Fixed or mobile? How about both? PCS carriers are opting for a new breed of networks that covers a blend of wireline and wireless applications

Carriers seeking to make the most of their pricey PCS licenses are treading into the generally unknown waters where wireline and wireless converge.

Otherwise known as the hybrid approach, this relatively uncharted method blends some degree of mobility with a fixed application. And increasingly, carriers are opting for this hybrid approach instead of plunging into a strictly stationary wireless local loop (WLL) market.

"Every cellular and PCS operator that Northern Telecom sells to is considering trialing business plans on a hybrid fixed/mobile application," says Mike Hayes, Nortel general manager of fixed wireless access.

He says he doesn't know of any wireless company that hasn't considered fixed service within the last 12 to 18 months. "Whether they began in the fixed-only business or mobile, they are starting to change their business plans as they evolve to cover both," he says.

The hybrid solution is somewhat further along in Europe than in the United States because of that continent's head start in digital platforms. Although European progress toward widespread hybrid applications has been slow and steady, The Yankee Group estimates that by 2002, the converged fixed and wireless market will mushroom to about $50 billion.

But in typical U.S. fashion, the North American approach may emerge in its own way.

The convergence phenomenon WLL and the convergence phenomenon encompass several issues, including customers moving from the fixed network to the wireless network, says Crispin Vicars, program manager for The Yankee Group.

The so-called pricing displacement already is occurring with PCS providers. "They're showing average minutes of use that are triple the historical cellular number," Vicars says. "That's the primary way of initially deploying wireless local loop in a domestic marketplace."

Carriers then may start deploying services enabled by intelligent networking such as personal number and integrated voice mail offerings.

Count U S West among the believers in the domestic approach. It was the first U.S. carrier to integrate PCS spectrum for mobility and the landline system for fixed applications when it launched the Access2 product last September.

Based on a single-number philosophy, Access2 lets end users seamlessly migrate from mobile to fixed, using one phone number that is tied into a single voice mail system.

"We've taken a look at what customers already have from U S West and extended it wirelessly," says Teresa Taylor, U S West executive director of marketing.

The carrier launched the service in Denver, followed by deployment in Portland, Ore., Phoenix and Tucson, Ariz. The system's transparent nature is proving to be its biggest attribute.

"Customers like the fact that everything they get from us works together," Taylor says. That means end users don't have to buy a second voice messaging system for their wireless calls, and they call only one number to retrieve the messages.

BellSouth Wireless Data is taking the integrated approach to the PCS narrowband frequencies with its Inter@ctive Pager. The handheld device features a full keyboard to link customers through voice and data. Applications include two-way e-mail, text-to-voice conversions and fax.

The pager, available in the eastern New York area, is scheduled to be commercially available in the next nine months in Atlanta, Boston, Chicago, Dallas, Detroit, Los Angeles, Philadelphia, San Francisco and Washington/Baltimore.

>From its narrowband domain, Inter@ctive adds another dimension to platform integration and builds on the strengths of the popular Internet connection.

Beyond the pale Reasons to integrate extend beyond differentiating PCS from cellular, however. The dominant motive is to sever competitive threats.

"Every operator has a certain set of expectations, and they are clearly looking at fixed as a way to expand their market presence and their end user presence," Nortel's Hayes says.

For example, if a customer had access to both fixed wireless service from Sprint and mobile service, that user could integrate those two services into a single calling number and calling name.

"The operator has now disconnected a competitive threat to [its] business from other operators," Hayes says. "It's also added the value of capturing the long-distance revenue and leveraged the full mobile infrastructure from the normal mobile application."

The ability to deliver WLL services in PCS bands is not unique, particularly outside the United States. But U.S. carriers are waking up to the potential that lies in a hybrid application.

"It's not a technology issue per se," Hayes says. "What I think has happened is you have an industry that's become aware of competitive access in the local market. So that is a mindset that is opening.

"Five years ago, cellular operators were very happy being mobile operators. There were only a few that actually considered offering fixed service," he says.

Because of today's competitive environment with multiple operators competing for the same customers, a market-share opportunity is approaching, Hayes says.

Urban or rural, the success of WLL hinges on the strength of the operator's business plans. For PCS carriers, that means seizing opportunities spawned during this age of increased on-line connectivity and multiplying phone lines.

WirelessNorth started its PCS network with an emphasis on hybrid WLL.

Collectively owned by 22 rural telephone and utility companies, the carrier holds 17 PCS licenses in Minnesota, North Dakota, South Dakota, Wisconsin and Iowa. It has launched code division multiple access (CDMA) systems in the North Dakota basic trading areas of Fargo and Grand Forks.

