PCS: A threat to SMR?
Will hungry, start-up, PCS companies gobble up SMR customer bases by offering multiple services? The smart SMR operator will see an immediate opportunity in many market areas-particularly in one area not usually seen as a potential for radio system owners.
Rapid changes in recent years within the communications industry have some SMR business owners looking over their shoulder at increased competition. That competition was first expected to come, at least potentially, from major telecommunication providers. However, changes in federal regulations and within the telecommunications industry may have created more opportunities for SMR system operators than competitors-at least in some markets. Here is a quick look at some key history and recent regulatory changes, their effects on the industry and potential new opportunities for SMR system operators.
Prior to 1974, the Bell system owned or operated most of the mobile telephone service market. The LMR systems in service were owned by the user/operator/licensee. When Congress created the specialized mobile radio (SMR) service in 1974, the new service (and spectrum) was divided to keep telephony providers and more conventional radio service providers well apart in the realm of business competition. The cellular and SMR services were created to serve different groups of users, to create opportunity for new business growth and to reduce the cost of dispatch-type services for small business operations. The key difference was the classification of the SMR operator as “private” and the cellular operator as “common” carriers, with different levels of federal and state regulation and oversight.
The success of SMR trunking systems led the FCC to change the rules in 1982 and again in 1983, opening the way for services such as wide-area paging and the use of new frequency bands by private carriers. The growth and success of both services indicates how well the business community was served by the changes. Today, almost 80% of SMR subscribers use the service for their business dispatch needs.
This change within the communications (radio) industry was, in some ways, almost invisible to the general public. At the same time, greater changes were altering the landscape for telecommunications (wireline) providers. The breakup of the Bell operating system into regional bell operating companies (RBOCs) in 1984, and the growth of companies such as MCI and Sprint, forever changed how people would communicate. What effect did these changes have on SMR operators? Little, until 1993.
By 1993, changes in technology, marketplace conditions and delivery of interconnection service had been described as a “technology convergence.” This blurring of service and technology was a driving force behind the amendment of the Communications Act of 1934 and the reclassification of all land mobile services as either private mobile radio service (PMRS) or as commercial mobile radio service (CMRS). At once, all operators that provided third-party interconnection to the public switched telephone network (PSTN) were classified as “common carriers” and were regulated as such. If that wasn’t enough, the personal communications service (PCS) was created. Not much occurred with PCS initially, as technology choice issues, similar to those faced by the infant SMR industry, slowed growth.
The stalemate was broken, in part, when the telecommunications industry was hit with another major change in 1996. Now local exchange carriers (LECs) were allowed to offer long distance connections, and interexchange carriers (IXCs) could enter the local access market. This change, coupled with spectrum auctions and the high prices paid for that spectrum, had observers in the SMR industry worried. Would hungry, start-up, PCS companies gobble up SMR customer bases by offering multiple services? Could SMRs compete with huge, rich, RBOC-run systems, or would the RBOCs simply purchase existing SMR systems under the new rules?
The complete fallout has yet to be determined, but the smart SMR operator will see some immediate opportunities. One lies in the wireless replacement of the traditional copper “local loop” for the new competitive local exchange carrier (C-LEC) providers in local communities, especially in areas with low population density. Not all PCS license holders want to compete head-to-head with established cellular providers and limit their use of PCS technology to a single-service delivery system.
As new C-LEC providers start operations, they face several choices for access to their potential customer base. First, they could lease this access from the incumbent local exchange carrier (I-LEC) in the form of the embedded, copper-based, outside plant. This is a large monthly cost to a start-up company, and most I-LECs have fought tooth-and-nail to avoid leasing. Issues over interconnection standards, methods of interconnection, maintenance costs and right-of-way concerns further cloud the issue.
Second, a new C-LEC could build its own outside plant, but regulators frown on this, unless transmission is through fiber-optic cable or a combination of fiber-optic and coaxial cable (hybrid fiber-coax) that offers large bandwidth capacity to the customer. Even if this is considered, the cost to bring service to customers demands a high-density potential customer base and a desire to offer multiple services such as telephony, Internet access, entertainment or security. Right-of-way issues can still cause problems.
Third, a new C-LEC could purchase a PCS license and build a wireless system to provide local access. In many markets, many start-up companies choose to do this. Unfortunately, the auction process forced the price of spectrum so high that many companies could not fund both the cost of new equipment and a license. Further complications in the form of competing PCS technologies (GSM, TDMA, CDMA, PACS and others) can slow the growth of new C-LEC providers. Why? Until this technology issue settles out, many business customers are reluctant to purchase new subscriber equipment or services-especially if they travel extensively and require roaming support.
Where does this leave the SMR provider? New C-LEC providers might find SMR-based local access attractive, especially for areas with low customer density. It also offers a quick way to ramp up their cash flow with new customers, if the I-LEC has been extremely recalcitrant on local access wholesale leasing.
What is the payback to the system operator? The potential in partnering with a new C-LEC could provide significantly reduced interconnection charges, access to new customers, and the opportunity for enough new traffic revenue to support new growth or equipment in the system. Even a simple reselling agreement (wholesale) has the potential to increase business significantly while reducing the threat of additional immediate competition. The C-LEC, in turn, sees an established service with a known technology and proven performance-and less incentive to purchase their own system, at least in the near term.
The telephony business is significantly different from what SMR providers may have dealt with in the past. It has it’s own set of business expectations, paradigms for customer service and maintenance philosophy. This doesn’t make it impossible to deal with these companies, you just have to do your homework. In fact, many of the new C-LECs are successful because their “corporate culture” significantly differs from the old Bell system.
References
Calhoun, George C., Wireless Access and the Local Telephone Network, Artech House, Boston, 1992.
Freeman, Roger L., Telecommunication System Engineering, 3rd ed., Wiley, New York, 1996.
Reeve, Whitham D., Subscriber Loop Signaling and Transmission Handbook: Analog, IEEE Press, Piscataway, NJ, 1992.
Reeve, Whitham D., Subscriber Loop Signaling and Transmission Handbook: Digital, IEEE Press, Piscataway, NJ, 1995.
Web references
On the World Wide Web, use the keywords “local loop,” “CLEC,” “wireless.”
Applicable sites include www.clecinfo.com, www.bellcore.com and www.fcc.gov.
An exceptional site is www.nortel.com. It has excellent tutorials, particularly “Telephony 101,” “Long Distance 101” and “SONET 101.”
