Cellular phone plan services

"Loopholes" is a series of occasional commentaries on wireless issues.

A marriage between the dream of local exchange competition and the vision of emerging wireless technologies, such as broadband personal communications services (PCS), appears to be inevitable, according to a new study by Ray Schulz of GLA International, a subsidiary of Town & Country, Mo.-based Brooks Telecommunications, a competitive access provider.

Moreover, the broadband PCS auctions slated to begin Dec. 5 will "amount to a de facto FCC local exchange competition policy endorsement," Schulz writes in "Wireless Technologies and PCS Applications: Competition for the Local Loop." (For copies of the study, call 800/799-8914, ext. 301.)

PCS, Schulz says, will blur the distinction between interexchange carriers (IXCs), local exchange carriers (LECs), cable TV companies and electric utilities. And those who do not fashion careful business plans for the auctions and their aftermath likely will be bridesmaids or, worse, uninvited guests at the wedding feast.

Schulz admits that people today are not going out of their way to replace traditional landline service with wireless communications. But he adds that "high usage-sensitive cellular service rates, combined with reduced off-peak calling periods, have inhibited such shifts and substitutes." Left at the Altar?

In other words, cellular carriers--despite their obvious marketplace advantages--run the risk of being left at the altar if they do not change their practices. At the recent GTE Corp. "Convergence '94" conference, for example, a panel of "high-end" customers rated their cellular service as "barely acceptable" and demanded improvements (MPN, Oct. 3).

Nevertheless, cellular may not have much to fear from PCS-- at least, initially. "PCS technologies will evolve from and build upon innovations originally developed to increase the capacity of existing cellular systems and from international digital infrastructure products such as GSM [global system for mobile communications]. 'Me-too' cellular products, with little or no new service development, should have minimal technical risk, but may not serve market objectives in terms of service differentiation," Schulz says.

As a result, the new wireless service providers must find ways to offer more value at lower prices than cellular service, according to Schulz. He cites the formidable strengths of the cellular industry:

* established market presence and brand identity;

* marketing intelligence;

* technical expertise;

* a de facto "lock" on wireless industry human resource skills;

* established distribution-channel relationships;

* operational economies of scale;

* existing regulatory-relations organizations;

* competitive-response action plans;

* strong supplier relationships;

* a significant infrastructure-deployment lead (10-plus years);

* strong (and increasing) cash flow; and

* ready access to capital.

Similarly, the LECs--the defenders of the local loop--have equally formidable strengths, including "control of interconnection and access to the PSTN [public switched telephone network]," Schulz explains.

He sees two scenarios for LEC participation in PCS: (1) the provision of local wireless access services, and (2) a strategy to shift landline customers to unregulated wireless services offered through unregulated business units.

"LEC provision of PCS will serve to blur the distinction between traditional telephone services and cellular. LEC adoption of PCS will also permit competitive entry into landline- franchise market areas served by other LECs," Schulz says.

Indeed, the recently formed alliance between Bell Atlantic Corp., Nynex Corp., U S West Inc. and AirTouch Communications plans to pursue PCS licenses in markets controlled by other LECs and cellular carriers (MPN, Oct. 24, news bulletin). Further, Sprint Corp. has joined with three cable TV companies and Teleport Communications Group to provide fully integrated landline and wireless, local and long-distance services (MPN, Oct. 31). Always a Bridesmaid, Never a Bride?

On the other hand, BellSouth Corp., which has formed an alliance with American Personal Communications and approximately three dozen small telecommunications companies, plans to bid on PCS licenses only within its own service territory--the Carolinas and Tennessee.

Similarly, SBC Communications Corp. (formerly Southwestern Bell Corp.) and GTE are focusing on Texas, an area that also appeals to the Bell company-AirTouch alliance. In the Midwest, Ameritech Corp. says it will bid on PCS licenses only in Cleve- land and Indianapolis, while Pacific Telesis Group hopes to win the Southern California-Arizona-Nevada market.

Thus, four Bell companies will attempt to establish a national wireless "footprint" through the broadband PCS auctions, while the other three Bells will try to enhance their "regional" holdings. It remains to be seen whether the national or the regional approach will become the bride rather than the bridesmaid at the radio spectrum altar.

Also standing alone is MCI Communications Corp., which could not strike a deal with Nextel Communications Inc. and Motorola Inc. (MPN, Sept. 5 and 12). But as an interexchange carrier with its own national footprint, MCI may lease excess PCS and cellular capacity and resell bundled or unbundled local wireless services under its own established brand name. Other Uninvited Guests

Perhaps more important than the alliance issue is the meaning of wireless local competition to state regulators, who also may be uninvited guests at the marriage feast. In his GLA study, Schulz notes that PCS licenses will be most attractive in states that have opened (or plan to open) their local markets to competition. These states include Maryland, Massachusetts, New York, Washington, Connecticut, Illinois, Michigan, Pennsylvania, Wisconsin and Texas.

"States with a 'flat' topography 'friendly to PCS' also will be more attractive," Schulz says. But he adds that "LECs have established regulatory relations at the state level to oppose or delay competitive entry. A wholesale relationship with IXCs may bring IXC regulatory resources that can assist in breaking down any regulatory barriers to market entry."

The LEC arguments against competitive entry will focus on PCS threats to universal service and to the financial well-being of the LECs themselves, Schulz says. If he is correct, the industry can look forward to some interesting regulatory proceedings. (Paul Shultz, 301/340-7788, ext. 2014.)