The EV-DO Engine

When Verizon Wireless named the vendors for its two-year buildout of nationwide CDMA 1X EV-DO coverage last month, most of the spotlight fell on Lucent Technologies and Nortel Networks, the carrier's two primary contractors. But somewhere offstage, Airvana President and CEO Randy Battat was quietly cheering.

Though any mention of Airvana was absent from the carrier's announcement (Verizon Wireless spokespeople, in fact, declined to comment about Airvana at all), the contracts endorsed the technology on which Airvana has chosen to build its business.

“There's lots of positive emotion around this joint right now,” Battat said from the small company's San Diego headquarters. “A lot of people bet their careers three or four years ago that this day would come.”

Battat knew that Nortel's involvement in the Verizon Wireless project was his own company's ticket to more business, and likely a much larger market profile. As something of an EV-DO technology specialist, Airvana provides the EV-DO card modules for CDMA 1X base stations supplied by other manufacturers, such as Nortel. The EV-DO upgrade essentially is contained in its IP-Radio Node modules, and right now Nortel deems Airvana as the only company in the industry capable of supplying it with the technology through an OEM arrangement.

“There really are no other choices at this point,” said Dave Murashige, vice president at Nortel, which installs the IP-Radio Node in its Metrocell base stations. “We had looked at doing it ourselves, but Airvana had invested the time and work.” Now, Airvana stands to get a piece of the $167 million contract Nortel is getting from Verizon Wireless.

The payday comes after Airvana proved its technology in Verizon Wireless' 2003 EV-DO trial in San Diego, where the carrier has Nortel equipment deployed. Later that year, San Diego became the first market in the U.S. to experience commercial EV-DO service. (Verizon Wireless ran an EV-DO trial of Lucent gear in Washington, D.C., concurrent to its San Diego test, and commercialized the service there shortly after it went commercial in San Diego.)

Though these early rollouts gave Airvana hope for the future, it was only Verizon Wireless' vendor contract announcement last month that allowed Battat and other Airvana employees to uncross their fingers. “Four years ago, we took a technology that wasn't well known, but was going to be a standard for mobile data's future, and we made a bet on it,” Battat said. “We raised money, and then we had to spend a lot of money to get to this point.”

Airvana co-founder Sanjeev Verma added, “Verizon is the largest CDMA operator in the world. Any major push into a new technology underscores the immense potential of that technology. EV-DO is something that significantly distances the CDMA carriers that adopt it from non-CDMA carriers because it is the fastest technology available.”

There are few details available thus far about Verizon Wireless' buildout, but the carrier currently has Nortel equipment deployed throughout the region of its network that it gained through the acquisition of AirTouch a few years ago. That means Airvana's EV-DO modules likely will soon be visiting base stations in California, Nevada, Oregon, Washington, Michigan and South Carolina.

Battat won't confirm in which specific markets Airvana modules will turn up. “They've asked us to not speculate about where they'll deploy and when,” he said of Verizon Wireless. However, Nortel's Murashige confirmed that early targets include Los Angeles, Detroit and Myrtle Beach, S.C.

The migration most likely will be a “soft” one, with the vendors involved focusing on perfecting “capacity and the utilization of the system,” Battat said. Though Verizon Wireless' network will have few users to start, it potentially could gain users more quickly than some other EV-DO networks around the world. Airvana also assisted Nortel in upgrading the CDMA network of Brazilian operator Vesper last year. “The Vesper network is seeing more of the stresses of large numbers of users right now, but Verizon's network potentially will eclipse it more quickly.”

While Verizon Wireless' national EV-DO deployment undoubtedly enhances the currently modest fortunes of Airvana, Battat also sees the project as a “watershed event for the whole industry. It was a huge decision. EV-DO is four times faster than its nearest competitor, and it's going national.” The watershed effect, Battat believes, is that other CDMA carriers, both in the U.S. and internationally, will accelerate their data network upgrade plans.

“What will ultimately play out is that competitors will have to respond,” he said. “The rest of the CDMA operators in this country have to get their plans in place by the second half of this year, or they will be left in the dust.”

Of course, Airvana has plenty to gain by hounding carriers with visions of such dire consequences, especially if those carriers hire Airvana's primary OEM partners, Nortel, Ericsson or Korea's Solid Technologies, to do the upgrades.

A company that has to stay in the background and count on bigger vendors for its success might appear vulnerable to being left out in the cold, but it's better than that smaller company trying to compete head to head with larger foes, as Airvana discovered early on in its effort to capitalize on EV-DO.

Battat has been at Airvana since April 2000, one month after the company launched. He got in on the ground floor because he knew Airvana's co-founders, Verma and Vedat Eyoboglu, when all three of them worked at Motorola's Internet and data networking unit during the 1990s. Veterans of Cisco Systems, Lucent and other vendors later joined the team.

It was a difficult move to make, breaking out from under the wing of one of the industry's premier vendors to develop a start-up. “Start-ups are liberating, but if they fail, you feel like you have 100 families to worry about,” said Battat, who also spent 12 years working at Apple Computer prior to his six years at Motorola.

Airvana's original idea was to market its technology directly to carriers, but the company hadn't foreseen that carriers would want their lead vendors to handle most of their future upgrades, whether they had the technology in-house or not. “We made a surprise strategic shift about two and a half years ago not to sell direct to the carriers,” Battat said.

While there clearly isn't much room in the industry for new vendors to rise amid the established giants like Lucent, Nortel, Nokia and Ericsson, neither is there any guarantee that those larger vendors are willing to farm out technology work to smaller specialty firms. Lucent, for one, hasn't chosen the same route as Nortel in turning to Airvana for an EV-DO solution. Lucent is supporting its portion of the Verizon Wireless EV-DO rollout with technology culled from its own wireless research and development teams at Bell Labs, according to Cindy Christy, president of Lucent's Mobility Business Solutions unit.

“We see a competitive advantage to having that technology in-house,” she said. “It's part of what a carrier like Verizon knows they're going to get from Lucent, though there are certainly situations where we would partner in the interest of getting a solution to market if we had to.”

Battat, however, thinks that outsourcing is fast becoming accepted by top-tier vendors as a way to ensure their readiness to supply technology based on the newest innovations, even while they devote most of their time and money to maintaining their core product families. “You can see layers of different kinds of vendors developing in the industry, each company supplying different pieces of the solution and able to focus on that element as their core business,” he said.

As the Verizon Wireless network becomes something of a showcase for Airvana's technology, the temptation to market it is likely to become harder to ignore, but Battat said Airvana is unlikely to pursue even small greenfield network opportunities for fear of upsetting its OEM partners. “We would hesitate to change our strategic focus,” he said. “The large vendors are better at being themselves than we would be, and vice versa. We wouldn't want to freak out Nortel.”

With the increase in revenue and confidence that comes from the Verizon Wireless deployment, Airvana is investing in its own operation. “We're growing the company substantially and adding a lot to our R&D efforts,” Battat said. “We're investing in the future and investing a little bit ahead of our revenues, but we feel like we have to do that to keep innovating.”

As EV-DO become bigger business, it's fair to believe that Airvana will be joined by other technology specialists wanting to pursue the opportunity. For now, that kind of direct competition seems to be lacking, and it might seem easy for Airvana to collect checks from its partners. However, Battat actually disputes the view that Airvana feels no competitive pressure. “Our competitors are the competitors of our OEM customers,” he said.