Cellular: The role model for public Wi-Fi?

The development of the U.S./global cellular industry has some lessons for predicting the future of public Wi-Fi. Because of the still-to-be-determined business model, security issues and the absence of roaming agreements, many in the industry are uncertain about the future of Wi-Fi and the number of actual users. Wi-Fi is said to be useful to only the business/road warrior sector. The history of the cellular industry provides very interesting parallels, which debunks many of these assertions. Cellular telephony in the U.S. started in 1983, and projections called for only 1 million subscribers by 1990 since many felt the technology would be limited to a small segment of the population. In trying to explain its lack of interest in the cellular market in 1982, AT&T even forecast in a report to the FCC that there would be only 900,000 subscribers in the U.S in 2000. In fact, by 1990, there were more than 5 million subscribers, and by 2000, there were more than 100 million cellular users. Currently there are 1 billion wireless users worldwide.

The absence of roaming agreements has been ballyhooed to be the main hindrance to the large-scale growth of Wi-Fi, yet an analysis of developments in the cellular industry will reveal that this concern shall pass as well. When the U.S. cellular licenses were doled out in 1983, the FCC gave out licenses for metropolitan areas rather than nationally or for larger regions. Each metro area had two licensees: an incumbent local phone company and a newly licensed third party. This system not only failed to provide enough competition within any area to encourage low prices, but it also forced mobile phones to serve as a “local” rather than a “national” service. FCC and the industry believed cell phones were meant to complement rather than compete with wireline service. The local licensing was the wrong model for a country as geographically dispersed and mobile as the United States and the real outcome was that most carriers had to enter into checkerboard-like roaming arrangements with each other to provide coast-to-coast coverage.

To use their phones in other locations, U.S. users had to roam onto other service providers’ networks and pay additional fees, which were non-standardized and determined largely by the cellular carriers in each area. Rates could differ from location to location and could cost up to $1.0 per minute in addition to a setup charge of $2 to $5 per call. In some cases, a five-minute call could cost about $8. In late 1996, then Southwestern Bell (now part of SBC) started offering roaming services for 50 cents per minute in Texas, the only carrier in the state to offer this rate. That same five-minute call ended up costing $2.50, a 70% reduction in rates. In order to make the offer, Southwestern had to reach rate-reduction agreements with more than 150 other cellular companies servicing nearly 1500 service areas in Texas. Customers still had to pay long-distance charges. Carriers regularly charged a $5 monthly roaming administration fee to cover costs associated with developing and managing their respective roaming networks.

Cellular operators clearly understood that the high cost of roaming agreements was a big obstacle to growing their service. Large carriers such as AT&T Wireless, Sprint PCS, and Nextel managed to assemble nationwide networks by buying out smaller companies. Nextel started the movement toward single-rate national pricing vs. per-minute charges, and in the summer of 1998 AT&T Wireless adopted and expanded the program and introduced the Digital One Rate plan, with free long-distance and roaming. Sprint followed suit shortly after. AT&T’s Digital One Rate plan even exceeded the company’s own expectation as it urged customers to replace their wireline phones with AT&T’s service.

In the same year, the Cellular Telecommunications and Internet Association (CTIA) established Cibernet Corp., a for-profit company to collect and settle the $6 billion received in roaming fees for 300 carriers in more than 80 countries.

However even at this time, not all carriers were able to provide national coverage at competitive prices. For example, Bell Atlantic did not own nationwide infrastructure or licenses, and its customers had to roam on other networks. As a result, the company found it too expensive to match AT&T Wireless’ pricing. When carrier AirTouch became available in early 1999, Bell Atlantic showed great interest in acquiring the company, but lost out to Vodafone, which ended up buying the company both for its holdings in Europe and its presence in the United States.

In addition, although many carriers are publicizing free national roaming, it is still an unresolved issue for many customers. In early 2002, Verizon Wireless’ $35-a-month America's Choice plans included 300 monthly anytime minutes and 3000 minutes for use on nights and weekends all across America--except in large parts of California, Texas, Oregon and other states where Verizon Wireless does not own the network, and where the company has to pay roaming fees on another carrier’s network. In those regions, America’s Choice subscribers still had to pay a 65-cent-per-minute roaming charge!

The moves to eliminate roaming and long-distance charges were tremendous steps for the U.S. cellular industry; but they came about almost 15 years after the first licenses were issued in the United States. AT&T Wireless said at the time that under the old system “we were killing the killer app for our product--mobility.” Wi-Fi will benefit from the lessons of the cellular industry and figure out the roaming hurdles by far earlier, according the Wall Street Journal. More information on the parallels between the cellular and public Wi-Fi markets can be found in eTinium’s recently released study Seamless Mobility: The Marriage of 3G and Wi-Fi.

Goli Ameri is the President of eTinium, Inc. (www.etinium.net) a telecom consulting and market research company specializing in wireless and switching technologies. She can be reached at gameri@etinium.net or (503) 968-8437.