Absolutely AT&T

The event was significant. Dan Hesse, AT&T Wireless Services president & CEO, was in Los Angeles in February to receive a 1997 Award for Excellence in Corporate Community Service from the Points of Light Foundation.

The company was impressive. Hesse was sitting next to former President George Bush who was making the presentations.

But the phone was . . . analog.

"I thought it was kind of ironic," Hesse said. There he was sitting next to the former president, a very security-conscious person surrounded by Secret Service agents, and Bush pulled out a small phone immediately identifiable as analog.

Hesse cited the example of Newt Gingrich and the problems he got into when his conversation on an analog phone was overheard.

"How could he (Bush) be security conscious and have an analog phone, not a digital phone?" Hesse asked. "I told him about it."

Chances are that Hesse was pretty convincing, too. Here is a man who speaks in absolutes when discussing the wireless industry and AT&T.

What does he think of digital service?

"The ultimate win-win."

Did he ever doubt AT&T's TDMA technology?

"Never."

What about the concept of blending digital 850 and digital 1,900 service?

"It makes absolute, perfect sense."

DIGITAL MIGRATION The rest of the industrialized world is well ahead of the United States in wireless technology, and the manner and timing of this country in moving to digital is the megatrend facing everyone, Hesse said.

"That's why we're happy with the lead we have and intend to put the foot to the floor in getting digital," Hesse said. He recited the litany of benefits: batteries last 10 times longer; secure voice communication; very little cloning due to authentication keys; receiving e-mail; incoming caller ID; better sound with new vocoders; and, best of all, the fact that digital service can be provided at a lower price due to lower costs.

"We really ought to be charging more for digital," Hesse said. Not just because the phones are more expensive, but because digital is a much better service than analog, he said.

Each carrier has its own competitive strategy based on its strengths, Hesse noted. And AT&T's strengths?

"We're a great national company with a national brand and with IS-136 capabilities. That drives us in a certain direction," he said.

CAREER TRACK Hesse, 43, has spent just 10 months at the helm of AT&T's wireless operations. However, he is an anomaly in business and industry today because his entire working life -- more than 20 years -- has been spent as an AT&T employee, starting as a summer intern between his two years in business school. During that time, he had a chance to learn about the company's international division and decided that international communications was going to explode. So after graduation, he told an AT&T recruiter that he wanted to be in the international division.

The international division only takes experienced people, the recruiter replied.

"Well, if you want me to come to work at AT&T, it will be at the international division, and it won't be anywhere else," Hesse responded. Apparently AT&T decided it could bend a little on the experience requirements.

"I wasn't even an employee of the company yet, and I could tell them where I wanted to work, and they listened and worked with me and made it happen," Hesse said. "I've done that my whole career."

The Notre Dame graduate, who has an MBA from Cornell and an MS degree in management from MIT, has held positions in network operations, network engineering, human resources, product management, strategic planning and sales.

Today the place Hesse wants to be is exactly where he is, in wireless, the "growth engine of the firm."

"If you listen to Mike Armstrong, our chairman, the single most critical element to AT&T's future will be the capability in wireless communications," Hesse said, following a 2-day meeting with Armstrong at AT&T Wireless' Kirkland, WA, offices. "It's fundamental to our growth. There will be an awful lot of displacement or movement of what goes via fixed wires. We have to be a leader in wireless."

In fact, when major players are listed in different areas of wireless communications, AT&T often tops the lists, and not just for alphabetical reasons. It is divided into five business groups.

Cellular: Providing wireless service to more than 8 million customers at the end of 1997, including more than 2 million digital customers, AT&T is intent on making the transition from analog to all digital. AT&T Digital PCS is digital service at both 850MHz and 1.9GHz. Additional North American coverage is provided through an agreement with Cantel in Canada.

* International operations: AT&T is involved in wireless operations in Columbia, Hong Kong, India and Taiwan.

* Wireless data: Commercial data service is available in more than 70 major markets.

* Paging: AT&T messaging services cover 16 states.

* Aviation communications: Air-to-ground and ground-to air voice and data service is provided for 15 airlines and corporate aircraft.

Then there is fixed wireless service, now being tested in Chicago, which will provide fixed radio communications paths between an antenna site and a customer's home or business. Services will include wireless Internet access and the ability to use a digital PCS phone as a home phone at local service rates.

AT&T also is well covered in the satellite arena. It is a share holder in American Mobile Satellite and a 15% owner in Teledesic, which will provide 2-way broadband connections.

COURTING THE BUSINESS USER By now, almost everyone knows that AT&T's wireless strategy involves a major emphasis on the business segment of its customers. After all, wasn't that reported in The Wall Street Journal?

It's clear Hesse has heard enough about that particular article. "Read that article closely and you'll realize that I was never quoted," Hesse said, adding that some people have interpreted the article to mean that AT&T is defocusing on the consumer market. This is not true.