The fervent demand for second lines is central to the carrier's scheme to deliver fixed service packaged in a mobile phone. Considering its corporate lineage and the limited number of competitors in a rural setting, it's little surprise that the company considers the fixed/mobile offering as just another service rather than a defensive market position.

"Our strategy is to use fixed wireless as an enhancement to local loop rather than a replacement," explains Rick Rappe, president and CEO of WirelessNorth.

"We're getting replacement business, but that's incidental," he says. "The economics aren't quite there in terms of capacity to replace the phone company, although they're getting closer on a very rapid basis."

In a move that brought PCS conceptually closer to landline, WirelessNorth debuted its hybrid service with unlimited use within the geographic serving area for a flat rate of $75. The company is banking on customers placing a premium on fixed phones that also can be used in mobile applications. The system is a little older than six months, so it is too soon to gauge how far the company has infiltrated the WLL option.

"Because we are in rural markets, it doesn't make economic sense to cover rural highways," Rappe says. "We had to say something besides, 'We're not just another cellular carrier.' So we focused on this as an in-town service with unlimited usage. Think of it like your traditional telephone that you can put in your pocket and take to the grocery store."

Well-suited for PCS A hybrid approach may complicate the marketing mix, but it also may expand capacity while functioning in the fixed mode, as WirelessNorth found with its CDMA platform.

"When you design a system for fixed applications where the caller isn't moving and the call doesn't have to be passed from antenna to antenna, you actually get an increase in capacity [over mobility] of about 40% with CDMA," Rappe says.

If capacity is paramount, it stands to reason that the higher frequencies would make an even better match for WLL. After all, WLLs could support higher data rates and take the wireless data applications one step closer to landline. But all things being equal today, that correlationdoesn't hold water.

Local multipoint distribution service (LMDS), for example, looms on the horizon in the tantalizing and promising bandwidth from 24 to 38 GHz. Its girth gives an air that could easily overshadow the 1.9 GHz PCS operative.

PCS, though, has a three-year head start over LMDS, not only in the auction process but also in technology development.

"There's no technology issue at 1.9 GHz," Hayes says. "The simple reason is it's a well-understood radio frequency. We can do it with mobile. We can do it with fixed. And with fixed, in some ways, it's a little bit easier from a radio perspective at the PCS frequencies compared to the higher frequencies."

A carrier can build in penetration fairly easily at 1.9 GHz, Hayes says. "I can put a telephone set in my daughter's room without having to install a jack, and she could use it in her room right away." But with LMDS or other higher frequencies, a carrier would have to mount an antenna or several small antennas, he says.

"I don't want to tell you that LMDS will not work," Hayes says. "It will work very effectively in the fixed wireless access business. But my initial view is that PCS will work for a residential or small business application exceptionally well."

Wireless has the versatility that landline lacks, but it is still a long way from matching the broadband support of fiber optics.

"I would never say that the PCS operator is looking at full wireline replacement," Hayes says. "It would be potentially a good substitute for wireline. But at this point, we cannot delude ourselves that data will be completely covered.

Hayes foresees the wireline environment gravitating toward Internet connectivity. "Voice services would be through a hands-free phone that could be a wireless option. I see that as a model that will propagate over the next few years in North America," he says.

A novel approach Although PCS is a natural complement to wireline, it still doesn't arrive in the hybrid mode without overcoming a few hurdles. Chief among them is a longer holding time compared with mobile.

"In a wireless local loop application, people are going to use their phone for much longer," says Kal Ganesan, assistant vice president for broadband wireless products at Hughes Network Systems.

"A cellular subscriber today uses between 100 and 200 minutes per month. The landline customer uses the phone between 600 and 800 minutes per month. The holding time on the call is much longer on a landline phone-a minimum of three minutes. The holding time on a wireless call is about 1.2 minutes."

Providing capacity to accommodate landline levels of usage in a broad coverage area could easily strain the financial resources of PCS carriers.

Instead of widespread coverage, Hughes promotes a more narrowly focused WLL system based on the personal access communications system (PACS), which is slated for commercial launch in 1999. Hughes will design and install its AIReach PACS for 21st Century Telesis in 27 of its PCS markets in Illinois, Indiana, Mississippi, Nebraska, New York and Pennsylvania.

Upon deployment, this will be the first PACS platform to run in the PCS frequencies in the United States. The concept is built on placing microcells in population pockets such as neighborhoods, campuses or buildings.

