CPP: Now or Never?

Remember the Telecommunications Act of 1996? It moved through Congress like an elixir salesman, promising multiple local exchange carriers and lower rates. So far, that competition has not materialized -- or at least not the way Congress expected. Instead of start-up LECs and cable TV companies vying for local-phone customers, wireless is emerging as the main competitor to incumbent LECs.

That could help resurrect calling party pays (CPP), which aims to blur the distinction between wireless and landline. Supporters say CPP would:

* Compel users to give out their wireless phone numbers and leave their phones on. Those habits also could help condition users to view wireless as a viable alternative to landline. As AT&T spokesperson Burke Stinson said: "If you're going to convince people to keep them on all the time like regular telephones, then two things have to happen: They have to remember what their cellular number is and give it out. The other is they have to think of this device in their pocket as a telephone no different than any other."

* Give users more control over their monthly costs. User demographics are becoming more diverse. No longer is wireless primarily for upscale and business users, who traditionally are more interested in convenience than cost. Today, wireless is affordable to most demographics, and if churn is any indicator, these new users are concerned about cost. CPP might help combat churn because users could leave their phones on and not be shocked by unexpectedly high bills.

* Increase traffic on wireless networks by 25% to 50%. That's been the case in countries that have switched from mobile party pays (MPP) to CPP. Additional traffic also should please the FCC because it means more efficient use of the spectrum.

* Increase per-subscriber revenues, which have declined because new subscribers do not use wireless as heavily as the early adopters. The additional revenues could persuade carriers to upgrade their networks because they would be assured of a return on their investments.

Old Wine in New Bottles CPP isn't a new concept. It has been tested and implemented sporadically in the United States since 1984, but a combination of factors, including opposition from state regulators and industry skepticism, has kept it from replacing MPP.

Until now. Interest in, if not support for, CPP appears to be growing. In June, AT&T Wireless concluded a 3-month trial of CPP in Minnesota, and in May CTIA asked the FCC to create national standards for implementing CPP. Technology has improved enough that near-turnkey CPP applications make it easier for carriers to route and bill calls appropriately. Even improvements in battery technology could play a role because they allow phones to remain on longer, and getting users to leave their phones on is a major goal of CPP.

There's another reason why the time may be right for CPP: Wireless rates continue to drop, and at 10 cents a minute, wireless is in a good position to siphon off landline customers on the basis of cost alone.

"I think wireless being a competitor to POTS is a more realistic scenario than alternate local carriers" for residences and small businesses, said Chris Witze, president of wireless-consulting firm Chris Witze & Associates and a staunch supporter of CPP for more than a decade.

And although CPP could prove a hard sell to carriers and the public in a country where flat-rate landline is perceived almost as a Constitutional right, some think that hurdle isn't insurmountable.

"Just the fact that it's being marketed, 'Hey, why are you paying for incoming calls?' will generate a momentum of its own," said David Kerr, Strategy Analytics director of wireless programs. "If you don't have CPP, you will start to see your market share erode. There's an air of inevitability that CPP will happen. Within two years, we'll be looking back and saying, 'What was the problem?'"

Flat-rate wireless also would help level the playing field with landline.

"There's nothing magical about cellular being a measured service," Witze said. "It can be flat rate. Anything you do that makes cellular look like POTS is a threat to their monopoly. Because once the only differentiation is that one is mobile and one is not, you've got real competition. And I think that potentially is much more apt to happen than any of this Telecom Act of '96 nonsense."

Have It Both Ways So could CPP alone transform the United States into a wireless Valhalla like Israel? Probably not. Earlier this year, Strategy Analytics found that in the fiercely competitive Boston market, reducing handset prices could be the biggest factor toward wireless achieving a 68% market penetration. The least important incentive? CPP.

"CPP itself is not the compelling driver for adoption among non-users," Kerr said. "If an operator introduces CPP, what it will do is allow them to gain two or three points of market share. The evidence we get from our research is that the first minute free alone increasing traffic is only a stepping stone, and to get to the level where they're going to generate 500 to 600 minutes a month like they do with landline, you absolutely have to have CPP."

Others see CPP more as an option that some users will want and less as an outright replacement for MPP.

