THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, December 4, 1994 TAG: 9412050230
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY DAVE MAYFIELD, STAFF WRITER
LENGTH: Long : 162 lines
To get an idea of what the mobile-phone landscape of the 1990s will soon look like, turn back to the deregulated airline industry of the '80s. Suddenly, there were plenty of ways to get from A to B. Cut-rate pricing followed, then the shakeout of weaker competitors. Still, enough competition remained to keep the clampdown on fares.
Telecommunications analysts say there's a strong likelihood that a similarly raucous scenario will shake the mobile-phone industry in the latter half of this decade.
Competition, already stirring here and there, is about to explode across the wireless landscape. For consumers, that will probably mean a steep drop in the cost of using mobile phones, pagers, personal digital assistants and other wireless communications devices.
The biggest blast in the wireless wars triggers Monday in a government office building next to Washington's Union Station.
There, over the next month, the Federal Communications Commission will auction the first of more than 2,000 licenses nationwide for new types of wireless phone services.
The winners of the licenses for these so-called Personal Communications Services plan sophisticated digital networks capable of handling a mind-boggling array of voice, data and video transmissions. The services will be available through one phone number that you can take with you anywhere your whole life.
``Eventually, this . . . will be the first serious challenge in local telephone service, period,'' said Mark Bonavia, a spokesman for Sprint Corp., which is leading one bidder group. ``We'd like to kick some butt in PCS.''
Never in the history of government surplus sales has there been so much interest in what Uncle Sam has to offer.
The FCC predicts it will rake in at least $10 billion from the upcoming auctions of radio frequencies that will make PCS possible.
But while the FCC's scheme for auctioning PCS promises to be good for the Treasury, it's a potential disaster for aspiring PCS players, said P. William Bane, vice president of New York-based Mercer Management Consulting Inc.
``We're talking about sums that could bring these companies to their knees,'' Bane said. ``I'm hoping they'll exercise some constraint.''
The auction that starts Monday is for the PCS crown jewels: 99 licenses covering 51 major trading areas of the United States and its territories. Another roughly 2,000 licenses subdividing each of the major trading areas go on sale in 1995.
The Richmond-Norfolk major trading area, which extends from Virginia Beach to the Roanoke area and includes northeastern North Carolina, is about median-sized as major trading areas go. It has a population of about 3.8 million.
Acquiring one of the two 30-megahertz licenses covering the region won't come cheap. If the FCC's estimates hold up, each could easily go for $40 million.
Who's willing to pay that kind of money?
Ten bidders have registered for the Richmond-Norfolk licenses, including AT&T Corp., Continental Cablevision Inc., Cox Cable Communications Inc., Southwestern Bell Corp.'s mobile-phone unit and a consortium of four Baby Bells that includes Bell Atlantic.
Cox is bidding elsewhere as part of the Sprint-led group. But Sprint is barred from PCS bidding locally because of its cellular holdings. So Cox had to go it alone in the Richmond-Norfolk territory.
Bell Atlantic is joining with Nynex Corp., U S West Inc. and AirTouch Communications Inc. to bid.
Across the country, 10 to 15 bidders are registered to compete for licenses in each market.
Each of the companies wants to be a nationwide wireless communications player - either individually or as part of a group. They see the sale of PCS frequencies as the best shot yet to achieve their lofty goals.
That's because out of the PCS auction, between three and six new wireless phone networks will sprout in each of the nation's largest markets.
That's on top of two cellular providers (in Hampton Roads, Sprint and GTE Corp.'s Contel) and a spate of mobile-radio and paging companies already operating in each community.
And it doesn't include the many would-be satellite phone-service providers that are developing service strategies of their own.
PCS will enjoy some advantages over its older wireless brother. Unlike cellular, which is steadily converting from analog to digital, PCS will be digital from the start. That means it will have about 10 times more call-carrying capacity for the same spectrum than an analog cellular system.
And because PCS will transmit in the lower-power 1.9-gigahertz range, its towers and handsets don't have to be as large as cellular's. PCS transmitters will be more closely spaced than cellular's - as little as a quarter-mile apart, compared to anywhere from 1 to 20 miles apart in cellular networks.
On a cost-per-subscriber basis, PCS networks will be cheaper to build and to operate than cellular, Mercer's Bane said. He figures PCS operators will be able to cover operating costs charging the equivalent of 5 to 15 cents a minute for service. Cellular operators' break-even point now is generally 60 to 65 cents a minute, he said.
At 5 cents a minute, PCS would even be nearing cost parity with plain old telephone service, he added, encouraging consumers to switch entirely to wireless.
But Michael Houghton, a spokesman for the Cellular Telecommunications Industry Association, said price and service distinctions will narrow over time. Even with just two cellular providers per market, cellular costs are falling, he said. Costs will drop faster in the face of PCS competition, he noted.
Houghton said the key to PCS is not how it will be different. The key, he said, is how all the new spectrum available for it will enable more telecommunications providers to develop national wireless networks.
Before long, Houghton predicted, the companies won't even use terms like cellular or PCS when they market to consumers.
Using all slices of the radio spectrum available, they will simply sell wireless services, he said. Consumers won't know or even care which frequency range was to carry their call, page or data transmission.
At that point, ``national brand-name identity will become very important,'' he said. ``That's really what this wireless revolution is all about.''
How many national brand names will the market support? Two, four, six?
It's too soon to say.
One thing's clear, though, said Mercer's Bane. If the crowded field of PCS bidders indicates who plans to be a national name on the wireless scene, ``there are too many players for too few slots of success.''
For the nation's big telecommunications companies, PCS is a challenge and an opportunity.
Most of them, including AT&T, Sprint and the Baby Bells, already have large cellular holdings. So in the markets where their cellular systems operate, PCS represents new wireless competition.
But in places where they don't have cellular operations - and for each of the companies, that's still most places - PCS opens new territories in which to break into the rapidly growing wireless field.
Indeed, all of the major players say they'll combine their newly acquired PCS licenses with their current cellular holdings to stitch together nationwide networks.
But the trip there will likely be bloody.
After buying the licenses, big PCS players combined will have to spend another $15 billion or more to build the new networks. They'll likely suffer billions of dollars more in start-up losses vying for customers, once PCS hits the market in 1996 or '97.
That level of spending could push some big-name telecommunications outfits right into extinction.
``We think there will be an ice age in the wireless industry,'' said Barry Goodstadt, director of wireless industry consulting for General Motors Corp.'s EDS Management Consulting unit. ``There will be a lot of demand for the new services that PCS will bring about, but not enough to support all the would-be players in this business.''
The only sure winner in the wireless wars is the consumer.
How far will prices fall? Goodstadt won't guess. Other analysts say that after adjusting for inflation, rates could be cut in half within five years.
It's no wonder industry prognosticators say as many as 50 million people will have signed up for PCS or cellular services by 2000. That's 30 million more than subscribe to cellular now.
Wireless service prices may fall so low, some analysts say, that consumers will even be tempted to go wireless entirely - drop their plain old telephone service.
The world, said Mercer's Bane, is bound to come unwired.
``When you're out somewhere five or eight years from now,'' he said, ``you're going to see somebody with a phone to the left of you or to the right. Probably both.'' ILLUSTRATION: Graphic
STAFF
ROUND ONE: FCC BEGINS LICENSE AUCTION
SOURCES: Personal Communications Industry Association, Federal
Communications Commission
[For complete graphic, please see microfilm]
by CNB