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     Written by: Geoff Devin

        S/N: 9913107846

       Date: May 27, 2001
1 Executive Summary

1.1   An opportunity has been identified for Mobile Radio Ltd (MRL) to become
      involved in the commercialisation of Bluetooth as an extension of the current
      manufacturing activities.

      It is expected that the project will be cash flow positive after 2 years and
      because of the high profit margins expected, it will provide a Return on
      Assets employed of 20% after 3 years. This exceeds our hurdle rate of 15%
      for new investments. Because of our borrowings, a Return on Equity of 25%
      after 3 years is anticipated based on the current Debt/Equity ratio.

1.2   Bluetooth is the code name for the rapidly emerging global specification for
      wireless connectivity for mobile PCs, handheld devices, wireless phones,
      headsets, other wearable devices and computer peripherals including
      printers, in addition to human interface devices such as data pads and mice
      (Ellis2000, 1). A Bluetooth Special Interest Group (SIG) comprising over
      2000 vendors has been developed. In mid May 2001 there were 162
      approved products on the SIG Web site, but only 37 were currently available
      (Thomas 2001,1).

1.3   As expected, estimates vary, but indications suggest the initial cost of
      Bluetooth compliant radios embedded into devices will be $30 (USD) per
      unit, but ultimately, the additional unit cost due to the Bluetooth radio will be
      $10 (USD). The Bluetooth specification calls for power consumption of 30
      micro amps in the standby mode and 8 – 30 milli amps in transmit mode
      (Ellis 2000, 2).

1.4   To date there has been much hype about the benefits of Bluetooth and the
      rate of development of the technology. Research has however identified
      problems with price, interference and power consumption, this means that
      commercial products may get to the market later than originally scheduled
      and still be 12 months away (Howard and Grant 2001, 1 and Ng 2001,1).

1.5    Micromedical Industries Limited (MMD) is a Gold Coast based company
      involved in clinical trials of patented artificial hearts and had product sales of
      $2.27 million during the 2000 financial year of heart monitoring equipment
      (ECG) sold primarily to international airlines (Micromedical Annual Report,
      3). They have recently patented a Bluetooth application to allow the ECG to
      be connected to a mobile phone, Personal Computer (PC) or Personal
      Digital Assistant (PDA) to minimise costs and maximise patient convenience
      and mobility (Kaye 2001, 1).

      Voxson is a Brisbane based supplier of mobile phones which also has patent
      protection in Bluetooth applications. They were scheduled to release the
      first Bluetooth products during 2000 (Voxson 1999, 50), but production
      delays have stopped this milestone being achieved.

1.6   The Bluetooth Congress 2001 will be held in Monaco from 5 – 8 June 2001.

1.7   It is recommended that the following actions be taken immediately.

      •   Join the SIG.

      •   Contact MMD to offer MRL services to manufacture the Bluetooth
          hardware and appropriate software for their ECG equipment and to offer
          MRL as a strategic partner in their manufacture of electronic equipment.

      •   Send an MRL representative to the Congress.

1.8   Become involved in the Link Controller niche market as this is a component
      of the Bluetooth hardware as explained in more detail in 2.6.

1.9   Appoint a person into a full time role of Bluetooth Group Leader and second
      existing employees into a small multidiscipline group to identify and develop
      the Bluetooth opportunities. The charter of this group should be to propose
      a project (or a number of projects), for Board approval by the August Board
      meeting, which are projected to meet the MRL investment hurdle rate.

2 What is Bluetooth

2.1   With today's society becoming increasingly mobile (see figure), the need for
      wireless communication is paramount. With the push by Telcos to make the
      mobile phone indispensable to everyday life, it is envisioned that the mobile
      phone will be used for almost all electronic transactions from unlocking the
      family car, ordering a coke from a vending machine (currently happening at
      railway stations in Sydney), and paying bills. Bluetooth is set to become the
      adopted short range, medium speed wireless communications link.
      Bluetooth is an open specification technology set to improve the data and
      voice interconnectivity for end-users using spread spectrum techniques. The
      advantage that Bluetooth has over competing standards is that Bluetooth
      chips can be made very small, low power consuming and cheap.