"What I did say is that most people didn't realize that 50% of my revenues are from the business market," Hesse said. He has moved the relatively small wireless sales force into the AT&T business markets division, and now is using the huge sales force of the entire corporation to sell wireless. As a result he expects a much larger penetration of the business market.

"At the same time I'm adding retail outlets all the time and expanding my consumer marketing ability," he said.

And why was Hesse announcing his business strategy to his competitors?

"That was the one really nice thing about the article -- people got the wrong strategy," he said.

ANYWHERE, ANY TIME So what is AT&T's wireless vision?

"We see your wireless communicator of choice being able to follow you anywhere, any time," he said, holding up a small, Nokia tri-mode phone. "This little guy, here," he added.

Hesse was giving the new phone a trial run and was enthusiastic over its capabilities, particularly its Li Ion battery which provides 350 hours of standby time.

"I can leave this thing on for two weeks," Hesse said. And tri-mode is definitely part of the AT&T vision. The real functionality of the network becomes apparent when the customer is in digital, and the beauty of tri-mode is that you have such an enormous digital footprint, he said. AT&T can work with new PCS partners that use IS-136, at 1.6GHz and some of the old cellular companies that use IS-136 at 850MHz. With tri-mode phones, customers can access any and all of these networks.

"It's not so much the technology, but the notion that I will be able to get my digital features practically anywhere because there will be somebody there that has an IS-136 footprint," Hesse said.

Currently the AT&T footprint covers 24 of the top 25 markets in the United States and eventually will cover all 25. In Canada, Cantel has built a network that is completely seamless with AT&T. The same thing is happening in Latin America where IS-136 also is prevalent. AT&T has announced many partnerships in the past months (Cincinnati Bell, Cellular One, Comcast Cellular, Dobson, Telecorp and Triton PCS). More will come, Hesse said.

A network using both 850 digital and 1,900 digital is something that "anyone with a brain" should be able to understand, Hesse said. "It's like 2-lane roads and 4-lane roads. My car will go on both."

But competitors do try to make it an issue, he admitted.

The real issue is how well a digital technology will work with analog, Hesse said, adding that he can go seamlessly between digital and analog, not just between the two digital bands. He said the only difference between 850 and 1,900 is that his 850 licenses are a little more valuable because 850 carriers have a slight advantage in in-building coverage.

TDMA also is invaluable to AT&T's communications strategy because, he claimed, at this time, no other technology allows wire-less office service. The ability to move seamlessly from the mobile to the premise environment is, in Hesse's words, "absolutely critical."

Describing AT&T's Wireless Office Service, which is installed at his headquarters, Hesse said it's a set of antennas that provides what appears to be a cordless phone network for everyone in the building. When he walks into the building, his phone knows it's on the private network. When he leaves, it knows it's on the public network. As long as he has access to TDMA, he can dial 4-digit company extensions, even from Uruguay where he recently attended a meeting of the Universal Wireless Communications Consortium.

The other piece of this particular equation will be personal base stations for the home -- kind of a mini version of the wireless office service -- which will allow subscribers to treat their wireless phones as cordless phones and be charged accordingly for calls made from the home.

"The real growth in wireless will come not from mobility, but from where people spend most of their communications dollars, at home or at work," Hesse said. "They use wires today for that."

More than 300 companies today have AT&T Wireless Office Service. One of them is Sony, and, according to Hesse, it has changed the way that company operates. People always are accessible, and the phones have become a part of their lives.

Hesse noticed this when he visited Sony in Oregon to check out the installation. A group went to see the Oregon Ducks play Washington State.

"Everyone had wireless phones, and they were in different parts of the stands, and they all were talking to one another -- talking about the game," Hesse said. Wireless office customers use their wireless phones an average of 50% more outside the office than those that don't have wireless office.

There's another statistic Hesse likes. For those 300 companies that have AT&T Wireless Office Service, churn is zero.

"We have yet to have a single company say 'come and take it out.' Not one," he said.

One of the beauties of IS-136 is that it already meets about 80% of the requirements for third generation with its ability to go from public to semi-private to private networks, Hesse said. He believes that the other technologies eventually will get there.

"But I have it now," Hesse said.

LITTLE FISH; BIG POND? AT&T Wireless clearly is home base for now, but when Hesse says "we," he is just as likely to be talking about AT&T corporate as he is about the wireless subsidiary he heads. For example, he talks about the company's "end-to-end communications strategy," and he keeps an eye on such AT&T deals as the merger earlier this year with Teleport Communications Group, which will be instrumental in bringing AT&T into the local business market.

So when he was asked about the "big fish gobbling the little fish" analogy, Hesse cited an AT&T annual report of several years ago with a tiny fish on the cover.

"In the world of global communications, we're a small fish with only one or two points of the market share," he said. Recent global alliances are raising the height of the bar in terms of size, and companies interested in the business market will have to be able to provide service every place that a company does business. That includes all 50 of the states and the 60 to 70 leading countries. It includes local and long-distance, wireline and, definitely, wireless.

"One of the things I've been lucky enough to do in my 20 years at AT&T is to be on whatever is the cutting edge of the company," Hesse said.

