What Hath George Wrought?

It was a good day for Omnipoint. The local Fox TV affiliate had tested AT&T Wireless, Bell Atlantic Mobile (BAM), Omnipoint and Sprint to see which offered the best coverage of New York City.

"Little ol' Omnipoint with its funny parrot had the best network," said George Schmitt, Omnipoint president. "Surprise, surprise."

More surprises soon followed. Last month, Omnipoint offered its own 1-rate plans, among them Omnirate North America: 99 dollars and 99 cents for 700 minutes, including long distance, from anywhere in North America. An international calling plan, featuring flat-rate pricing to more than 40 countries, is aimed at people who travel and call outside the United States.

How can Omnipoint afford to offer such competitive rate plans? One clue is the placard outside Schmitt's office that warns: "Don't Tell Me Why You Can't. Tell Me How You Can." Another is its Cedar Knolls, NJ, headquarters, housed in a nondescript, Soviet-style concrete building. Inside, it buzzes like a Silicon Valley start-up. Take the offices, for instance: There aren't any. Everyone, including Schmitt, works in a cubicle. His view, if he should find time to take it in, is a good 20 feet away and of a parking lot.

"We're a few billion dollars in debt," Schmitt said. "What we're trying to drive into people is that we've got to put our money not into fancy trappings and fancy offices and nice carpets but into the stuff we need to serve customers well. People know that when they come here. They know that their hope of having a big, private office is zero, at least as long as I'm around. Their hope of having the very best equipment around to serve customers is a reasonable one, and they'll have that. Our networks aren't perfect yet, but for a company that's been at it less than three years, they're a hell of a lot better than anybody else's 3-year-old network ever was."

THE MANHATTAN PROJECTBuilding that network was a feat in itself. Omnipoint launched in November 1996 in New York City, a place that's become an adjective for describing an environment one frustrating notch above dense-urban. For Chris Resavy, senior director of network engineering and operations, it was his fourth Big Apple build-out, and he was determined to take a fresh approach.

"I had very long discussions with George that we needed to spend some additional capital and build this thing right," Resavy said. "We built Manhattan between 30 to 50 feet above ground. In doing that, it takes a lot more sites. However, you put the coverage on the streets, where the people are."

A ground attack yielded another benefit: better in-building penetration, difficult in a city where many older buildings are made of granite, and newer buildings often have window tinting that can attenuate signals by more than 20dB. Equally as challenging was working with The New York City Department of Buildings and The Landmarks Preservation Commission, which were skeptical that Resavy and his 30-plus contractors could disguise antennas.

"We did a lot of work with the buildings department and basically said, 'This is what we need to do,'" Resavy said. "They looked at us like we were smoking something. They said, 'How do you expect to do this?'"

With the launch deadline looming, Resavy convinced officials to streamline the permit process by accepting 81/2-by-11 filings rather than complicated drawing sets. But after the launch, the remaining coverage holes were centered around landmark-status buildings. Resavy wrangled a couple of sites out of the landmark committee on the condition that if they passed muster, more permits would follow.

Delays in getting T1s also threatened to scuttle the launch, and Schmitt acknowledged that if he could do it over, he would postpone the launch.

"I never worried that we could technically build the system," Schmitt said. "We launched New York too early. I had set a date, and our network wasn't as good as it should have been. We should have waited three more months. But unfortunately, before I realized I was going to have so much trouble getting T1s, we set a date, and I had a half-million bucks committed. So we did it. It was a mistake."

IN ONE ERA & OUT THE OTHERFox TV's admittedly unscientific survey is one indicator of how far Omnipoint has come since then. Solid coverage indoors and out should help as Omnipoint positions itself as an alternative to wireline. Resavy won't comment on his plans for wireless local loop (WLL), but it's clearly on his mind.

"If you look at some of the articles that have come out recently about having to wait upward of 120 days for a second line in some buildings in Manhattan (and) having to put down deposits of over 250 dollars in order to get service, there are opportunities out there," Resavy said.

Omnipoint has flirted with WLL through IS-661, a spread-spectrum GSM overlay developed by sister company Omnipoint Technologies to increase capacity. But the rapidly evolving industry has derailed IS-661 as a vehicle for WLL. Schmitt sees IS-661 more as a valuable learning experience and stepping stone than an ace in the hole.

