The Road to Local Competition

Early this summer, FCC Chairman William Kennard gave hope to wireless local loop (WLL) optimists when he announced plans to lobby a campaign to jump-start competition in the local service market. Kennard reiterated his position during a speech at PCS '98.

"We must bring competition to the local loop. ... WLL is a critical and important step to making that happen," he said.

Despite this nod of support from Kennard and mainstream media reports that wireline customers are cutting the chord for wireless, there still is much skepticism and uncertainty surrounding U.S. WLL efforts. Many carriers still hesitate to discuss their plans publicly. Some simply want to avoid the negative publicity that comes with an uncertain project that may or may not meet expectations; AT&T Wireless Services learned this lesson after its much-publicized efforts for Project Angel fell under scrutiny. Meanwhile, carriers such as Bell Atlantic Mobile, which is conducting a CDMA WLL trial in New Jersey, aren't ready to discuss local competition because projects are in trial stages, and they could have a high impact on parent companies that already have a stake in the local market.

Yet there are a few companies willing to share their efforts and discuss their strategies for entering the local market. WirelessNorth, Western Wireless and Pioneer Holdings each have similar, yet different, approaches to the local market. They are in various stages of development and have diverse business cases. But beyond the logistical and technology differences, they have a common bond: They are taking on the local service market, mainly in rural America.

TALK CAN BE CHEAP WirelessNorth President & CEO Rick Rapp knew from day one that PCS was not a viable alternative for cellular in its markets. According to Rapp, it doesn't make economic sense for PCS technology to compete with cellular in rural environments where there are few POPs.

"So, we changed the rules and said this isn't competition for cellular; this is competition for the (local) phone company," Rapp said.

With that in mind, WirelessNorth launched commercial service last fall (it now serves Fargo and Grand Forks, ND) with an entire campaign positioned around the second phone line concept. According to Rapp, incumbent phone companies already are convincing people theyneed a second phone line for Internet use. WirelessNorth just adds another element: The second phone line doesn't have to be wired. Instead, WirelessNorth's position entices people to get a wireless phone for voice calls and save the wireline phone for the Internet. According to Rapp, it's working.

The key to WirelessNorth's strategy is pricing -- low rates that are just slightly higher than US West (the local market provider). For example, 40% of WirelessNorth customers are on a monthly, unlimited calling plan for 75. It includes unlimited minutes in local markets, plus typical roaming charges. According to Rapp, that price is only slightly higher than a single business line with similar features such as touch-tone, call waiting, call forwarding and voice mail, which averages 65.

Although WirelessNorth doesn't target business users, small businesses have been the most attracted to the unlimited package. Of those customers, Rapp said, "We're starting to see a certain number of our customers replacing their wireline service with a wireless phone."

However, Rapp is quick to point out that WirelessNorth's position is not to completely replace wireline. "We never said that our service was a replacement for the phone company, but rather an enhancement to wireline telephone service," he clarified.

This distinction is one that Rapp stresses time and again. He believes wireline always will serve a need as a data provider in rural America, but expects wireless will enhance that as the primary voice communications device.

WirelessNorth is hoping to prod more non-business customers into this same philosophy by launching a new rate plan that will be 10 or 20 cheaper than its current unlimited plan. The new plan includes 300 minutes of outgoing calls and unlimited inbound calls. The company also is evaluating other pricing alternatives such as zone billing.

But as the carrier pushes increased usage, it must wrestle with technical issues. Can a wireless network support the same call volume as a landline network, which averages 1,000 to 1,200 minutes a month per user? Rapp won't release numbers on customers' average monthly minutes of use but did say it is double the average for other PCS providers.

"You have to build for that kind of capacity," he said. "We're building systems that have substantially more capacity than a typical cellular system in terms of simultaneous customers in any given area. If there's a choice between putting an inexpensive radio or even repeater in a site, we put in the higher-capacity radio."

Rapp added that technology alone does not give your network the quality and reliability to compete in the local market. The key is a well-designed network with high-capacity base stations and powerful in-building penetration. With these tactics, Rapp said, customers receive 90% the quality of landline service. There's not much you can do about the other 10%, he said. "It's still a radio no matter what you do. ... There are variables that no wireless provider can completely control."

