading in the $56 range.
PrimeCo also declined to comment on the matter, though PrimeCo’s Chief Executive Officer Lowell McAdam said last week that anytime a new network is deployed, some problems are to be expected, including network, handset and billing glitches. PrimeCo was the first operator to deploy a CDMA network at 1.9 GHz, launching service in 11 markets in November 1996.
But the problems with Motorola’s network have gone beyond initial deployment bugs, say industry sources. While the manufacturer did have expected network software problems early in the launch of the PrimeCo system, Motorola’s equipment encountered more snags between November 1996 and September 1997.
“There were more programming bugs that were corrected through patches and revisions. Ninety-five percent of all the problems have now been corrected,” said one executive.
Lucent Technologies Inc., which shared the initial $1-billion contract with Motorola, reportedly also had some glitches with its equipment but fixed them in a timely manner. Lucent denies any problems with its infrastructure.
“By the time the equipment was turned over to PrimeCo, it was in tip-top shape … Our contract set a very targeted performance matrix. We would have not been paid if we didn’t meet that,” said Sam Gronner, spokesman for Lucent.
Lucent scored another win with PrimeCo as well. Philips Consumer Communications L.P., comprising venture partners Lucent and Philips Electronics, announced at Wireless ’98 last week it had won the most recent handset contract with the PCS operator.
The PCC contract, valued at $60 million, is for 6820 Code Division Multiple Access phones and additional models still being developed. Philips will begin shipping the 6820s to PrimeCo this month, according to PCC.
“This is the first outcome of the significant investment that both parent companies made prior to the joint investment [in PCC],” Terry Vega, PCC executive vice president-wireless products, told reporters at the show. “With this particular deal, we are officially in the CDMA business.”
PrimeCo also has handset contracts with Qualcomm Personal Electronics and Qualcomm Inc.
Sources say PrimeCo is not expected to rip out the entire Motorola infrastructure as stated in published reports, though it may replace some equipment over time. Others point out Motorola learned much from this ordeal, which helped it improve PrimeCo’s system. Other Motorola CDMA network customers have said they are satisfied with their equipment.
“We have experience with Motorola digital and analog systems in a number of our cellular and PCS markets,” said John McLean, vice president of technology with GTE Wireless. “Based on that experience, we have every confidence that the new systems we have contracted for in the Carolinas will be state-of-the-art and will provide the quality we expect for our customers.”
Analysts believe Motorola’s next task is to restore its reputation in the marketplace and confidence with customers, a task it already had to perform once. Nextel Communications Inc., an enhanced specialized mobile radio carrier, began deploying Motorola’s integrated Digital Enhanced Network technology in 1993. By early 1996, system performance problems plagued Nextel’s network, causing the carrier to delay deployment nationwide and suspend its marketing efforts until the problems were resolved. Today, Nextel and Motorola continue to work closely together to improve and modify the technology.
“Motorola’s Land Mobile Radio products division has now turned out to be one of the real success stories as one of the top performing groups in the company,” said Jeffrey Hines, analyst with BT Alex Brown Inc. in New York. “Management now will likely look to take actions so that it gets a better reputation.”
Brian Cotton, senior research analyst with Frost & Sullivan in Mountain View, Calif., said Motorola’s name is “synonymous with the latest and greatest radio infrastructure. The long-term will need some spin control from Motorola.”
In the immediate term, the potential loss of business from PrimeCo may have a minimal financial impact on Motorola given its large presence in the CDMA market worldwide, say analysts. Motorola last year won a $3.5-billion cellular infrastructure contract from Japanese carriers DDI Corp. and Nippon Idou Tsushin Corp. (IDO), two of Japan’s leading cellular services providers. Both operators plan to launch CDMA commercial service next month. Korea Telecom Freetel also awarded Motorola a $180-million CDMA contract last year.
In the United States, Motorola is providing 60 percent of the infrastructure to Sprint Corp. for its buildout efforts commencing now in its D- and E-block PCS markets. Northern Telecom Inc. is providing the other 40 percent of the infrastructure.
