Case: The Deployment of PCS in the US

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Case The Deployment of PCS in the US

• by
• Pierson Cheng
• Shubho Ghosh
• Yue Guan
• Cheuk Ko
• Gregory Miyagishima
• Randy Narciso

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Agenda

• Technology Overview
• cellular and PCS
• The Wireless background
• Analysis of PCS
• past
• present
• future
• Wireless Data
• Class Discussion

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PCS Why and what?

• Global increased focus on Telecommuting, to
• Reduced travel cost
• Retain employees with key skills and knowledge
• Market demand for
• Capacity
• Security
• Coverage
• Clarity
• ...PCS (Personal Communication System) "provides
  a personal phone that operates like a powerful
  cordless phone... They are smaller, lighter and
  cheaper than cellular phones.

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Terminology What is Cellular?

• Advance Mobile Phone Service (AMPS)
• Typically operates in the 800 MHz range
• Divides graphical regions into cells
• Each connection requires dedicated freq.
• Conversations are handed off
• Cells can be added to accommodate growth

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But then what is Digital Cellular?

• Transmits information in digital form
• Compared to analog cellular
• security and authentication through encryption
• short messaging service
• more flexible data service
• value added voice services
• lower cost of deployment
• higher capacity

101 101010 0 101010 10 101010 1 101010 0 101010
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So is PCS Analog or Digital?

• Personal Communications Service
• A term used to describe a set of digital cellular
  technologies that are deployed
• 100 digital and operates at 1900 MHz range
• PCS uses the same technology as digital cellular
  but occupy higher freq. bands
• CDMA, GSM, and TDMA

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PCS Differentiated Technologies

• Code-Division Multiple Access (CDMA)
• spread spectrum technique
• does not assign a specific frequency to each
  user-every channel uses the
• full available spectrum
• dominant digital technology in the United States
• Time-Division Multiple Access (TDMA)
• technology for delivering digital wireless
  service using time-division
• multiplexing (TDM). Alternative Digital Standard
• works by dividing a radio frequency into time
  slots and then allocating
• slots to multiple calls.
• a single frequency can support multiple,
  simultaneous data channels
• Global Systems for Mobile (GSM) comm.
• allows 8 simultaneous calls on same radio freq.
• uses narrowband TDMA
• dominant digital technology in Europe

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PCS Technologies is there a difference?
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PCS Technology Comparison
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The Wireless Background

• 1984-1995 government-created duopoly consisting
  of one Bell operating company and one independent
  wireless operator in each regional market.
• Result similar service offerings and prices from
  both players in a region high earnings
• The strategy to move down-market and increase
  demand by expanding from segments where mobility
  was a necessity to segments where it was a luxury

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Background Wireless Deployment

• Penetration rates increased from 6 percent of the
  US population in 1993 to 18 percent in 1997
• HOWEVER...both, minutes of use and average
  revenue per user declined during this time
• Higher prices for lower-usage segments and
  increased operational efficiencies more than
  offset the decline in average minutes of use per
  month of 9 percent a year.

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Deployment Paradoxical Trends !
US Wireless Subscribers (million )


Average monthly revenue per subscriber ()
Source McKinsey Quarterly, 1998
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Deployment Unsustainable Revenues
Y Cents per minute
Marginal Cost Average cost to provide an
additional minute on an already built-out
network (assuming 70 of costs are fixed.)
Source McKinsey Quarterly, 1998
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PCS The Background

• FCC Allocates a total of 120 Mhz in the 1850-1990
  MHz band for PCS service
• Six Blocks allocated
• 3 30-MHz blocks for Broadband services (Blocks
  A,B and C)
• 3 10-MHz blocks for narrowband services (Blocks
  D,E and F)
• FCC auctioned PCS licenses to highest bidders,
  raising 10.2 billion, between December 1995 and
  May 1996
• A B Blocks bought by large firms
• C-Block designated for small business owners

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Frequency Allocation...
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PCS Initial Deployment Problems