"The features of IS-661 are all fine," Schmitt said. "The problem is, there are no economics behind it anymore. I'm not sure I'll ever market it. What we learned from it were a bunch of other things. We would have never gotten into the meter-reading business without IS-661 experience. We would have never gotten into wireless security-system cameras. We would have never had to sit around and think about applications that we could use our technology for. Then we found out that with GPRS we could do it without having to build a passel of other stuff. It pushed our thought process in other directions than we would have gone without it. It still has some wonderful patents behind it, and some of them are going to get involved with 3G, for sure."

BULLISH ON DATAOmnipoint's debut of GPRS later this year won't be its first data venture. Wireless data, in one form or another, has been a staple since its launch. Currently, all subscribers can send and receive e-mail from their handsets and have the choice of one free content service, such as news or sports, with the option of adding dozens of others. Omnipoint believes data is key to the company's future and to the future of wireless.

"It was a way to be different," Schmitt said. "It gave us something that nobody else could do integrated into a single phone. We wanted to show people that their phone was more than just a device to talk on. We wanted to have some things that were different, and they were. Have they been tremendously financially successful? Probably not, but we're not losing a lot of money on them, either."

Schmitt acknowledged that data's value as a market differentiator has slipped somewhat. In New York, for example, Omnipoint competes with AT&T, BAM and Sprint, which also offer data services. But he's convinced data helped establish Omnipoint.

"The marketplace is finally understanding that Omnipoint is a real player," Schmitt said. "I think that the information data services we have have helped us with that."

WINNING FRIENDS & INFLUENCING PEOPLEA loan is a bet, and so far, Omnipoint has been able to convince vendors and investors that its vision of wireless will pay big dividends. In December, Omnipoint's parent company inked three separate financing deals with Nortel, Siemens and an unidentified party worth a total of 375 million dollars.

Charles Disanza of Gerard Klauer Mattison & Company is one analyst who thinks Omnipoint's future is bright. Disanza reiterated its stock as a "buy" in February based on its fourth quarter 1998 net adds, a company-record 102,000 despite the bankruptcy of a major New York/New Jersey reseller.

"They start this year at 46 million (POPs) with Indianapolis and Detroit on," Disanza said. "They'll end the year with maybe close to 60 million, presuming they get a strategic partner and some capital. In my opinion, they should have about 500,000 net adds, maybe even more, this year."

There's potential to add still more with the help of calling party pays (CPP), which Omnipoint trialed last year. The technological hurdles proved minor compared to the politics of convincing LECs to bill the calls.

"We know how to make it work technically," Schmitt said. "The biggest hurdle is getting somebody to put it on the bill."

CPP advocates include FCC chairman William Kennard, who at CTIA 1999 said, "It's time for us to find a way to implement a CPP system." Kennard, like Schmitt, sees it as key for positioning wireless as a replacement for wireline.

"There is no way I can make an argument to you as a consumer that you should throw away your wireline phone when I make you pay for an incoming call," Schmitt said. "I think what Bill Kennard did was probably the most forward-looking step that any FCC chairman has taken in 20 years. I can't think of anything that can change the competitive nature of the communications industry (more) than that. I'll do everything I can to support his efforts to the point that I'll commit to stopping incoming charges for my customers the day that I get compensated fairly for incoming calls whether it be directly through CPP or some other cost-of-service requirement."

One area where Schmitt broke ranks is LNP, which, contrary to popular belief, isn't something he necessarily supports. Although Omnipoint refused to join the industry's call for postponing wireless-to-wireless portability, Schmitt doesn't see LNP as a decisive issue for wireless.

"I don't like to cop out on things," Schmitt said. "Technically, we could do it, and we have always been able to do it. So I would not allow CTIA and PCIA to say what they were saying about other carriers, that technically they couldn't figure out how to do it, and it was going to cost a lot of money and take a lot of time. A lot of people interpreted that to mean that I was all for wireless number portability. Personally, I couldn't care less. I don't think it's going to make us or break us. We were not willing to say that technically we couldn't do it. That's all. This is, to me, not a killer issue like CPP."

