American Telephone Companies Hunt For Gold in Digital Wireless
Experts predict competition will mean lower prices for consumers
THE next generation of wireless telephone service is quickly becoming the El Dorado of United States telecommunications.
Everyone wants it. Many companies are scrambling for the right to build it. And only a handful will manage to endure the arduous trek to get it, analysts say.
``It's sort of like the California gold rush,'' says William Bane, vice president of Mercer Management Consulting Inc., a New York-based consulting firm. ``This may be an opportunity of the century - and probably, the millennium.''
Friday was the deadline for companies to tell the Federal Communications Commission (FCC) whether they would bid in the first slew of auctions for radio frequency licenses scheduled for December. The FCC has not yet revealed who the bidders are. But some of the winners and losers are already clear, analysts say.
The consumer is the big winner. Today's high prices for cellular telephone calls will be reduced dramatically, as competition from the next-generation wireless service starts to heat up.
``By the year 2000, wireless service will be on par with wire-line service for local usage,'' says Jeff Hines, telecommunications analyst with PaineWebber Inc., a New York investment firm.
In other words, the 70 cents or so it costs an individual to make a local call on a cellular phone will cost about a nickel in a few years. That's the promise of the next-generation, digital wireless service, called personal communications services, or PCS. A call from the middle of a cornfield will cost nearly the same as a call from home.
This price trend will have huge implications for the telecommunications industry. PCS service will become so affordable that in eight years or less, 30 to 40 percent of every American man, woman, and child will have wireless phone service, Mr. Bane estimates, up from 6 percent today. This market has more immediate growth potential than the so-called ``information superhighway,'' which is less understood by consumers and will take longer to develop, he says.
But to reach such high levels of penetration, companies will have to spend billions of dollars, Bane adds. They will have to pay anywhere from $5 billion to $20 billion for the federal PCS licenses; spend another $40 billion to build nationwide networks; and sustain about $50 billion of operating losses over five years to stay afloat as today's cellular-phone operators cut prices to stay competitive.
That is why so many companies are banding together to spread the risk. Three regional Bell operating companies, Bell Atlantic, NYNEX, and USWest, as well as AirTouch Communications (which is merging with USWest), have formed an alliance to bid for PCS licenses in December. AT&T, which is acquiring McCaw Cellular Communications, will be a formidable power. BellSouth is linking up with 35 smaller telecommunications companies and the utility Duke Power to bid for licenses in the South.
These alliances are considered strong players because they have extensive cellular-phone networks already up and running. ``Being first to market means a whole lot,'' says Mr. Hines of PaineWebber. Cellular-phone companies ``most likely will remain the dominant providers of mobile service for the foreseeable future.''
But they will be challenged by many newcomers. The strongest-looking alliance, at the moment, is the one between long-distance phone operator Sprint and three cable-television companies: Comcast Corporation, Tele-Communications Inc., and Cox Enterprises' cable unit.
Although the alliance has only small cellular-phone holdings, it can turn that into an advantage, analysts say. It can build a PCS system from scratch, while its cellular-phone competitors will have to merge their existing cellular networks with a new PCS system.
For all the hoopla over the American market, Europe has been quietly forging ahead. Britain and Germany have already launched PCS services. France is scheduled to start offering service next year, followed by Italy in 1996 and Spain in 1997. These countries have at least an 18-month lead, says Ann E. Lynch, senior market analyst for BIS Strategic Decisions, a Norwell, Mass., research firm. ``Ultimately, the US is certainly going to overtake Europe in terms of total numbers [of users] and penetration,'' she says. But ``Europe has gone about it the right way.''
From a patchwork of different analog cellular systems, the continent adopted a unified standard for digital cellular service. And it is using a derivative of that standard to create PCS networks that can easily cross borders.
The US has yet to define what standard it will use in its PCS networks. Even the cellular-phone companies have been unable to agree on the standard they'll use to upgrade their analog systems to digital service. Digital service is considered superior because it will allow more users on the system and makes wireless data transmission far less complex.