      Figure 1: Predicted Mobile Phone Usage, (Hodgson and Rabin 2000, 1)
2.2   A network of up to eight Bluetooth enabled devices form a Piconet (figure 2)
      if they are within 10m of each other. Initially each user will set up a Piconet
      of all their Bluetooth enabled devices. The devices will identify each other by
      using a MAC address (this is an address provided by the manufacturer of the
      device) and a Personal Identification Number (assigned by the user).
      Devices that belong to the same Piconet will acknowledge, identify each
      other and communicate instantly. When a Bluetooth device that is not part
      of the Piconet comes into range, the user will be prompted to permit a
      networking session, the user can deny this request. To increase the
      operating distance, two or more Piconets can link together to form what is
      termed a Scatternet (figure 3).

      Figure 2: Piconet, (Hodgson and Rabin 2000, 8)

       Figure 3: Scatternet, (Hodgson and Rabin 2000, 8)

2.3   It operates in the globally available 2.45 GHz band and will allow the
      proprietary cables connecting digital devices to be replaced with a universal
      short range radio link (Voxson 1999, 49). To provide good security and help
      eliminate Radio Frequency Interference (RFI), the frequency can hop in 1
      MHz increments from 2.402 to 2.48GHz this is called Frequency-Hopping
      Spread Spectrum (FHSS). A diagrammatic representation of frequency
      hopping is shown in figure 1. The link range is .1 to 10 meters (class 3
      devices) and it operates at power levels of up to 100mW. The range can be
      extended by incorporating an amplifier to increase the transmit power (100m
      for class 1 devices).

Figure 4: Frequency Hopping, (Denton 2000, 3)

2.4   Bluetooth can transfer data at rates from 721 Kilobytes per second (Kbps) to
      about 1 Megabyte per second (Mbps), this is about three to eight times the
      average speed of parallel and serial ports, respectively (Denton 2000,5).

2.5   The Bluetooth specification provides 3 security codes: non-secure, service-
      level and link-level security. Link-level security provides applications with
      knowledge of “who” is at the other end of the link and provides
      authentication, authorisation and encryption services (128 bit Public Key

2.6   The Link Controller (LC) is the hardware unit that enables the physical RF
      link between Bluetooth devices and implements protocols to allow the host
      device to use the Bluetooth connection (Steck 2000, 2-4). The radio
      manufacturing expertise of MRL could also be used in this area and not
      solely the portable devices mentioned in 1.7. Bluetooth, because of its low
      cost and range is very suitable for the majority of home applications and it is
      far cheaper than 802.11b wireless LAN (also called Wi-Fi) which is now
      widely used in the US (Broersma 2001, 1). In Australia, Qantas has now
      rolled out WI-Fi in the Qantas club lounges (Brown 2001, 42). The niche
      opportunity identified for MRL is to become involved in the manufacture of
      LCs for home automation as this is expected to become a rapidly growing
      market in Australia.

2.7   A Swedish software maker Pocit Labs says it has created the world’s first
      Napster-like file-swapping software for mobile devices which communicate
      using Bluetooth technology. This software called BlueTalk will make its
      debut at the Bluetooth Congress 2001 mentioned in 1.6 above. This
      software will allow up to 54 people at a time to trade files, play the same
      games, or use up to 50 other software applications on wireless devices.
      This is called peer-to- peer (P2P) computing (Chamy 2001,1).

3 Investment Opportunities

3.1   It is expected that high profit margins will be available to companies which
      enter the niche market of Bluetooth. The fast way to enter the market would
      be to enter into an alliance with a company that has a presence in this
      market. Two Australian public listed companies, Voxson and Micromedical
      have been identified as having a commercial interest in Bluetooth. Voxson
      have missed many of the milestones listed in their prospectus and have
      therefore been seen by the market as an unreliable “tech stock”.
      Accordingly, the share price has decreased to $.30 after listing at $2.70
      eighteen months ago. Micromedical on the other hand is now trading near
      their all time high because of credibility in the market. Since MRL needs to
      be seen as a winner, these points must be considered in any strategic
      alliance considered by MRL. It is expected that many other Australian
      companies have a commercial interest in Bluetooth, but they have not been
      identified in the research done by the author up to this date.

