Wireless

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Wireless

• Economics 235 Economics of Telecommunications

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Wireless

• Fastest-growing segment of the telecom market
• More portable / mobile
• FCC and State commissions dont regulate prices
  for wireless

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Nationwide Carriers

• Cingular (ATT Wireless)
• Verizon Wireless
• Sprint PCS (Nextel)
• T-Mobile

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Market Structure 12/03
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Current Market Structure 12/04
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Summary Statistics

• As of Dec 2004, nationwide wireless penetration
  is 62.
• Average MOU per month increased from 255 minutes
  in 2000 to 427 minutes in 2002 to 580 minutes in
  2004.
• SMS (Short Message Service - Send Text Message)
  increased rapidly. The volume of SMS traffic grew
  to 4.7 billion per month in December 2004, more
  than double the 2 billion messages per month
  reported in December 2003

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Pricing Innovations

• ATT Digital One Rate May 1998
• ATT Mobile-to-Mobile Calling January 2004

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Policy Changes

• Local Number portability began for wireless in
  November 2003
• Top 100 markets by Nov. 24, 2003
• Everywhere else by May 24, 2003

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Wireless Technology Categories

• Cellular
• PCS

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What is Cellular?

• Sophisticated two-way radio airwave link between
  cellular phone and local telephone network.
• Reuses individual radio frequencies again and
  again.

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Why Cellular?

• Cells
• MTSO mobile telephone switching office
• Connected to landline network to complete call.

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Original Cellular Market Structure

• 1979, FCC planned to license one cellular carrier
  per market.
• 1980, decided two could split the market. One
  license went to wireline telephone company. Other
  licenses given in different manner.

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Merit Hearings

• Top 30 markets - formal comparative hearings in
  which the merits of each aspirant were weighed
• very time-consuming.

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Lottery

• In 1984, FCC decided to replace system with
  lottery.
• Applications for markets 31-90 had already been
  filed, but markets 91 and beyond had tons of
  applications.

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Markets 91 and beyond

• Nearly 400,000 applicants
• Application shops
• SW Bell bought license for 41 M
• Estimated giveaway 46 B
• Welfare loss, due largely to the struggle over
  how many firms should serve the market has been
  put at 86 Billion (VM, p. 206)

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Cellular Market Structure

• Duopoly markets structure provides only limited
  incentives for true competition.
• Dramatic increase in growth.
• Limited price competition (free phone with usage
  package).
• High profits and increases in cellular license
  prices.

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What is PCS?

• Personal Communications Services
• Personalized to the individual. PCN - Personal
  communications Number.

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Where did PCS come from?

• Industry demand for more mobile licenses
• Potential for worldwide mobile services. US
  cellular was in different spectrum than Europe or
  Asia.

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Benefits of PCS over Cellular

• PCS will use latest digital technology (greater
  compression and higher data transfer rates)

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Improvement in technology

• Smaller antennas
• Cheaper advanced technology
• Smaller handsets?
• Mobility - to NYC but worse in a car.
• One phone number
• Lower price

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Economies of Scope

• Between PCS and existing carrier services
• Able to use PCS phone as portable in and outside
  house??
• Are wireline and wireless substitutes or
  complements?

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Economies of Scale

• Exist at low penetration rates
• Exhausted at subscription rates of 20

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PCS Radio Spectrum Auction

• FCC established 2,074 broadband PCS licenses.
• 51 MTAs major city areas and 493 BTAs
• Six blocks of spectrum A to F for broadband. AB
  got 30 MHz of spectrum and auctioned first. C (30
  MHz) and F (10 MHz) next auctioned for
  entrepreneurs. DE (10 MHz each)
• Cellular has 50 MHz total vs. 120 MHz for PCS
• Designed to maximize Gov't revenue

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Auction Results

• License A B auctioned 12/94-3/95 raised 7.7B
• C block raised an additional 10.2 Billion
  (12/95-5/96)
• D,E, F raised 2.5 B (8/96-1/97)

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Company Results

• After first 99 licenses, three companies emerged
  as major PCS licensees
• Wireless Co. LP Sprint and 3 large cable
  companies (now Sprint PCS) about 1/3 of
  licenses
• ATT
• PCS Primeco 3 RBOCS (Bell Atlantic, NYNEX and
  Ameritech) and Airtouch

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Spectrum Caps

• 1994-2001 No carrier could have license for more
  than 45 MHz in a single market
• November 2001, FCC raised cap from 45 MHz to 55
  MHz.
• January 1, 2003 eliminates cap completely

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WLL

• Wireless Local Loop
• Fixed wireless provider attaches radio
  transmitter to customer premises with a central
  antenna site

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Advantages

• Lower network deployment costs
• No installation/maintenance of wires
• Capital can be added incrementally
• Lower prices

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Broadband Access through WLL

• ATTs Project Angel
• cost 750 per customer (expected to drop 500 in
  5 years)
• four voice channels and data rates to 512 kbps
  always on

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Broadband Access through WLL

• Wireless Cable MMDS (multichannel multipoint
  distribution service)
• Worldcom and Sprint acquired MMDS licenses
• Worldcom - Residential - 40/mo. 310 kbps
• Business - 300-600 128 kbps 8 Mbps
• Sprint Residential - 40/mo. 1-2Mbps

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Mobile Data

• Only 2 of mobile traffic is currently data
• Uses second generation networks GSM, TDMA and
  CDMA
• Data speeds of 9.6 to 19.2 kbps

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3G Wireless

• Third generation wireless
• IMT 2000 International Mobile
  Telecommunications definition
• 2 Mbps from fixed location
• 384 kbps at pedestrian speeds
• 144 kbps at 100 kilometers per hour

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What is IMT-2000 exactly?

• IIMT-2000 (International Mobile
  Telecommunications-2000) also the Third
  Generation Mobile Systems, will fulfill one's
  dream of communications at anytime and anywhere a
  reality. 
• Commercial service is scheduled at around 2001.

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Key Features

• high degree of commonality of design worldwide
• compatibility of service within IMT-2000 and with
  the fixed networks
• high quality
• small terminal for worldwide use
• worldwide roaming capability
• capability for multimedia applications, and a
  wide range of services and terminals

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IMT-2000 Licensing Policy

• Japan

• UK

• Finland

• Spain

• Korea

• Country

• 2000.6

• 2000.4

• 1999.3

• 2000.3

• 2000.12

• Selection

• 2001

• 2002.1

• 2002.1

• 2001.8

• 2002.5

• Commercial
• Service

• 3

• 5

• 4

• 4

• 3

• Number of
• Operator

• W-CDMA 2
• CDMA2000 1

• All W-CDMA

• All W-CDMA

• All W-CDMA

• Not
• determined

• Standard

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IMT-2000 license fee
(Billion USD)
10

7.3
6.4
5
1
KT Group
0.64
1
0.36
Consortium members
0
Germany
UK
Korea
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