Last month’s passage of the Telecommunications Act of 1996 heralds the industry’s most fundamental structural change since AT&T Corp. was split up in 1984. Traditional barriers separating industry sectors are crumbling. Wireless will play a key role in the industry’s transformation. While few provisions of the lengthy bill deal specifically with wireless, the shifting competitive landscape will dramatically alter the wireless business. Although many important implementation details remain to be worked out by the Federal Communications Commission and state regulators, irreversible changes already have begun.
The legislation directly affects wireless businesses by facilitating the implementation of personal communications services and digital cellular. Under the new law, state and local governments can’t arbitrarily ban wireless antennas. Although local zoning authority was maintained, local authorities can’t discriminate among providers of functionally equivalent services. Regulations on antenna placement may not preclude the provisioning of wireless services. Requests for site approval must be acted on within a reasonable time, and decisions must be in writing and supported by substantial evidence. State or local governments can’t regulate the placement or construction of wireless facilities based on the environmental effects of radio frequency emissions as long as the facilities comply with FCC regulations.
Within six months, the U.S. government must develop procedures for making its property, rights-of-way and easements available for use by wireless companies. Requests for using federal agency sites are to be granted unless they present direct conflicts with an agency’s mission or current or planned use of the property.
Other provisions in the law aid wireless operators by removing marketing restrictions. For instance, local exchange carriers now are free to market wireless jointly with local exchange and intraLATA toll services. And Bell operating companies can provide long-distance services to their wireless customers. AT&T is no longer required to operate its wireless business as a separate subsidiary nor to provide its cellular customers equal access to other long-distance carriers. In fact, the law exempts all cellular and PCS operators from equal access requirements. This opens the way for more package deals that combine wireless with other services.
The law puts wireless on a more equal competitive footing with local wireline services by requiring that LECs open their networks. LECs must allow competitive carriers to interconnect to their networks at any technically feasible point. They must provide reasonably priced transport unbundled from switching and local loops. And LECs must give other carriers access to their extensive rights-of-way at fair rates. These provisions give wireless carriers new options in designing cost-effective networks. Moreover, the new law mandates reciprocal compensation for terminating calls and requires that phone numbers be distributed equitably by an impartial administrator.
The Telecommunications Act of 1996 also indirectly affects wireless businesses by altering the strategic imperatives of major industry players. LECs, interexchange carriers, cable TV operators and electric utilities are realigning their approaches to fit the new competitive environment. These strategy shifts may well have a bigger impact on the wireless industry than provisions in the law that deal specifically with wireless issues. Wireless will be a key strategic weapon for major players from every industry segment.
Since LECs already control most of the cellular subscribers and many of the big PCS licenses, they have an important edge. In-territory, LECs can use wireless, perhaps bundled with local exchange service, to blunt the attacks of competitors. Most new entrants will use wireless to court wireline customers, so incumbent LECs will need to counter with their own wireless offering. Out-of-territory, wireless becomes an essential offensive weapon for LECs. A recent national consumer survey by Action Information Services shows that LECs face an uphill struggle as they expand beyond their current territories. The rapidly growing wireless business provides their best opportunity to penetrate new markets. And many LECs, facing competitors with nationwide operations, will feel compelled to expand geographically.
Wireless already is at the forefront of LEC expansion efforts. SBC Communications Inc. plans to offer competitive local exchange services in Chicago and Rochester, N.Y., under its wireless brand. Cellular operations in these out-of-territory markets paved the way for SBC Communications to offer other services. And several regional Bell companies have announced plans to provide long-distance services to their cellular customers. Although such long-distance offerings currently are limited to wireless calls, participating RBOCs will gain important experience marketing combined services. Not only does wireless give the RBOCs early entry into the critical long-distance segment, but cellular customers also tend to spend more on long-distance services. These big spenders are lucrative targets for companies looking to grab a share of the long-distance business.
For inter-exchange carriers, wireless promises to bring real competition to the local exchange, thereby reducing the costs of accessing their customers. IXCs also hope to cement customer loyalty by providing combined local and long-distance services. Although the new law permits competitors to resell LEC network services, this is only an interim solution. Local loop competitors that rely on resale won’t be able to offer significant discounts or differentiated features. LECs will enjoy powerful advantages until large numbers of customers can be reached independently of their networks. Since duplicating the wireline local loop network is cost prohibitive, high-capacity digital wireless networks offer the best hope for true competition. What’s more, the added value of wireless mobility can persuade LEC customers to switch.
Consequently, leading IXCs are expanding their wireless operations. AT&T is now free to market combined wireless with long-distance under its powerful brand. Already a cellular leader, AT&T has acquired 21 big PCS licenses to extend its wireless reach. After several false starts, MCI Communications Corp. has entered the wireless market as a reseller. With its cable partners, Sprint Corp. captured the lion’s share of big PCS licenses. However, survey results suggest that MCI and Sprint must work very hard to establish themselves as providers of combined local and long-distance service.
For cable TV operators wireless is a quick, cost-effective means of entering the telephony business. Just as LECs are turning to wireless technology for video delivery rather than spending a fortune to upgrade their networks, cable TV operators increasingly see wireless as an affordable way to implement two-way voice services. The Sprint Spectrum L.P. partnership that includes cable giants Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. is concentrating on implementing PCS rather than upgrading cable networks to carry voice conversations. The high growth of wireless services makes them attractive to cable companies seeking a foothold in telephony. AIS’ consumer survey revealed that cable companies lack credibility as providers of local and long-distance voice services. Even if cable networks are upgraded to carry voice, cable TV operators will have a tough time competing for telephony customers.
Under the new law, utility holding companies can set up subsidiaries to provide telecommunications services. This allows electric utilities to contend for a share of the booming communications business. Look for most to participate through joint ventures. Utilities are potentially important sources of capital for wireless ventures. Extensive fiber networks and rights-of-way make utilities good sources of transport for wireless companies. Ut
ilities can provide sites appropriate for antennas and other wireless facilities. And utilities have many satisfied customers. In fact, significantly more survey respondents preferred electric companies as providers of combined local and long-distance phone services than preferred either cable TV or cellular companies.
In the coming struggle of all against all, companies that make the best use of wireless have a good chance to emerge victorious. Wireless offerings will increasingly be packaged with wireline and other services, and wireless units will need to work closely with other corporate divisions. Joint marketing, pricing, billing and customer service will be the order of the day. AIS’ survey results clearly demonstrate the power of discounts for selling combined services. Since big-spending wireless customers will be targeted by all sorts of competitors, wireless incumbents will have to boost customer retention programs. Companies with successful wireless growth strategies will gain access to many of the best prospects for other telecommunications services.
Material for this article was drawn from a market study on the “New Competitive Telecommunications Landscape,” by Falls Church, Va.-based Action Information Services. For more information contact Sim Hall, research vice president at (703) 847-9805.