3.2   As identified in 2.2 above, the short range and low cost of Bluetooth makes it
      very applicable to home use. Home automation up to now has entailed hard
      wiring to connect up the security system, sprinkling system and lighting
      controls. This makes the home automation installation only applicable to new
      houses and even then installation is expensive. It is anticipated that
      Bluetooth will change this situation even though it has not been mentioned in
      any of the research uncovered in the project to date. Bluetooth will also
      allow for a much neater home office with minimal numbers of unsightly
      cables associated with the computer and printer. The opportunity for MRL is
      to produce the LC for Bluetooth installations either as a stand alone unit, or
      to include it in some device used in all modern Australian homes for example
      the home refrigerator or personal computer (PC).

      Intel has already produced a Universal Serial Bus (USB) dongle which will
      allow any device with a USB port to be capable of Bluetooth transmission
      and reception (most computers today have a USB port).
                     Figure 5: Intel’s USB dongle (Hodgson and Rabin 2000, 5)

3.3   Other niche markets may include wireless record keeping in hospitals and
      interfacing with instrumentation in the mining and manufacturing industries.

4 MRL Strengths

4.1   MRL have expertise in manufacture of miniature electronics which is
      compatible with the skills needed for manufacture of Bluetooth hardware.

4.2   It is also anticipated that the existing manufacturing equipment will be
      appropriate for Bluechip manufacture, but it is estimated that a maximum of
      100,000 components can be manufactured annually in addition to current
      contracted commitments.

5 MRL Weaknesses

5.1   MRL have very limited expertise in the design of electronic circuits as all
      recent work has been done on contract to a design developed by others.

5.2   Bluetooth chipsets are now available from a number of manufacturers and
      Cambridge Silicon Radio has recently shipped their one millionth chip
      (Broersma 2001, 1). This should minimise the design work required by MRL,
      but it is still expected that some design work will need to be contracted out,
      or alternatively specialists employed to cover this field.
6 Project Threats

6.1   Given the rapid development of the technology, it is anticipated that the
      major risks are associated with the likelihood of the current technology being
      updated and therefore the skills and inventory become obsolete.

6.2   It is however anticipated that this risk can be managed effectively by
      becoming a member of the Bluetooth SIG recommended in 1.2.

7 Project Recommendations

7.1   Send an MRL representative to the Bluetooth Congress 2001, which will be
      held in Monaco from 5 – 8 June 2001.

7.2   Join the SIG.

7.3   Contact MMD to offer MRL services to manufacture the Bluetooth hardware
      and appropriate software for their ECG equipment and to offer MRL as a
      strategic partner in their manufacture of electronic equipment.

7.4   Become involved in the Link Controller niche market. Additional research is
      required to establish how this is best achieved, but it is expected this is likely
      to be achieved via a strategic alliance with an existing household equipment

7.5   Appoint a person into a full time role of Bluetooth Group Leader and second
      existing employees into a small multidiscipline group to identify and develop
      the Bluetooth opportunities. The charter of this group should be to propose
      a project (or a number of projects), for Board approval by the August Board
      meeting, which are projected to meet the MRL investment hurdle rate.

      The tight schedule is necessary because the opportunities are developing
      rapidly and the niche markets considered will only offer excess financial
      returns for short time periods.

Broersma, M. 2001, “Bluetooth to be big by Christmas”, ZDNET News Australia,
April 13, 2001.

Brown, P. 2001, “3G spectrum could prove waste of space”, The Australian, May
23, 2001.

Charny, B. 2001, “P2P gets mobile, taps Bluetooth wireless tech”, CNET, March 6, 2001.

Cuthbertson, I. 2001, “Wireless World”, The Australian Magazine, April 28 – 29,

Denton, A. 2000, “Bluetooth Technology Background”,, March

Ellis, S. 2000, “Bluetooth technology: connected PCs to go”,,

Hodgson, D & Rabin, J. 2000, “The Oncoming Bluetooth Juggernaut”, Dundee
Securities Corporation, November 9, 2000.

Howoth , R & Grant, P. 2001, “Early Bluetooth lacks bite”, ZDNET News UK,
January 8, 2001.

Kaye, B. 2001, “Bluetooth arrests heart problems”, ZDNET News Australia,
January 24, 2001.

Micromedical Industries Limited 2000, Annual Report 2000

Ng, P. 2001, “Consumer or enterprise potential realised?”, 2001, May
22, 2001.

Steck, K. 2000, “Bluetooth wireless technology”,, March 22,

Thomas, A. 2001, “Has bluetooth left it too late?”, ZDNET News Australia, May
15, 2001.

Voxson Limited Prospectus 1999, “Initial Public Share Offer”, November 9, 1999.

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