Residents of Seattle tuning in KOMO TV news a few months back might have spotted Dan Hesse cruising the halls of the AT&T Wireless Services headquarters with a CEO-sized water gun, shooting employees who flaunted the dress code (by being too well dressed) and getting shot in return.

The piece, spotlighting companies that go the extra mile for their employees, illustrated a facet of the old McCaw culture that still is very much in evidence at AT&T -- having fun.

McCaw Cellular merged with AT&T in September 1994 and changed its name to AT&T Wireless Services in September 1995. When Hesse took over as president & CEO in May 1997, he was the first non-McCaw person to lead the company. Because Hesse is a 20-year AT&T man, there was speculation on whether he would bring any cultural changes.

A July 1997 article in Washington CEO magazine was willing to give him the benefit of the doubt, reporting that on his first day at work, Hesse told everyone to leave at 2 p.m. in order to enjoy the rare sunshine. The magazine also noted that AT&T Wireless Services had just won its third straight blue ribbon in the local Best Companies to Work For competition. Hesse can't take any credit for that, but he will take the rap if the company doesn't "four-peat," the magazines noted. Awards are made in July.

"I love the McCaw culture, and I work very hard to maintain it," Hesse said, mentioning the spirit of entrepreneurship, community service and the "can do" attitude. Recognition at the company is not only done on a boss-to-subordinate basis but also peer to peer.

And the AT&T culture?

"When you read about the AT&T culture...," Hesse paused, "there is no AT&T culture." Each division of the company has a different culture, he said. The Internet division, which he ran before coming to AT&T Wireless, was a unique culture. The international division was only 2% Americans, so that was another culture. Wireless is different still.

"AT&T as a company is learning a lot from the old McCaw culture," Hesse said.

Nick Kauser is very convincing when he talks about the merits of TDMA technology. After all, he's had lots of practice convincing the uninitiated -- or perhaps preaching to the unsaved might be a better way to put it. The wireless standards wars in the United States often are dubbed the religious wars.

In fact, Kauser can be credited with at least one conversion.

Right after AT&T purchased McCaw Cellular in 1994, there was speculation about which technology would win out. At the time Kauser was McCaw's CTO, and McCaw was strictly TDMA.

Meanwhile, Bell Labs was promulgating the use of CDMA, Kauser said.

"Everyone said, 'Oh, AT&T is going to make McCaw change,'" Kauser recalled. "At that time we set up the first of several technology roundtables, chaired by the then president of AT&T Bell Labs. We presented our vision and why we were doing it, and it was accepted unanimously." He noted that religious issues of this nature usually turn out to be financial issues in the long run.

Since then, AT&T went through trivestiture and Bell Labs (now Lucent) went its own way. AT&T Wireless continued with TDMA, and Kauser continued with AT&T Wireless as executive vice president & CTO. Kauser has been involved in the same scenario at least two more times as AT&T corporate has changed leaders.

"Each new president says, 'Are you sure you know what you're doing?' And it gets examined and re-examined every time. So far I think everyone's convinced that in actual fact we do have the right technology," Kauser said.

"I always believed that TDMA was the correct approach, not just because of the technology, but the fact that the technology fit more with what we discovered were the customers' needs," Kauser said. There are just so many people who will be out walking or driving with a phone. The real growth in wireless will be indoors, and, Kauser noted, TDMA is the best indoor technology.

"For indoor applications, you should have power from the indoors and not rely on a public cell," he said.

There are two reasons for this. The first relates to coverage. If outdoor cells are used, the quality of coverage inside the building depends on the distance from the cell, the type of material used in the construction of the building and the size and shape of the building.

Telephone traffic requirements of the office are another issue. If everyone in an office building gets out of a meeting and runs to the phone at the same time, a carrier doesn't want that affecting the outdoor traffic on the public cell. Likewise if there is a traffic jam outside and everyone is using a phone, it should not affect the in-office traffic, Kauser said.

Because TDMA has many narrow 30kHz channels, it is more suitable because you can take 5,6,7 or 8 of these, borrow them for indoor applications and isolate them from the outdoors. It's the narrow-channel nature of TDMA that permits AT&T Wireless' wireless office concept.

And starting next year, the idea of indoor coverage will be extended to the home with a personal base station that plugs into a phone jack so a PCS phone will become a cordless phone at home.

The missing piece is high-speed data, but that's coming in the third generation (3G), Kauser said. The 85-member Universal Wireless Communications Consortium -- the organization formed to support the IS-136 technology complemented by the wireless intelligent network (WIN IS-41) -- announced at CTIA Wireless '98 how it is going to use its technology to provide 384kb/s of data by the turn of the century.

Kauser is pleased that 3G has been defined in terms of the services it should provide, and that one of them is the concept of public, semi-private and private service capabilities.

To see an international body define that as one of the few requirements for third generation gives AT&T some satisfaction, especially since it can provide that service today.

"Hopefully we will have two to three years before the other technologies get it," Kauser said.