E-business Watch
Tracking the online media to bring you the key e-business trends

May 25, 2001 

Bluetooth: Hype or Promise? 

Harald Blatand would not have been impressed. The Scandinavian king, whose anglicized name is Bluetooth, was able to unite unruly Denmark and Norway in the 10th century. But the eagerly awaited standard that bears his name - one that promises to bring the myriad of competing standards together into one worldwide specification - has yet to live up to its hype. 

Applications

Visions of a Bluetooth future are tantalizing. For example, mobile handsets could switch from expensive mobile systems to cheaper landlines when within range, and mobile phones could automatically synchronize with laptops to exchange data and establish Internet links. 

Initially, though, Bluetooth will function primarily as a cable replacement technology for electronic devices. Early applications will do such things as connect a laptop computer to a mobile phone and make it possible for new, universal headsets to connect to everything from mobile phones to walkmans. First-generation Bluetooth devices will also enable short-range data transfer and synchronization between devices. 

The Bluetooth radio chip functions at 2.4Ghz, which is in the unlicensed ISM (industrial, scientific, medical) band, used by other devices such as microwave ovens, garage openers and 802.11b. Bluetooth separates the 2.4GHz frequency band into 79 hops one MHz apart, starting with 2.402 and ending with 2.480 (though this bandwidth is narrower in Japan, France, and Spain). This spread spectrum is used to hop from one channel to another, randomly, which adds a strong layer of security. Up to 1600 hops per second can be made. The standard frequency range is 10 centimetres to 10 meters.

Benefits

Bluetooth is not the first technology that aims to connect devices wirelessly, nor is it particularly revolutionary. What is special about Bluetooth is that it was explicitly designed to be cheap, and to serve the consumer market at the personal level. Its benefits include:

• Low power consumption - Because Bluetooth chips are small and use a mere trickle of power, they are uniquely suited for hand-held devices such as cell phones and PDAs.
  
• Passive technology - Bluetooth devices automatically and invisibly sense each other's presence and communicate spontaneously whenever they need. This creates the potential for all sorts of gadgets - from wristwatches to smart cards - to become connected, networkable devices. 
  
• Ad hoc networking - Bluetooth was designed to form networks on the fly without having a single server device attending many clients. This makes it easier for point-to-point connections between devices, such as between a cell-phone and a PDA or between a cell-phone and a wire line phone. 
  
• Fault tolerant - Bluetooth avoids interference and lost connections through its spread spectrum approach and its use of digital packages, which can tolerate dropouts and resends without the user sensing a loss of quality. It also benefits from being limited to a 30-foot range, which avoids problems with dead spots and network congestion; faults common in mobile phone networks. 
  
• Secure - the technology utilizes a spread-spectrum frequency-hopping scheme for transmission, which makes intercepting the already encrypted data difficult. Also, Bluetooth devices automatically adjust their transmission ranges to the appropriate levels, so that communications between devices that are, say five meters away, can't be intercepted by a device that's six meters away. 

Challenges

With its promoters aiming to Bluetooth-enable every new appliance they manufacture, it is not surprising that most Bluetooth forecasts are aggressive. Merrill Lynch estimates that the number of Bluetooth chipsets sold will jump from 9.2 million in 2000 to about 1 billion in 2003, and to more than 2.1 billion by 2005. Allied Business Intelligence predicts that Bluetooth revenues will reach $5.3 billion by 2005. The SIG estimates that by the end of 2001, Bluetooth wireless technology will be a standard feature in more than 100 million mobile phones.

However, these predictions may be far too optimistic, especially given that some pivotal obstacles exist in implementing the technology for widespread use. For instance, although Ericsson announced in 2000 that it was planning to ship more than 20 million Bluetooth-equipped mobile phones in 2001, it has recently revised those projections down to two million units. 

One of the major threats facing Bluetooth is the problem of interoperability. Bluetooth was created to avoid incompatibility issues. However, in the manufacturers' rush to get Bluetooth products in the marketplace they have built products that use two different versions of Bluetooth specifications. Bluetooth products on the market comply with either Version 1.0b or Version 1.0b + CE specs and, unfortunately, devices built to one version of the specs are unable to communicate with devices that use the other version. 

Furthermore, there is no guarantee that devices using either of these existing versions will be compatible with new devices that will be built to comply with the official version 1.1 specs that are yet to be released. Even worse, it was recently found that Bluetooth modules from Ericsson and Nokia - both based on version 1.0b - were unable to communicate with each other.

In addition to problems with interoperability among its own devices and standards, it is not clear how Bluetooth will interact with other technologies. Frequency conflict with other protocols, such as the increasingly popular WiFi standard (otherwise known as 802.11b), can cut Bluetooth's already meagre bandwidth by as much as a third. At the same time, the Federal Aviation Administration (FAA) has not yet given Bluetooth its approval, due to concerns that Bluetooth signals, which may never really turn off, could interfere with airline broadcasts. 

Finally, Bluetooth manufacturers are having difficulties making chips that are cheap enough and small enough for mobile devices. The high introductory price point of Bluetooth chips ($25-$50) has caused some pivotal manufacturers, such as Palm, to wait until the cost of the technology goes down. Analysts believe that the price point that will spur mass-market adoption will be $5, a price not expected to be reached before 2003. In addition, the current size of the chips will result in bulkier mobile phones, which moves against the industry trend toward smaller devices. 

Investments

For an investor looking to play the Bluetooth sector, there are currently too many uncertainties to get excited. Furthermore, the near term investments are primarily around microchips, which are dominated by major manufacturers like IBM, Toshiba and Ericsson. There have been a few private investments in Bluetooth-related companies: Red-M Technology, a U.K-based manufacturer of Bluetooth-based corporate networks recently closed $43 million (US) in second-round financing. 

Elsewhere, Silicon Wave (San Diego) and Cambridge Silicon Radio (England) are developing integrated Bluetooth circuits that, the companies hope, will soon be sold to electronic product manufacturers in large quantities at $5 apiece. Microsystems (Ottawa), meanwhile, has turned to compounds of silicon and germanium in an effort to increase the speed of Bluetooth transceivers while reducing the amount of power needed. And Jabra (San Diego) is developing a wireless headset that enable a cell phone user to make a call while the phone itself is tucked out of sight.