But it costs money to deploy a wireless network at even 90% voice quality. Coupled with low prices, how does WirelessNorth generate revenue? Rapp won't provide average revenue per subscriber numbers, but claims WirelessNorth has "about the highest average revenue per subscriber in the marketplace and the lowest price in the marketplace." This is an interesting combination that Rapp credits to a network designed to handle capacity, which results in higher usage among all customers, plus almost half of a subscriber base paying 75 a month instead of 19.95.

WirelessNorth's next step may be even farther into the local market through fixed-wireless access. According to Rapp, the company is discussing options with commercial and residential landlords.

INITIATING THE MARKET Western Wireless already is broadening the local market through fixed solutions. But according to President & CEO John Stanton, the carrier is continuously looking for ways to offer more economic communications choices.

"Wireless still represents a relatively small percent of total (usage)," he said. "We've got to get more of those minutes."

Western Wireless has demonstrated it can be successful at those efforts through its operations in Antelope Valley, NV, where 50 customers are using a fixed-wireless system for their primary phone service. Since 1994, Western Wireless has worked with the utility commission and the local RBOC in a cooperative arrangement whereby Western Wireless delivers the service and the RBOC charges for the service. As a result, Western Wireless delivers a basic local phone service for 20 a month, which Stanton said is "dramatically lower-priced than wireline."

Before Western Wireless came into the picture, the 50 residents of Antelope Valley had to use pay phones located several miles from the concentration of the population. Because Western Wireless already had a cellular system in the area, it decided to work with the other entities to provide initial telephony service to individual residences in the town.

According to COO Mikal Thomsen, the system uses an existing cell site and connects tellular units to high-gain yagi antennas mounted on customers' roofs. The tellular units are attached to any internal wiring system customers want, allowing them to choose any standard telephone on the market, including extension phones.

According to Thomsen, Western Wireless is taking WLL beyond Antelope Valley. But the company's plans vary among its business units. Because Western Wireless provides cellular and PCS service in the United States as well as internationally, Stanton said the company has different strategies for WLL. For example, its cellular properties are in rural areas. Therefore, the opportunities for competing with wireline providers are in situations similar to Antelope Valley. According to Stanton, there are terrific residential opportunities for 800MHz in rural markets.

"We believe that in rural areas we can deliver better service, we can deliver the benefits of mobility, we can expand the local phone unit and do that at a lower cost than in many cases the wired companies are providing it today," he said.

With that in mind, Thomsen said Western Wireless will continue efforts to level the playing field so that consumers can choose telecommunications providers that best meet their needs for quality and economical service.

Western Wireless' strategy for the urban market is a little different. It is more difficult for 800MHz to compete in the urban business community because of the growing number of players such as Nextlink, WinStar and WorldCom. Typically, Stanton said, fiber is just more efficient in those areas.

However, Stanton said, Western Wireless' PCS licenses will have opportunities in the urban areas for some business and residential uses. Western Wireless will take advantage of opportunities similar to what WirelessNorth is finding in its rural markets. The greatest opportunities are developing as second phone lines. For example, Stanton said, someone may be on the Internet at home and not want to exit to order a pizza. There is a need for a second phone line in those scenarios.

"We try to meet those needs on the PCS side by giving them a large amount of minutes at a low price," Stanton said. "That captures a lot of voice traffic, and they use wired for Internet."

FIXED WIRELESS ON TRIAL Pioneer Holdings (owned by Long Line Limited, MCI and Northwest Iowa Power Cooperative) is hoping to capitalize on opportunities that other bigger companies tend to ignore in rural markets, said President Mike Thompson.

"We see it as absolute competition to local incumbent providers," he said. "In rural areas there's no competition ... and no choices."

Because there have been no recent advancements in investment and technology, Thompson said rural businesses find it difficult to compete with the rest of the world, and kids miss out on technology and Internet access. Thompson said most companies just can't make a business case for rural America.