OVER THERE, BUT WHAT ABOUT OVER HERE?What has the potential to be a killer issue is spotty GSM coverage in the United States. In February, the GSM Alliance, which Omnipoint helped found, and the UWCC announced an historic agreement aimed at achieving worldwide interoperability between AMPS, GSM and TDMA. But Schmitt doesn't see that dtente as a decisive step toward making GSM as dominant here as it is in Europe. Besides, he argued, GSM covers roughly the same number of POPs as Nextel or Sprint.

"The real issue that GSM has is pretty plain: We don't have Chicago and Dallas covered," Schmitt said. "If those two cities get covered, then you have a virtual nationwide network. You can go from Key West to Canada and only in Richmond and Norfolk not have coverage on the East Coast. The licenses that GSM has now cover the United States except for those few cities. If we don't get Chicago and Dallas, then the UWCC agreement becomes a lot more critical to me than it is right now."

In the meantime, Omnipoint is aggressively positioning itself as the carrier of choice for the lucrative international-traveler market, thanks to its 76 roaming partners in 44 countries and coverage of the New York metro area and major international airports, including Kennedy, Miami and Newark. It also is cultivating partnerships with airlines to target international travelers. In November, Omnipoint worked with Alitalia to target every Italian who had traveled to the United States over the past year with a mailing about how to get a GSM phone in the United States.

"In a month, we quadrupled the volume of roaming traffic from Italy and the number of calls back to Italy," Schmitt said. "We're now working with a number of other airlines to do the same thing. Our goal is to get everybody who travels back and forth to the United States to understand what they have here."

One apparent convert is renowned investment manager Mario Gabelli, who met with Schmitt before a trip to see King Juan Carlos of Spain.

"I had my Bosch World Phone with me, and he said, 'That thing will never work in Europe,'" Schmitt said. "So I handed him my phone and said, 'Okay. Here's the phone number. You go use it.' He went to Europe the next day, and he got a phone call while he was in the vicinity of the king. He wrote me back a note, which I still have: 'What hath George wrought?'"

WORKING WITHOUT A NETWhat he's wrought is a risky but frisky upstart that attracted many of its 1,500 employees with the opportunity to be different -- and make a difference. Resavy is one.

"What attracted me to Omnipoint was the potential of what we had to offer to the customer and the fact that it could be different than what we had done up to that point," said Resavy, whose 18-year wireless career includes stints at Cellular One, GTE, McCaw and Nynex. "I think the PCS market has spurred a lot of new competition that may not have gotten here otherwise. I think we've gotten to the market pretty quick. In the metropolitan areas, that has forced the stodgy, old way of doing business to be more consumer-oriented."

Schmitt's wireless career includes AirTouch, Mannesmann Mobilfunk in Germany and PrimeCo, all large, established carriers that offered comforts ranging from proven technology to cushy offices.

"I had some really, really nice offices," Schmitt said. But "I wanted to bring the technology that I thought was the best technology in the world to this country. I had built GSM networks around the world, and I've seen every technology and flavor. I just don't think that there's anything with better voice quality or better ability to serve customers than GSM. I think that if you look at our cost structure and what we've paid to build out a network, we've done it for less than anybody. Our networks are at least as good as anybody's.

"I wanted to have something that lasted," he said. "I want something that's going to last longer than me, and that's why I'm here."

If achieving his goal -- "providing customers with the greatest value for their money and getting people not to feel the need to have a wired phone anymore" -- means rewriting the rules, then so be it.

"If we can do that," Schmitt said, "all the rest of those things that the world thinks are important, such as penetration and earnings, they all come with it."

President: George Schmitt

Headquarters: Cedar Knolls, NJ

Founded: 1995

Launched: Nov. 14, 1996, in New York City

Major markets: Boston, Detroit, Indianapolis, Miami, New York City and Philadelphia

International: 76 roaming partners in 44 countries

Subscribers: More than 400,000, as of January 1999

Technology: GSM, including GPRS

POPs: Licensed to cover more than 88.8 million people

Licenses by block: A: 1, C: 4, D: 24, E: 44, F: 50

Employees: Approximately 1,500

Web site: www.omnipoint.com

Parent company: Omnipoint, Bethesda, MD. Founded 1987. Stock symbol: OMPT (NASDAQ).

Sister company: Omnipoint Technologies, Colorado Springs, CO. Products include IS-661 GSM overlay and Redhawk 2000 wireless-data system.

Web site: www.omnipoint-tech.com