"The jury's out whether this will be some huge mass market," said Maggie Rohr, Bell Atlantic corporate communications staff director. "There have definitely been customers asking for it, but I'm not convinced that this is going to be the end-all, be-all. I think it's an option for certain customers because that's the way they choose to receive their calls."

One demographic that might prefer to stay with MPP is business users, who regularly give out their wireless-phone numbers to encourage calls.

"I still think there will be a customer segment that is going to want to pay for the incoming calls," Rohr said. "It remains to be seen what market identifies itself as right for calling party pays."

CPP might be a tougher sell than a decade ago because of new features that already encourage users to give out their numbers.

"We feel that having caller ID, which we offer on all our digital phones, does the same thing," Rohr said. "I think we do deliver a lot of those services today with digital."

The PCS strategy of offering the first incoming minute free, which increased network traffic and balanced the ratio of incoming and outgoing calls, was an end run around many CPP hurdles.

"Everybody thinks, 'I can beat the clock,'" said David Berndt, Yankee Group analyst. "And then they end up talking for two-and-a-half minutes."

US West is one such carrier that opted for first incoming minute free.

"CPP was something we looked at back when we were in our entrepreneurial phase," said Janine Liscic, US West Wireless public relations manager. "It's just not something that we're looking at (now)."

Berndt argues that CPP's last chance might have been two years ago, when rates were higher and PCS hadn't debuted.

"It might have been a different story," he said. "Now, I think it's a race against the clock. I think the question we need to be asking in the United States is, 'Is it too little too late?'"

Others aren't convinced that CPP's window of opportunity has closed. "First minute free is like a stay of execution for the cellular industry," said Strategy Analytics' Kerr. "But it's just a matter of time before the appeals process is fully heard."

AG Communications Systems, developer of the INgage CPP application, also is bullish on CPP. Jeffrey Buck, technology and planning manager, said his company's research found carriers are divided.

"There are some people who feel that strategically this is absolutely critical and this will take over," Buck said. "There are other providers who, for various reasons -- falling airtime rates, problems they experienced implementing a network-wide solution -- just assume this will go away, and they don't see a need for it. I think it's leaning more toward the first group than the second group."

And that first group apparently has its eye on CPP's revenue potential.

"If there is a revenue potential for the carriers, then they will move forward with this," said Ajit Sadarangani, INgage senior product planning manager. "And the ones that have moved forward have asked only one question: 'How much money are we going to make on this?' They are also getting revenue from a (landline) client base that is not even theirs."

Increasing revenue and reducing churn might be enough to convince skeptical carriers.

"The thing operators need to realize is, their investments to implement CPP will be paid off very rapidly by the increase in volume," Kerr said. "I think you're going to be looking at a break-even on the investment of probably under a year. "The bottom line is that, certainly in most of the leading markets, if you don't have CPP available, then you're really going to be struggling, certainly within the consumer market."

Calling party pays (CPP) is a lot like soccer:Outside the United States, it is popular to the point of being a way of life, but that's still not enough to convert the skeptics here. Yet if Cellular One's experiences in Arizona are any indicator, CPP can be a success.

"CPP has always been an attractive feature for us," said Greg Klimek, Cellular One president. "In the Southwest, it became a generally accepted business practice to have a CPP number. It did promote a lot more calling activity and a lot more inbound calling activity. I think we've had great success with the service here, so that will prove other carriers will have the same success."

Cellular One has offered CPP since at least the early 1990s, when it was created out of the old Metro Mobile, and also offers the first incoming minute free with certain digital, analog and PCS packages. Subscribers who opt for CPP pay $2.99 a month, and callers dial 1, the area code and the number.

Although CPP has been a success for Cellular One, one drawback is that it is a local service. So if an incoming call originates from outside the CPP subscriber's home-service area, Cellular One can't bill that caller, and the subscriber must pay the regular airtime rate. That is one reason why Klimek is encouraged by the possibility of national CPP standards.

"What we'd like to see is CPP become a national standard almost like the roaming clearinghouse so there are national billing tapes generated," he said. That way, "it doesn't matter where someone calls from or what mode they call from; it's going to be cleared properly to the right billing party. I think that standard is a very important thing for the industry. It would solve a lot of the problems that we've had."