National wireless networks in vogue. Race heats up to build seamless 'virtual' infrastructure [see the bottom in particular]
cbs.marketwatch.com
By Jeffry Bartash, CBS MarketWatch
Last Update: 5:26 PM ET Feb 19, 1999
WASHINGTON (CBS.MW) -- The field of aspiring national wireless phone
carriers is getting crowded these days.
In the race to erect coast-to-coast networks, AT&T, Sprint and Nextel have
vaulted to a quick lead, but two other carriers appear poised to jump in: Bell
Atlantic and SBC Communications.
Like its rivals, the two Bells believe the ability to offer wireless will play a key
role in the pursuit of market share for other telecom services as well. The
buzz in the industry these days is that the winners of the 21st Century will be
those that can offer homes and businesses a complete package of services
-- local, long-distance, wireless, data and Internet -- in one bill.
This idea also has an accompanying, if inelegant, buzzword -- bundling.
To that end, AT&T (T) and Sprint (FON) are making
a big push to seize market share. Last year, each
initiated popular one-rate payment plans under
which customers can call anywhere in the country,
paying a set fee for a fixed number of minutes.
Nextel (NXTL), a lesser known operator, followed
suit.
Wireless had already been facing explosive demand
amid falling prices and higher quality. The birth of
one-rate plans, which ostensibly eliminate costly
and unpopular "roaming" charges attached to
out-of-region calls, sharply accelerated it.
Quite naturally SBC and Bell Atlantic, which have
national if not global aspirations, don't want to miss
out on a slice of that rapidly rising pie. The two
Bells, however, have chosen different approaches.
Real network
Bell Atlantic, for its part, tried to snap up No.2 U.S. cellular
provider AirTouch Communications two months ago, but
lost out to a higher bid by Vodafone PLC of Britain. The
purchase of AirTouch (ATI), along with its pending acquisition of
GTE Corp. (GTE), would have given Bell Atlantic (BEL) the skeletal
outline of a national network.
Some analysts hold out hope Bell Atlantic might be able to strike a deal
with Vodafone under which the U.S. carrier could peel off AirTouch's
extensive domestic operations from the valuable foreign properties that
drew the British concern to make an offer in the first place.
"There is still a possibility that Vodafone and Bell Atlantic could reach an
agreement of some sort. It would make eminent sense," said wireless
analyst Herschel Shosteck, who runs his own consulting firm in Wheaton,
Md. Bell Atlantic declined to comment.
Failing that, Bell Atlantic could still maintain its PrimeCo joint venture with
AirTouch even after Vodafone (VOD) completes its acquisition. PrimeCo
is the second largest U.S. operator of digital PCS, or personal
communications services, based on a standard known in the industry as
CDMA.
Bell Atlantic isn't taking any chances. The carrier has sued AirTouch to
ensure that a non-compete clause signed before the Vodafone buyout
offer doesn't prevent the Bell from going after markets in which both
companies operate or plan to operate. PrimeCo operates mostly in the
South and Midwest.
Still, its failure to beat out Vodafone for AirTouch leaves Bell Atlantic with
some big gaps in its network, particularly on the West Coast, where
AirTouch was especially strong.
The acquisition of GTE, which also owns wireless operations in the West,
will remedy part of the problem. "It would give us coast-to-coast
coverage," asserts spokesman Jim Gerace.
Not quite. The company still has to do a lot more work,
analysts say, before they it can really make that claim. And
that almost certainly will include more acquisitions of smaller
carriers. "We don't rule out anything," Gerace replied.
Virtual network
Like Bell Atlantic, SBC (SBC) asserts that a pending acquisition, of
Midwestern Baby Bell Ameritech (AIT), will give it the framework of a
coast-to-coast network.
"I think you can argue that SBC is close to having a national presence
after the Ameritech closure," Stan Sigman, chief executive of SBC
Wireless, told CBS.MarketWatch.com in an interview. See full story.
Nevertheless, the carrier's network would only cover about half the U.S.
population. And that means it would need to either acquire more carriers
or strike roaming agreement with other wireless operators.
Though SBC agreed last month to pay $1.7 billion for the Northeastern
cellular business of cable TV operator Comcast (CMCSK), the Bell
seems less eager to expand it budding wireless empire through further
large acquisitions.
Instead, the carrier aims to create what Sigman calls a "virtual national
network." He said the company will use its size to extract beneficial
roaming deals from other carriers to ensure that its wireless customers can
call anywhere in the country.
Some industry observers think that's a losing proposition. "A strategy like
that over the long term is a failed strategy," said Bob Egan, research
director for wireless communications at Gartner Group.
"How do you lower the cost of your services?" he asks. "You own the
facilities." Without them, companies will pay higher fees to third parties to
connect calls, forcing SBC to either raise prices or accept sub-standard
profits, he said. Technical complications also could arise.
Other analysts, such as Eliott Hamilton of Washington, DC-based
consultant The Strategis Group, believe reselling has proven itself to be a
viable approach in the long-distance sector and will prove it as well in
wireless.
While a reseller may not wring out as much profit, Hamilton said, it could
still earn enough to make wireless operations worthwhile. More important,
he said, not owning one's own wireless network won't prevent carriers
from bundling services.
"The next national carrier will be a reseller," he states.
Patchwork coverage
Despite all the buzz, a truly seamless national network
doesn't exist -- one in which a wireless caller can reach
any other wireless caller, no ifs, ands or buts.
In large part, that's because the industry is divided by
signal-transmission standards, with an alphabet soup of
contestants -- CDMA, TDMA, GSM -- vying to become the
worldwide leader. Then there's the rift between analog and
digital, which everyone agrees will eventually be resolved
in favor of the latter.
Innovate new wireless phones that can receive signals
from a combination of any of those sources are likely to
render the problem of incompatible networks moot, but
that won't change the second major problem.
Wireless networks are still mighty expensive to build and
take years to cobble together. The cellular business has
been at it for more than a decade, Sigman points out, and
there still isn't a truly national carrier. Digital networks are
even more expensive and laborious to construct.
Jeffry Bartash is a reporter for CBS MarketWatch.
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