PACS was originally developed as a wireline substitute, and its voice quality and delay equal those of wireline, according to Ganesan. But initial rollouts of PACS have been cordless applications, he says.

"The 21st Century product is likely to be positioned as a cordless mobility product in a limited area. If you look at the U.S. demographics in any given region, between 2% and 20% of a geographic area generates 90-plus percent of a telephone company's revenue. So, this strategy puts radio ports in areas where people live and work."

Economic feasibility is the mission of this PACS plan. Cells are deployed on an as-needed basis so carriers can enter a narrow market quickly and then broaden their coverage. This gives service providers a fast way to generate revenue.

PACS may have limited cell coverage compared with other platforms. But these radio ports are less expensive than those supporting time division multiple access or CDMA. And the system is expected to handle data rates from 28.8 to 200 kb/s. Handsets are also less expensive because instead of voice-coding, AIReach compresses the digital signal and uses 32 kb voice.

"There's very little processing that takes place, and that's one of the attributes of the architecture," Ganesan explains. "You have a very low-cost radio port and base stations that don't need much processing. You concentrate all of these into a controller that you can place in an existing landline switch. That's another beauty of this architecture-it's an open system."

For each option that transforms mobile PCS into a hybrid application, there are design tradeoffs that pit coverage against capacity and cost against time to market. The real mystery is not so much if PCS carriers will roam into the hybrid market, but what form their entry will take.

Demand for more cell sites is skyrocketing as wireless carriers feel mounting pressure to build out networks as quickly as possible.

A hole in a carrier's network-an area without an antenna-means a dropped call, an unsatisfied end user and possibly a lost customer. In today's competitive markets, less-than-perfect coverage is unacceptable.

The number of wireless users-now more than 50 million in the United States-is expected to jump to nearly 150 million by 2007, analysts predict. Cell sites have multiplied in the past 10 years (see figure), and to support growth, more than 100,000 additional cell sites will be needed, the Personal Communications Industry Association estimates.

The first choice for a cell site is collocating on an existing structure, but that is not always possible. A tower then must be erected, which costs between $200,000 and $300,000.

In the past, carriers financed the entire network buildout, including tower ownership. Today, however, capital constraints force carriers to seek other options. Because Wall Street analysts say the enterprise value of a carrier is unaffected by tower ownership, many carriers have started to outsource the network buildout to third-party operators on a build-to-suit basis. Such firms handle all facets of the network buildout, including program management, site acquisition, zoning, construction and maintenance of the tower sites.

Many companies have emerged to take advantage of this opportunity, each claiming to have the expertise necessary for build-to-suit. Some are former site acquisition or construction firms. Others are the result of mergers of several companies. Some focus exclusively on tower management, while others seek vertical integration. Yet other firms specialize in a particular geographic region of the country.

With so many choices and so much at stake, carriers must proceed with caution as they enter into build-to-suit agreements and consider the following:

Is the partnering company financially stable? Building towers involves a certain amount of financial risk, particularly during the first five years. Carriers should find out who a company's investors are, how much capital is available and whether the company is stable enough to survive if it can get only one tenant on a given tower site.

Carriers should understand the program management function. Typically, carriers outsource all aspects of the buildout but retain control over the process, overseeing the vendors and ensuring that each is on schedule and within the parameters of the given budget.

Many build-to-suit firms complete projects for carriers in multiple markets at the same time. Build-to-suit companies must have the resources to supervise and track each vendor and to evaluate and replace vendors if necessary.

In a build-to-suit agreement, the partnering company oversees the process by ensuring that each vendor and subcontractor adheres to state and local regulations, achieves milestones on schedule and stays under budget.

Carriers also should consider whether the build-to-suit vendor has access to resources in nationwide markets. In addition to industry experience, the build-to-suit company must have an arsenal of vendors with proficiency in all facets of the buildout process, including:

* Real estate services. Does the staff include licensed real estate professionals who are familiar with the local market and its zoning and permitting procedures? With zoning difficulties escalating, it is more important than ever to understand the complexities of each municipality's zoning codes.

* Design and construction. Does the build-to-suit company have resources for architectural and engineering design, geotech/environmental services and full turnkey construction services?

* Tower management. Does the build-to-suit firm have experience managing tower networks?

* Tower maintenance. Towers and the surrounding grounds require consistent maintenance. Does the firm have a plan for ongoing tower maintenance?

* Regulatory compliance. Wireless licensees must comply with the FCC's RF emissions regulations, the National Environmental Policy Act of 1969 and other federal environmental statutes. According to the Telecommunications Act of 1996, if the proposed antenna site is in a location such as a wildlife preserve or a historical site, the wireless licensee must submit an environmental assessment and obtain FCC approval. Does the build-to-suit firm have expertise in compliance issues?

