Mr. Big Mouth

When will wireless data really take off? According to U.S. Cellular's highly opinionated CEO, the answer is simple: When the customers are ready for it

Jack Rooney's office contains the trappings one would expect to find of a highly successful wireless industry executive. From his days as president of Ameritech Cellular, there's a collection of Chicago Bulls memorabilia (Ameritech was a generous contributor to the Bulls' charitable foundations). And there are the typical golf-related trinkets from various company outings over the years.

It's when Rooney opens his mouth that things take an unexpected turn. While he doesn't have a soapbox in his office, the former Firestone executive and current president and CEO of U.S. Cellular often sounds like he's behind a podium, doling out his opinion of the industry to anyone who will listen. Often that opinion is contradictory to typical industry thinking and not couched in CEO speak.

And he won't have it any other way.

Bring up wireless data, and Rooney won't give a sermon about how it's the future of the industry and how that contention is backed up by reams of analysts' reports. Instead he'll tell you that wireless data isn't going to save the industry and in fact may be the biggest mistake ever if it's not handled correctly.

"I think this industry is sort of patronizing to its customers," he says. "We roll out service and then we expect them to use it. We put it out there, it doesn't work the way it's supposed to, then we give it away and then the customer gets used to getting it for free. This industry does a big disservice to its customers by rolling out things before they're ready."

Proceed with caution

Such talk would be considered heresy at virtually any other carrier, but Rooney is used to defying the industry's conventional wisdom. As the former head of Ameritech Cellular, he faced up to analysts who criticized the company for being the last large carrier to roll out digital service. The result, he says, was a system that was delayed but was the best digital system in the country when it finally hit the market.

It's a theme that continues to play out in Rooney's role at U.S. Cellular. While other carriers are hunting for what he calls a Holy Grail that isn't there, U.S. Cellular has yet to announce any major data initiatives. Instead, the company has an almost maniacal focus on customer service and keeping its churn rate at the lowest level possible.

In part, the slower approach is fueled by the knowledge that the vast majority of customers have yet to ask for wireless data services. In one example Rooney likes to cite, a technology vendor once provided a demonstration of its wireless Web product to prove its efficiency. Having the vendor find what time a movie was playing at a local theater evolved into a 20-minute exercise.

"I could have walked down to the convenience store, bought a newspaper and looked it up by that time," says Rooney.

Things won't get much better with the development of third generation (3G) wireless technology, which some analysts and vendors view as a panacea for what ails the U.S. wireless data market. Before any deployments, Rooney wants to see applications that will make 3G worth the investment.

"My basic concern is whether taking the data piece all the way to 3G will ever pay back to the shareholders," he says. "When you look at what's been invested in it in Europe, you've got to ask yourself, 'What's the purpose?' 2.5G gives you somewhere in the area of 100-plus kb/s with a lot less investment than going all the way to 3G."

Compound that with the amount of dark fiber that is currently available, and Rooney doubts the logic behind the industry push to 3G. "When I look at the capacity of 3G, unless you're going to use it for the last mile, I've got to question whether it's worth it."

Plenty of ammunition

Rooney, while certainly reflecting a philosophy that is not in line with much of the rest of the industry, has plenty of ammunition on his side. Although few will admit it publicly, some vendors and analysts are beginning to question how wireless data has fared in Europe and Asia, markets that have been held up as beacons of success. And even among those that have touted the accomplishments of foreign carriers, some are questioning the financial benefits and whether they can be sustained.

Rosalie Nelson, research director at Ovum, says the market for wireless data hasn't developed in the U.S. as fast as Europe for a number of reasons, including the lack of a single air interface. At the same time, European operators, which six months ago were the envy of everyone, are finding their data services not growing as fast as anticipated.

"The [economic] shakeout obviously is affecting companies globally," says Nelson, who just completed a study forecasting that wireless Internet advertising, which was expected to be a major revenue source, will not top $1 billion until at least 2004, several years after many had predicted. "The operators are stepping back and focusing on how they can make money now."

Societal differences such as the driving culture and service expectations also will play a role in slowing U.S. adoption of wireless data, she says.

"What proved to be very interesting in the U.S., if fairly singular, is that it has very high Internet penetration and relatively low wireless penetration," Nelson says. "In the U.S., your mobile device is very much perceived as an extension of the PC. At the end of the day, a lot of the focus is on the personal digital assistant (PDA). There's an even broader expectation in the U.S. that it needs to be an extension of the Internet. In Europe people are used to having just simple text."

Those working with European carriers though say the biggest problem with deploying wireless data services in the U.S. is that perception. Instead of trying to provide every piece of the Internet to everyone, carriers need to target segments, says Christopher Wu, senior producer with Yahoo Everywhere, which has signed content deals with Verizon Wireless and Sprint PCS.

