Myth & metamorphosis

To hear one member of the old McCaw Cellular guard tell it, the current evolutionary track that AT&T Wireless Services is following seems to have been the plan all along.

"We always envisioned one network that would provide all services all the way to the individual," says Bill Malloy, executive vice president of wireless operations at AT&T Wireless and one of the company's last McCaw holdouts. "It's been a step-by-step process."

Malloy's version of events reveals that the company planned for eventual integration with a large network entity even before the 1991 acquisition by AT&T. According to him, the wireless carrier has been in a state of preparation all along: planning a network evolution path, studying potential new services and generally working to become bigger and stronger.

"We knew we had to link it to the largest transport platform on Earth," Malloy says. "It was always that scale."

As it approaches the probable culmination of that planning-presumably, the complete assimilation of AT&T Wireless by its corporate parent-the company has begun to accessorize. New network configurations and applications are the subjects of frequent rumors, and new services that look more wireline than wireless are being introduced all the time.

Where will it all end up? It's difficult to predict, especially because most aspects in this industry are in an ongoing state of change. AT&T Corp. is clearly adapting both the network and strategic roles of its wireless unit, but even that unit's top dog is still unwilling to specify wherethat effort might lead.

"You'll see a lot more bundling and interoperability of features and capabilities between the wireline and wireless networks," says Dan Hesse, president and CEO of AT&T Wireless.

Seeds of change Most of the recent customer successes of AT&T Wireless are likely due not to advanced applications or new technologies, but to the ongoing strengthening of the carrier's network footprint and innovations in pricing and marketing. The strongest stimulant to business so far has been the introduction earlier this year of the carrier's One Rate plan, which bundles per-minute, national roaming and-most important-long-distance charges into a flat-rate pricing scheme.

"We are putting users on our network that weren't on any network before," Hesse says. "We have seen a sizable increase in long-distance traffic, and One Rate has clearly stimulated that."

The ability to bundle long-distance by leveraging the parent company's network quickly distinguished AT&T Wireless from its industry peers, some of whom have since emulated the carrier and introduced similar plans by bundling long-distance resale. But no other carrier besides AT&T Wireless-not even Sprint PCS-has made the crucial competitive move of eliminating long-distance access charges from its expenses.

"This way, we're capturing that revenue ourselves," Hesse says. "There's no question that this has helped us."

Besides bundling and pricing, the next largest concern for AT&T Wireless is service enhancement, specifically in the area of data. Like other large wireless operators, AT&T Wireless has been involved in wireless data for some time but has just recently begun to reap any value from it. Cellular digital packet data technology has enjoyed some success with horizontal apps but doesn't really have the muscle to handle the horizontal market.

That has not deterred AT&T Wireless or any other carrier from focusing strongly on network evolution, the impetus of which is the ability to transport data services.

"Data is clearly driving the huge growth in telecom," Hesse says. "The amazing thing is that wireless has been able to sustain huge growth with very little data."

AT&T Wireless is still fairly conservative in its view of wireless data. Even with the changes planned for the network, Hesse expects only about 10% of AT&T's wireless revenue to come from data within four years.

"Voice will be the killer app on wireless," Hesse says. "Landline will always have a speed advantage. Customers will want to plug in when they're at home and connect in a wireless fashion when they're not."

The carrier's work on adapting its network is therefore very measured and gradual, and it is very connected to customers' voice usage patterns. Initial services AT&T Wireless will introduce to its customers will probably be directory access, limited e-mail capabilities and personal contact list applications, says Rod Nelson, the carrier's vice president of engineering.

"We continue to see the fastest growth in data applications that improve the usefulness of wireless voice," Nelson says.

The way there No matter how limited or eventual the data capabilities of the AT&T Wireless network may be, the carrier must still forge an evolutionary path to keep with the times. Third generation, or 3G, has become more than a buzzword in wireless circles; the concept sparks passion and heated competitiveness from all sides of the issue. Anyone who's anyone is going 3G or at least talking about it.

But AT&T Wireless-and, indeed, all the carrier supporters of IS-136 time division multiple access (TDMA) technology-are taking a very step-wise approach to network alteration. The plan is for the network to evolve in phases and eventually link with GSM technology at one of the stops on that platform's road to greater bandwidth and data capabilities.

"We're pursuing a very pragmatic evolution plan with the hope of being able to bring service to customers as quickly as we can, given the spectrum limitations in the U.S.," says Nelson. "If we want to introduce these services in the short term, we have to work with what we have. By taking an evolutionary approach that deals with the spectrum question, we'll have an advantage in the short to medium term."

