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content


Sweat- and debt-free

Sweat- and debt-free

Most of the larger markets are experiencing rapid build-outs of new telecommunications services, including PCS and two-way paging, to add to the present
  • Written by Urgent Communications Administrator
  • 1st May 1997

Most of the larger markets are experiencing rapid build-outs of new telecommunications services, including PCS and two-way paging, to add to the present roster of wireless services. Usually backed by big, centralized, investment groups that radiate from Wall Street like glow worms on an inky night, the activity to feed the American public wireless services of every kind and feature is heating up across the landscape.

Incumbent, local operators, who didn’t acquire regional licenses to be the carrier of these services by participatng in past overheated auctions, are trying to determine where they fit into this swirling mix of new services. Is PCS a threat or an opportunity? Will two-way paging cut into traditional markets or expand existing customer bases? And so on.

Although my crystal ball is still cracked and those tea leaves are getting pretty wilted, some predictions and admonitions might still be offered. Not that I, or anyone else, can make perfect sense of the telecommunications landscape, other than to say that rapid change is here, and with it come windows of opportunity that open and close in the space of a breeze.

Spectrum glut If you read the “old” (more than five years) petitions, orders, memoranda and articles about our industry, you will see consistent references to “scarce spectrum resources.” That clich‚ is being legislated out of existence. With advanced technology that employs ever-higher frequencies for commercial purposes (witness the new 2.3GHz block that was technically untouchable 10 years ago), the FCC is able to sell large blocks of spectrum to operators for flexible use. Therefore, scarcity of spectrum above 800MHz is becoming pass‚.

What will become more important in the future are market share, revenue per unit, distribution chains and outlets, service compatibility, market penetration, integration of systems and design, numbering plans, interconnection capacity, technical support, and the host of other factors that convert spectrum into revenues that produce positive earnings. Each of these factors represents a significant hurdle for regional and nationwide carriers, and many of these factors represent potential opportunities for local operators and service shops.

The value of an entrenched service base, goodwill, market reputation, and access to decision makers, places a premium on a local presence that is not easily duplicated. Despite the allure of national ad campaigns, the American consumer still has a preference for dealing with a business that is local in character. My conversations with hundreds of operators across the country continues to affirm this impression, despite the onslaught of new upscale services and providers.

The desire to cast a large net to land the biggest fish in a market is what drives most nationwide carriers. The bigger the carrier, the bigger the “holes” in the net through which swims a substantial market share. Even AT&T admits that its foreseeable plans for delivering local phone serv-ice only target the top 30% of the major markets, including mainly large business and government accounts. The other 70% is left for others to fight over.

Fight they will, but mainly with one another. New wideband services require substantial capitalization. The costs of auction, build-out, and start-up are enormous. The era of mobile unit giveaways is sliding into the past, as companies simply cannot afford this largesse to add subscribers, because of a shrinking profit margin and increased capitalization costs. Therefore, mobile unit sales will also slow market penetration for some carriers, as customers opt to keep what they have, rather than bear the cost of the newest gadget.

The irony is, then, that larger carriers will be forced to compete in an increasingly localized manner. Churning out full-page ads and one-minute radio/TV spots will not result in the kind of return that is needed, unless backed by local operators, resellers, retailers, service shops or distribution providers. Broadcast marketing techniques will result in all sound and no lasting substance. (Sorry, Nextel.)

The need to create a local presence by building relationships with local operators and providers will become increasingly apparent. The market will be divided, subdivided and fought over for every dollar among two cellular providers, three wideband PCS providers, a half-dozen narrowband PCS providers, ESMR providers, and whatever new providers the FCC creates by auction over the next few years.

Most prognosticators have said that there will be a shake-out of competitors throughout the industry, with many of the new players falling out because of failed strategies, default on auction payments and an inability to attract necessary financing. I agree, but for reasons that most experts have ignored.

High-handed tactics, shallow pockets Most of the upstart carriers in PCS have focused on Wall Street or foreign investment to obtain the financing necessary to begin. The rarified atmosphere of board rooms, brokerage luncheons and media brunches is intoxicating. It can make the chief executive officer of “NewCom” believe that he is a real “player” in the telecommunications marketplace and deserving of all of the deference that such a moniker might bestow. Even though NewCom’s chief executive officer hasn’t built a system, turned a dime, or even made more than a down payment to the FCC.

Those ego-driven tendencies are fueled by vice presidents, law firms, financial advisors and the like, who reflect these high-handed attitudes in dealing with local markets. There appears to be an expectancy that Joe of “Joe’s Two-Way Shop” will be so awed when NewCom’s representative calls, that Joe will drop everything and listen with rapt attention to every utterance from NewCom’s representative. When Joe responds with, “Well, that’s interesting, but I’ve got a repeater that’s gone down on my site, so we’ll have to finish this later,” the carrier’s rep is offended.

The exchange usually results in the NewCom’s rep acting as though its agenda, its business, its build-out and its financial commitments are vastly more important than anything Joe might be doing (like earning a living by serving his customers) and that Joe is being unreasonable. Joe is not being unreasonable. He just isn’t impressed. Good for him.

You see, Joe is making sure that his business remains profitable. Meanwhile, the large carrier’s rep is trying to move NewCom toward profitability, and given NewCom’s substantial debt, it’ll be a long, long road. If you are worried about paying the rent, Joe’s in better shape than NewCom, even though Joe couldn’t find Wall Street with a map. Joe’s got paying customers. NewCom has borrowed money and an untested idea.

What these new carriers have forgotten in most scenarios is that the carrier needs Joe more than Joe needs the carrier. NewCom needs space on Joe’s tower to operate their system. The carrier needs experienced resellers and installers, like Joe. NewCom needs Joe’s contacts. Joe needs to fix his repeater.

So, if your business is more like Joe’s than NewCom’s, consider the true leverage of the players involved. Joe can provide tower space, reselling services, installation, maintenance, and all of those necessary services that turn a business plan into a real telecommunications service providing profitable service to the public. Without the Joes of the industry, many NewComs will enter a new chapter in telecommunications history-Chapter 11.

The successful NewComs of the industry will be those that recognize the need for the Joes of the industry and who invite Joe to participate and add to their success. The losers (and there will be many) will be those who can’t find their way from Wall Street to Main Street and who believe that Joe is only a tool instead of a potential partner.

To the Joes of the industry: Don’t worry about the dogfight that is brewing and beginning between the industry behemoths. It will get awfully noisy for a while, but try to remain calm and look for relationships with carriers that will treat you and your business more like a partner and not like a patsy. The new carriers that will be left standing at the end of the fight will already be your friends. The losers will be those that thought they could do it without you.

Schwaninger, MRT’s regulatory consultant, is a partner in the law firm of Brown and Schwaninger, Washington, DC. He is a member of the Radio Club of America.

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