PCS providers woo wireline users - Industry Trend or Event

If ever there were a sure thing for the future, you'd think it would be wireless telecommunications. The ingredients for success are all there -- a surfeit of bandwidth at several key portions of the spectrum, at least four choices of technology, and a potential market of 120 million subscribers. Marty Cooper, chairman of the board of ArrayComm and considered by many to be the father of cellular, notes that if wireless "minutes of use" rather than "lines served" are used as a yardstick, PCS (personal communication service) is already a growth industry.

But can wireless ever hope to challenge wireline as its advocates contend it can? The providers face many problems as they attempt to chart a course for their industry. Their plans for a wireless infrastructure are in the formative stage. It is unclear how they will be regulated once they trespass on traditional wireline turf. In this article, Communications News explores the views of a vendor, a consultant, a network provider, and a regulator to assess the opportunity for PCS providers.

MARKETPLACE

In 1997 many telcos saw remarkable growth, with a national average of 25% to 30% more phone lines being added. Jim Mullen, director of marketing for Hughes Network Systems, sees this as an opportunity for PCS as wireline and wireless services converge.

The Telecommunications Industry Association (TIA) has identified two types of potential wireless local loop (WLL) services:

* Wireline replacement (toll-grade speech, 28 Kbps fax/data, optional ISDN), no mobility between network and subscriber, end user terminals could be mobile (i.e., cordless phone).

* Wireless and wireline services with a performance similar to cellular; fallback rate service for fax/data, optional limited mobility support; possible extension of existing standards for a higher level of wireline transparency.

Which of these is likely to interest commercial users? Mullen opts for the second solution. He notes that one tried and tested approach is a wireless extension to a PBX inside the building.

"The user is reachable any place, any time, using the same portable phone and a four-digit number," he says. Although penetration of the U.S. business phone market is minuscule today, it is likely to reach 3% by the year 2001, according to a 1996 study.

PRICING

Wireless local loop services can be divided into two market segments -- broadband and narrowband, says Bruce Seaman, vice president of the San Francisco Consulting Group (SFCG). "Broadband will be priced at up to 20% discount to wireline alternatives initially, but discounts will decline to 5% or less over time. Tariff structures will mirror wireline alternatives.

"Technological advances will keep broadband WLL services viable from a cost standpoint as point-to-multipoint and bandwidth-on-demand capabilities come about," he says. "Competition among service providers will create pricing pressures as additional spectrum becomes available, networks are expanded, and the target audience grows to include carriers, business, and residential segments."

It is the narrowband market that is of immediate interest to users, according to Seaman. WLL will initially be priced at a discount to wireline as an adjunct to high-value mobility services offered by wireless providers. A tiered rate structure will be offered and forward pricing will drive penetration, facilitating further buildup of the network.

To start with, tariff structures for WLL will be simplified compared to wireline. Their "per-minute" rates will appear less expensive than subscriber loop costs because these include many fixed charges. Once WLL becomes ubiquitous, services will be priced at a slight discount to the wireline alternative depending on bandwidth and service constraints.

Over time, tariff structures will resemble wireline alternatives, says Seaman. "I believe WLL facilities will be wholesaled at rates slightly lower than wholesale wireline facilities to competitive access carriers in need of ubiquity of coverage."

DEPLOYMENT

Formed in July 1994 from Pacific Northwest Cellular and General Cellular Corp, Western Wireless Corp. (WWC) currently provides Cellular One service at 440 cell sites across the US. It owns at least 10 MHz of spectrum in most cellular markets. The carrier launched the first PCS network in the U.S., serving seven markets, including Denver and Honolulu, using GSM-based technology.

Although WWC has minimal experience in WLL to date (it provides some service in Nevada), the company believes there will be strong interest if it can provide quality service.

"We believe the overall wireless trends support WLL," says John Tedeschi, director of corporate development for WCC. "New PCS entrants offer `big buckets' [bundles of services] because they are under competitive pressure to maximize minutes of service. Generally, PCS usage is higher per subscriber than cellular and there is a higher inbound calls ratio than in the past."

Can WCC make a profit from WLL? Tedeschi says the company must develop a competitive advantage by learning how to package the product. "The ideal WLL product will allow us to leverage the network and support systems, take advantage of existing feature sets, and provide interoperability with wireless phones." he says. Wireline voice quality and fax support are also important issues.

REGULATION

Jeffrey Steinberg, special counsel to the FCC's Wireless Telecommunications Bureau, notes that the Commission has allowed increasing flexibility for licensees to use spectrum to provide the services of their choice. Existing rules on co-location, number portability, and interconnection that benefit competitive wireline carriers also apply to WLL providers, he says.

Co-location is the physical or virtual placement of a competitor's facilities within an LEC's switching and/or transmission facilities. The 1996 Act mandates physical co-location if feasible. The incumbent carrier must allow WLL providers to co-locate their equipment in the same manner as wireline competitors.

The FCC has ruled that a subscriber's telephone number should not change when that subscriber changes local service providers. The implications of this for competitive wireless access providers are significant in view of the growing shortage of area codes.

Under equal access rules, WLL subscribers must be able to dial the same number of digits for the local carrier of their choice and experience no additional delay in access that carrier.

Universal service, including access to the intelligent network, is mandated under the 1996 Act. And support mechanisms for this must be specific, predictable, and sufficient.

Interexchange carriers (IECs) pay access charges to the local network. The practice of using this revenue to subsidize local telephone rates could disrupt marketplace economics in the wireless area.

CONCLUSIONS

In the United States, at least, the use of wireless access as a viable alternative to wireline has a long way to go. Marketplace issues, pricing, deployment and regulations will bedevil vendors and carriers for some time to come.

In the longer term, it is certain that wireless will become an acceptable and cost-effective method of access, particularly for competitive carriers and long distance carriers intent on providing local telephone services.

ICM Conferences, Inc., sponsors of the Wireless Local Loop conference in Chicago (Oct. 22, 1997), cooperated in the preparation of this article.

COPYRIGHT 1998 Nelson Publishing
COPYRIGHT 2000 Gale Group