• 2 GHz spectrum allocated for PCS involves
  relocating earlier occupants ( local police and
  fire departments, taxi services, utility
  companies, and railroads) from this frequency
• High price negotiations involved in compensating
  earlier occupants - who are asking for
  approximately five times what PCS companies are
  willing to pay (running in one case to 124
  million)
• Community zoning boards have made placement of
  towers and repeaters difficult
• Such price negotiations and zoning slowed the
  deployment of PCS across the US very very
  substantially

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PCS Current Status

• A B Blocks are mostly built-out in all MTA
  markets
• PCS has competed strongly against cellular
• Lower prices and expanded service offerings have
  fueled growth
• Trend toward bundling Long Distance and Roaming
  charges in large per minute packages

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PCS Top Competitors

• ATT -- TDMA
• Sprint -- CDMA
• PrimeCo -- CDMA
• VoiceStream -- GSM
• Pacific Bell -- GSM
• Omnipoint -- GSM
• Aerial -- GSM
• Powertel -- GSM

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PCS C-Block Issues

• Only 3 licensees actually offer service
• Most auction winners are unable to secure
  financing to meet debt payments and build out
  networks
• Nextwave
• Pocket Communications
• General Wireless

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PCS C-Block Re-auction

• FCC re-auctioned returned C-Block licenses in
  March, 1999.
• Defaults by C-Block winners provided FCC with 342
  of 356 licenses auctioned
• Many current PCS operators are winning auction
  bids.
• Leap Wireless, VoiceStream, OPCS Three
  (Omnipoint) and Viper win most bids.

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PCS Competitive Landscape

• Cellular operators offer digital service
• ATT offers nationwide services by combining
  large cellular holdings with its PCS markets
• Nextel digital service
• Satellite competitors
• Other PCS operators
• New competition from C-Block licensees

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Projection Rates to Nose-dive
YAverage prices per minute (cents)
Xyears
Source McKinsey Quarterly, 1998
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The Future Implications

• Three main implications for PCS (and other
  wireless providers)
• Total minute usage will increase, although the
  benefits will be mitigated by falling prices
• Increase in churn as customers defect to take
  advantage of deals offered by new entrants
• Substantial drop in industry profitability as
  competition intensifies. Net earnings for some
  players could shrink to between 25 and 30 percent
  of revenue over the next three to four years .

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The Future How About Wireless Data ?
Market Demand
Revenue
Wireless Data
Technology
Regulatory
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Mobile Wireless Data Applications...
Internet and Email
Mobile Fax
LAN/intranet access
Short Message Service (SMS)
Voice
75 Users prefer both voice and data
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PCS Wireless Data Platform

• Digital Cellular Systems and PCS
• 3G
• Satellite
• Flat-rate Wireless IP
• Metricom Ricochet
• Enhanced Specialized Mobile Radio
• Analog Cellular Systems
• Cellular Digital Packet Data
• ARDIS
• RAM Mobile Data

Winner??
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Future PCS Deployment Issues to be Considered

• Cost Efficiency
• Ease of deployment
• Costs-deployment and usage

• Speed
• Voice quality
• Data rates and data
• Response times
• Multimedia capacity

Security

• Wireless Coverage
• Service Availability
• Mobility
• Roaming

• Compatibility/ Accessibility
• Compatibility with legacy systems
• Network interoperability protocols
• Architectural approaches for Internet access

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Future Proliferation PCS vs Satellite (LEO)
Price (High)
Satellite
LEO
Fixed Wireless
Single Channel
Multiple Channels
9.6Kbps
14.4
2Mbps
28.8 76.8 144
Broadband
Voice/ Simple Data

• GPRS (GSM)

PCS
Mobile Wireless
?
Price (Low)
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Wireless Deployment and the Winner is...
G3
PCS
Satellite
Broadband Capability
??? (Fixed 2Mbps)
(Fixed 2Mbps)
Coverage
Broad but fragmented One Standard
Best (Global)
Interoperability (legacy system/ Public Network)
Good Good ????
Price
Most Competitive Slighter higher
High
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Class Discussion...

• Q1New Third-Generation Cellular, Digital PCS,
  Satellite what will dominate?
• Q2Will these systems target different customer
  segments?
• Q3Will they complement each other to provide
  end-to-end solutions?
• Q4Can PCS deliver broadband solutions?