Carriers also must help establish the legal structure of the agreement. Contract terms for leases are typically five years with renewal options. Ideally, carriers will team with the build-to-suit vendor to develop schedules and milestones for the project. Carriers also must be sure that the build-to-suit agreement includes specific anchor tenant protections.

Finally, there must be a comprehensive method of evaluation in place to ensure that the build-to-suit vendor is operating on time and according to carrier specifications.

The frequent battles waged over wireless antenna sitings make headlines when they pit residents against carriers. A closer look at towering issues of the last few years suggests a more complex, multifaceted scenario that sometimes benefits and other times hinders construction of a seamless, nationwide network.

* Two emergency medical workers were killed in Coinjock, N.C., when their helicopter crashed. In 1990, Centel was fined $1 million for transmitter marking and lighting infractions that were connected to the crash.

* Neither rain, nor sleet, nor tower adversity can stay the U.S. Postal Service. This year, the agency decided to allow installation of 150-foot high flagpole antennas on some 2300 of its postal properties. Because these are federal lands, no zoning approval is needed.

* The National Park Service was ordered to set up procedures that will allow antennas for wireless service to be placed in federal parks starting Dec. 1, 1997. To date, applications that were deemed incomplete have been returned to Cellular One and Bell Atlantic Mobile.

* In 1994, a $3 million fine was levied against Sprint Corp. for alleged construction and lighting violations on a tower, two miles from a Greensboro, N.C., airport. At the time, this was the largest fine of its kind.

* Auctions for PCS licenses in Australia were stalled in October 1997 partly because of unresolved issues surrounding the right to access existing towers and telecommunications sites.

* U.S. District Court Judge Patricia Fawsett overturned the decision of Brevard County, Fla., commissioners to deny a permit for tower construction on county wetlands. The judge said the commissioners' argument was not affirmed by the 1996 Telecommunications Act and ordered them to issue a conditional use permit to OMP USA.

Regulatory changes could put wireless local loop providers in the same category as competitive local exchange carriers.

Despite carriers' aversion to regulatory burdens, CLEC regulation does not spell rate regulation. It protects consumers from unethical and unlawful business practices.

Furthermore, CLEC regulation does not continue indefinitely; it lasts through the transition period between the incumbent LEC's monopoly and a competitive market.

And finally, wireless providers could argue before local zoning officials that neighborhood telecommunications towers are essential to provide residents an alternative to the incumbent wireline carrier.

How might WLL regulation evolve?

First, the wireless industry appears to be Congress' best near-term hope of bringing facilities-based competition to residential end users.

After all, other potential competitors that the 1996 Telecommunications Act envisioned have either stayed within their traditional markets or focused on lucrative business customers.

Before the act, residential users had only one wireless option to the incumbent LEC-paying higher commercial mobile radio services (CMRS) rates for local service.

As WLL nears reality, however, wireline LECs and CLECs are expected to encourage Congress and other regulators to subject the WLL portion of the wireless industry to the same regulations they experience.

Secondly, the CMRS and WLL technologies are suited to differing regulations.

CMRS signals move from a number of towers to the customer's mobile unit. WLL sends signals from a neighborhood tower to the transceiver attached to the customer premises. That makes the WLL functionally similar to the wire-based local loop services that CLECs and incumbent LECs provide.

In addition to being preempted from regulating entry and rates, state regulators have chosen to grant CMRS providers exemptions from regulation for the remaining local aspects of CMRS.

If state commissions choose to assert jurisdiction over the WLL, they likely will require WLL providers to show that they have the managerial, technical and financial resources to provide primary telephony service to customers.

Once certified, WLL providers may be subject to at least three areas of state regulation:

* In addition to subjecting them to FCC accounting requirements, state regulators may require wireless providers to offer WLL service through affiliates separate from their CMRS businesses. The wireless companies would have to keep separate accounting records because they would offer separate WLL and CMRS rates.

* The wireless provider may be subject to the state's minimum service standards, which typically set the state's complaint handling procedures, consumer safeguards, standards for quality and adequacy of service, required content of customer bills and penalties for non-compliance.

* Finally, state commissions may require the wireless company to pay into the FCC's universal service fund. Any payments would come solely from the WLL side of the business because the CMRS side of the business already pays into the fund.

The regulatory requirements could be outweighed by the tower siting benefits and the economic rewards of providing local loop service to a class of customers crying for an alternative to the incumbent LEC.