"The big companies and the RBOCs will tell you that you can't make money in a small town," Thompson said. "And I'll you that you can make money in a small town."

And he is out to prove that point. Pioneer Holdings believes it has found a cost-effective way to do just that. Last month, Pioneer Holdings joined three other companies in launching a fixed-wireless access trial to 25 customers outside of Hayward, IA. InterDigital is providing equipment, including subscriber products, antennas and base stations for the project. Northwest Rural Electric Cooperative is providing the customer base and the CLEC certificate, and Northwest Iowa Power Cooperative (NIPCO) is providing the towers.

Pioneer is the switch provider for the trial, but has hopes of obtaining its own spectrum when the trial is complete next March. Although Pioneer doesn't have a "plan of attack," Thompson said there is a lot of spectrum available. Thompson said the company either will buy spectrum, lease it or partner with a provider and share the cost. More than likely, it will pursue PCS spectrum in the F block. For now, the team is working with a Nebraska-based F-block provider. (Like many other carriers, it has ties to the local service market and remains quiet about its efforts.)

Initially, the fixed-wireless system will trial voice traffic only, but Thompson said there are opportunities for data services. Ultimately, Pioneer will introduce high-speed ISDN services for Internet access.

Pioneer has specifically planned the trial from October to March to hit all of the seasons to test how the system operates in various conditions. For example, Thompson wants to make sure the product will work through foliage.

On a weekly basis customers will evaluate 15 performance areas, including voice quality, noise, and maintenance and service issues. Each user will have a transmitter and receiver device inside or outside the house. An antenna will be connected to that, and inside the house a unit will connect to any typical wired phone.

Many people in the industry question the cost of such fixed-wireless solutions, but Thompson doesn't think cost will be a prohibiting factor. He does admit the trial is preliminary. Pioneer hopes to contain some deployment costs by building off existing relationships such as NIPCO, which will offer use of its towers. Thompson also pointed out that compared with wireline, fixed-wireless maintenance costs are much less. For example, people don't have to worry about phone lines going down in a storm.

But will people really pay for a completely new phone system? According to Thompson, it all depends on how you approach and view the market.

"If you're trying to give someone something they already have, then it's perceived as an additional cost," he said. "These rural communities only have POTS; we're trying to accomplish more than that."

If all goes well, Thompson hopes to acquire spectrum and take the system commercial when the trial ends in March, but he added it's premature to speculate on when and how that will be done.

DOWN THE ROAD These carriers have made inroads to the local market, but what will the future hold? Will wireless ever replace wireline? These carriers agreed there always will be an important role for wireline in the high-speed data arena. They do believe that most voice traffic will shift from wireline to wireless, but it is hard to predict how long it will take to penetrate the market. Most carriers either won't tell or simply don't know.

"We provide this type of service in many areas of the country right now, often without even being aware that the customer is using their wireless device in this manner," Western Wireless' Thomsen said.

As more trials and deployments continue, Pioneer's Thompson expects similar applications will eventually go beyond rural areas. But there will be more challenges with tackling the urban environment. Carriers will need more equipment to meet the capacity needs in densely populated areas. Rapp said that creates two potential problems: more siting issues and high equipment costs.

In addition, local phone companies may put up more obstacles to block urban efforts.

"As a small town and rural carrier, I can do things that don't incur the wrath of the elephant," Rapp said. "If perceived as a bigger threat to the revenue base of an incumbent company, they would pull out all the stops like utility commission issues, environmental impact studies or whatever could be done to make the wireless carrier's life more difficult or expensive."

Regulatory and political issues also can add a layer of burden to market entry.

Although Western Wireless had cooperation in the Nevada market, the carrier already is facing resistance in other states. As of press time, the carrier was in litigation with Kansas over ETC status.

"It's part of democracy," Stanton said. "There are states that take a positive view. We've been certified in most states that we have a license in as a CLEC because that's a little more well-worn path, but we're having a little resistance in some states in getting ETC status."

Despite the challenges and uncertain future, these companies are betting on competition and WLL. Starting in rural areas and working their way up, they are leading the way into the local service market.