PCS Reaches Out for Cellular User
Telecommunications companies scramble to stay a step ahead in the increasingly competitive wireless market
PITTSBURGH real estate broker Diana Yecko used to own a cellular phone. Now, she uses a smaller mobile phone that finds her wherever she is in the Pittsburgh area. Her clients and friends dial a single number. If she is at home, the phone rings there. If she is at work or on the road, it rings there.
This experimental system is called personal communications services, or PCS. It is a new kind of mobile phone: smaller, lighter, and cheaper to operate than the decade-old cellular phone. But it is not technically adept at maintaining a signal in a fast-moving car.
The upshot: No one is quite sure how PCS fits in to the booming world of wireless communications. Later this month, the Federal Communications Commission (FCC) will begin the process of deciding the final rules for PCS. Those rules - and consumer response - will determine whether the technology becomes an interesting niche market or the heir apparent to the venerable cellular telephone.
For now, the telecommunications industry is holding to the niche argument. ``The difference between PCS and cellular is that PCS is geared more as a consumer service,'' rather than a business service, says Jerry Taylor, president of MCI Consumer Markets. ``PCS is the idea of having a [single] personal [telephone] number,'' says Bill Weiss, a spokesman for AT&T personal communications services. ``We see that as an evolution.''
PCS handles information more efficiently using digital signals than the analog transmission of cellular phones. PCS depends on more and smaller cells than cellular. That makes the network more expensive to build. But it allows PCS phones to be smaller and lighter (because the signal does not have to travel as far).
``You're talking about a very inexpensive technology'' that could boost worker productivity by perhaps 5 percent, says Herschel Shosteck, head of his own market-research firm in Silver Spring, Md. He estimates the microcell approach offers cost advantages of 35 percent on the basic infrastructure compared with current cellular service.
But infrastructure spending only represents about one-third of total operating costs, which also include marketing and service. In the end, Mr. Shosteck argues, PCS will have only about a 10 percent cost advantage. That is not enough, in his view, to overtake an established industry that already has the best customers on its subscriber lists.
Instead, he says, PCS works best for users in site-specific applications, such as airports, hospitals, or conference centers. ``We see an enormous market to be made if people focus on the simple, plain-vanilla technology.''
On Sept. 23, the FCC will have to determine who is eligible to receive a PCS license, how big an area each license will cover (local, regional, or national), and how much spectrum each licensee should receive. The commission is ``scrambling to find out how PCS and cellular fit together,'' says Frank Wright, chief of the frequency liaison branch of the FCC. Licenses will not be handed out until next year. All kinds of companies are vying for the licenses. On one side are current cellular operators, who are pushing the FCC not to exclude them from the bidding.
The Pittsburgh PCS trial Ms. Yecko is participating in is sponsored by Bell Atlantic Corporation, which already operates cellular phone networks throughout the mid-Atlantic states. The company will also carry out similar tests in the Washington-Baltimore and Philadelphia markets.
The PCS technology may challenge the traditional home phone just as much as it threatens cellular service, says Dennis Strigl, president and chief executive officer of Bell Atlantic Mobile: ``I really see it as the next generation of ... the wired and wireless network coming together.''
Other companies are pushing the technology more aggressively. MCI in July announced that it had created a consortium of more than 150 PCS companies around the country. These range from a cable operator in Detroit to the largest paging company in Puerto Rico. MCI is skeptical that cellular companies will move quickly into PCS, since it threatens their lucrative cellular networks. ``The cellular companies are doing everything they can to cripple it,'' MCI's Mr. Taylor says.
Though most of the telecommunications industry argues against PCS as a replacement for cellular, the experience of Bell Atlantic in Pittsburgh suggests otherwise. Priced correctly, PCS could give cellular service competition with business users. Business customers provide the bulk of cellular-telephone revenues.
Yecko recalls using her PCS unit at a recent convention here. While cellular-phone users typically have to gather near a window to get a clear signal, she roamed around the mezzanine of one of the city's largest skyscrapers while closing an important deal. The building had a microcell, allowing a clear signal.
Bell Atlantic's PCS pricing seems to encourage residential rather than business service. PCS's $15.95 monthly service charge is less than half the $39.95 cost of the cellular ``value-pack.'' From home, there are no charges for PCS air time. If the customer is linked to a PCS microcell at work, additional air-time costs 8 cents a minute compared with 36 cents for cellular. Roaming on the rest of the PCS network is charged like a typical cellular call.
In London, USWest and Cable & Wireless are set to launch the world's first commercial PCS. And they plan to charge at least 20 percent less than cellular companies. Will that give cellular users an incentive to switch? Perhaps, but the system will be limited to the London area. Cellular companies are moving to drop their prices in London while keeping higher costs elsewhere in Britain. Analysts suggest cellular operators have the flexibility to do the same thing in the US, in effect squeezing out the technology before it has a chance to develop.
Here in the US, the MCI consortium intends to cover 75 to 80 percent of the US population. ``What's going to make cellular more flexible and go through these changes is competition,'' says Taylor of MCI. At the moment, that competition is PCS. ``I'm sure three years from now ... there's going to be a new technology. We will be there with our customers providing services that they want,'' he says.