The steps in that plan include a version of the technology platform called IS-136+, which is essentially today's IS-136 with the addition of packet data at rates of 56 kb/s rates.

"The benefit of this approach is that it's mainly a software upgrade," Nelson says. "Some interface equipment will likely be needed at the switches, but at the base stations it's mainly software."

The next step, called IS-136 High Speed, is the point at which the technology would converge with GSM's Edge to allow similar 3G applications and transport processes to be developed. For AT&T Wireless, the IS-136 HS phase will require a base station upgrade, he says.

"That speaks to another element of the strategy," Nelson says. "With IS-136 HS, we're going to be converging with some of the elements of GSM networks. That convergence is going to have a benefit in terms of worldwide connectivity."

The rest of the story? Perhaps because of its name, size and commanding market position, AT&T Wireless is the frequent subject of speculation and leaks about its technological and business strategies. Most of them turn out to be true.

By far the most public and compelling of these secrets was last year's revelation about the carrier's wireless local loop plans, by which AT&T was going to leverage the ample spectrum holdings of its wireless arm and deliver local loop bypass services to residential customers.

AT&T's recent move to acquire Tele-Communications Inc. and its cable TV network holdings appeared to mark a shift in the company's local access plans that would steer it away from the wireless approach. But executives in the wireless business-in their customary non-specific manner-maintain that the development of a fixed wireless solution remains active and will ultimately be leveraged in some form.

"We'll be using our wireless spectrum as an initial part of our local service play-both fixed and mobile," Hesse says.

More recently, rumors began circulating that AT&T Wireless was considering a dispatch play that would make the carrier more competitive with enhanced specialized mobile radio operator Nextel, which offers push-to-talk and group calling functions along with digital mobility service. Again, company representatives refused to comment specifically, but one did address his perception of Nextel's advantages.

"The most important thing they have that we don't is free mobility-to-mobility calling," says Jordan Roderick, executive vice president of wireless products for AT&T Wireless, during an interview at PCS '98 in September. "That is far more frequently used than group calling-group calling is the minority as far as traffic is concerned. People like to be able to talk within their workgroup for free."

Roderick says Nextel's push-to-talk dispatch service for group calling would be logical for many AT&T Wireless customers, especially for organizations such as railroads that must communicate time-critical information to avert disaster situations. "If they could get that function over a cell phone they would prefer it over Nextel because of the coverage," he says.

He would not expound on the possible technology options for pursuing such a strategy, other than to say that the carrier wants to deploy a fast solution and that it would not be an overlay like Motorola's integrated dispatch-enhanced network architecture.

"What we're targeting right now is something we can do relatively quickly," Roderick says. "We will not be deploying iDEN."

Ericsson, one of the main infrastructure vendors for the AT&T Wireless network, does have a platform that would allow a company such as AT&T Wireless to make some of the necessary network alterations relatively simply and within regulatory guidelines. Ericsson's D-AMPS Pro technology is an adjunct to IS-136 TDMA mobile switches that enables group calling functions and could ultimately transform a standard digital cellular network into one with enhanced dispatch capabilities. Ericsson's switch-based approach would allow AT&T Wireless to sidestep regulatory issues that prevent cellular carriers from deploying full dispatch capabilities in their networks.

Business in the future The significance of all the definite and possible strategy shifts of AT&T Wireless are likely to have repercussions even beyond the company itself. Things such as closer technological and strategic ties to a wireline network and the introduction of more wireline-like services indicate very real changes in the autonomy and definition of the wireless market.

How will the designation of wireless as a standalone industry fare in all this? Again, Malloy's viewpoint is the most intriguing, comparing the metamorphosis of the wireless market to the way the role of word processing has changed in the computer industry.

"I don't see why this won't take on the same direction," Malloy says. "A lot of the services that grew up a la carte start to bring some real utility when you bring them together. People are starting to understand the services and how they want them to come together."

As for the competition, Malloy predicts that smaller wireless entities will take one of two approaches: Either they will identify and pursue more limited services opportunities or they will be swallowed up by larger wireless or wireline players.

"You'll see some that can't get the scale, so they'll carve out a niche," Malloy says. "You'll also see a continuing series of consolidations by which people will try to get to levels of scale."

At the crux of all this is the recognition that the viewpoint of the wireless operator must be broadened, even if the services it can offer only can go so far because of certain technological restraints.

"It isn't just about this thing called voice anymore-it's about voice and data and content," says Malloy. "The juggernaut of the future will have all of these capabilities."