"What we've seen across those deals is providing value to the mobile consumer is not about providing everything, but providing what's essential and personalized," he says. "It's about getting the information you want and putting it at your fingertips. We can't promise the entire Internet. We really see form factor as part of the inherent value proposition."

In those areas where carriers are finding success with wireless data, it often is with relatively simple services such as short message service (SMS) using small devices that are easy to navigate, adds Nelson.

And while Wu believes there are cultural differences that can't be ignored, "the concept of people wanting to waste time is not bounded by any ethnicity."

Do u spk SMS?

To be sure, Rooney is not discounting wireless data completely. In fact, U.S. Cellular already has rolled out two-way SMS and is hoping to get the kind of

uptake among teenagers that some European carriers have found. However, moving beyond that level of complexity will take time.

"There's a big difference between things like SMS and going the last step to sophisticated data offerings," says Rooney. "You're never going to get there with the platforms that are out there right now. We need to get something in the hands of the users that is much more conducive to data offerings."

It all comes down to Internet access, Rooney says. "It's probably a PDA, although it could be a modem that fits in a laptop," he says. "This country is not used to playing around on the Internet on little screens."

Rooney's unconventional thinking could be attributed to the fact that he's not an engineer by training and didn't make his way up through the ranks of telecom. In fact, Rooney has an unusual resume for a wireless CEO. Prior to joining Ameritech in 1990 as vice president and treasurer, he headed up North American retail operations for Firestone. At the time of his departure, about 60% of Firestone's revenues came from auto service, not tires. It's a lesson he's carried over.

"The one thing that's common is customers and their expectations. They want excellence in product and excellence in services. If you ask them what they expect, a customer will never say, 'I'll take mediocrity.'"

In Rooney's thinking, satisfaction with wireless can be measured in the most quantitative terms: churn rates. Boasting one of the lowest churn rates in the industry, 1.7% per month, Rooney has set out bringing it lower as one of the top priorities.

"Our job is to have zero tolerance for controllable churn," he says. "You're never going to get it to zero. It really irritates me that the industry is willing to tolerate customers firing us at the rate that they fire us. I don't think there's a business in the world that takes that attitude."

U.S. Cellular has the luxury of taking this attitude in part because of the markets it serves. While ranking No. 8 in terms of customer numbers, it is among the largest carriers without Tier 1 markets. Instead, the company's territory is a clustered patchwork of metropolitan statistical areas and rural statistical areas that occasionally overlap with the wireline properties of parent company TDS. And like many carriers that serve more rural markets, U.S. Cellular hasn't been faced with a rush of competitors rolling out data services. In addition, the company also has one of the lower average revenues per user-$34.49 at the end of the first quarter-in the industry.

However, Rooney doesn't view U.S. Cellular as a sleepy little carrier happy to survive on roaming revenue and feed off the technology crumbs of larger players. To the contrary, as the overall telecom market has gone into a bunker mentality with its cash, U.S. Cellular, which at the end of the first quarter had licenses covering 26 million points of presence (POPs), has gone on something of an expansion binge.

In January, the company won 17 licenses covering 13 markets in the FCC's C and F block auction. More recently, in May the company announced an agreement to purchase McLeodUSA's 10 MHz D and E Block spectrum licenses covering 4.7 million POPs in Iowa, Illinois and Nebraska for $74 million (see Table below).

Recent additions to U.S. Cellular territory

From FCC's C and D Block auctions** Florida: Gainesville, Jacksonville, Ocala Indiana: Bloomington, Lafayette Missouri: Joplin, Kansas City, Sedalia,* Springfield Maryland: Salisbury* Oklahoma: Enid,* Oklahoma City* Tennessee: Cleveland D and E Block licenses purchased from McLeodUSA Illinois: Bloomington, Champaign, Decatur, Mattoon, Peoria, Rockford, Springfield Iowa: Burlington, Davenport, Clinton, Des Moines, Iowa City, Ottumwa Nebraska: Omaha *Markets where U.S. Cellular acquired two licenses **Pending outcome of NextWave case (see related story)

Ironically, while many analysts have written off wireless data in the rural market, Rooney sees possibilities despite his general views on the current state of deployments.

"The markets which are going to have the big play for data are the ones we have in our central core-cities like Milwaukee and Des Moines," he says. "You can't overlook the rural areas, either. From our standpoint, there will be a certain amount of data that they will need. We serve some areas where there are lots of very successful agribusinesses as well as other businesses."

But like his opinion on data deployments in general, it won't be rolled out before customers demand it.

"The one thing I've learned is telecommunications people have a tough time dealing with customers," says. "If you don't love customers you shouldn't be in this game. Our relationship with a customer is probably deeper than it is in any other industry. You fix a car or you sell them groceries, you see them once in a while. Here we touch customers every day. It is a tremendously intimate relationship with that customer."
Vince Vittore is Executive Editor for Telephony. He can be reached at vvittore@intertec.com.