Delays Running Out for Wireless Firms

After years of delay, federal regulators are digging in their heels and pushing initiatives that will require the wireless industry to spend billions of dollars to expand capacity and offer new services.

The government mandates--which include a controversial airwave sale and a $1-billion telephone number conservation plan--are likely to boost monthly bills and disrupt service for the nation’s 135 million cellular subscribers. They also are likely to increase the red ink in a hotly competitive wireless industry in which six national carriers are waging price wars amid slowing consumer demand.

Nevertheless, the check writing will start next month when the Federal Communications Commission, over the objections of big wireless carriers, plans to begin auctioning $2.6 billion of wireless airwaves. The sale has been delayed five times.

Carriers desperately need the spectrum. But they say the auction should be postponed until the airwaves’ current users--several dozen TV stations--relocate at their own expense. Many station owners--such as Paxson Communications Corp. of West Palm Beach, Fla.--are demanding hundreds of millions of dollars in compensation from wireless providers to finance their move.

Another big bill may come due by July 24. That is when the FCC must determine whether it will grant the industry an exemption from a 1996 FCC rule that requires wireless phone companies to conserve the allocation of new phone numbers, in part by allowing existing customers to keep their numbers if they switch carriers.

FCC officials are divided over whether to extend the deadline slightly to implement the technology, which is estimated to cost $900 million. But the industry is unlikely to receive a significant delay, since the FCC already has extended the so-called number portability deadline for nearly three years.

“The industry has known for years that that requirement is there,” FCC Commissioner Michael J. Copps said. “I think it is doable and it’s time to get it done.”

Copps is equally hard-line about holding the spectrum auctions next month.

“An argument could be made that this isn’t a great time to [have an auction], but we are here to implement the laws of Congress.”

Many industry executives and analysts said that integrating TV airwaves into new wireless service will be problematic, since carriers can’t be certain when TV stations will move to different airwaves. And they warn that giving consumers the option to keep their phone numbers when they switch carriers could deepen the industry’s financial woes by sending the industry’s 30% customer turnover rate even higher.

“We already have intense price competition, and when you combine that with number portability, the impact will be devastating,” said Roger Entner, a wireless analyst at Boston consulting firm Yankee Group.

Entner said consumers will hop from carrier to carrier in search of the best deal.

“It’s going to get really ugly,” he said.

Passing Costs On to the Customers

Carriers seem to think so, and many are preparing for the worst.

Nextel Communications Corp. already is imposing a 55-cent monthly surcharge on subscribers to pay the cost of number portability and associated services, and the company warns that the fee could go higher.

“There is no federal cost-recovery mandate for these” government-ordered services, said Lawrence Krevor, Nextel’s vice president of government relations. “It certainly is going to be expensive for everyone.... [Fifty-five cents] is not full cost recovery by any means.”

Wireless carrier Sprint PCS recently warned the FCC that it will cost the company $94.5 million to implement number portability and associated technology to conserve phone numbers. And once in place, the system will cost $52.7 million to operate during the first two years.

The magnitude of the spending, Sprint said, could jeopardize the introduction of eagerly awaited new technology, such as high-speed wireless Internet access over cellular phones.

Alarmed at the potential costs, some carriers are waging a furious lobbying battle to avoid compliance.

Last month, Verizon Wireless Inc., Cingular Wireless and other carriers persuaded House Energy and Commerce Committee Chairman W.J. “Billy” Tauzin (R-La.) to introduce a bill to delay the airwave auction.

The measure received preliminary support in a committee vote last week but faces an uphill battle in the Senate, where a similar measure has been introduced. Meanwhile, carriers also are undertaking an 11th-hour lobbying campaign at the FCC, seeking to get commissioners to relax their stance on number portability.

Representatives of Verizon met with FCC Commissioner Kevin Martin on April 12 and warned that cellular text messaging services and other features “may not work between carriers,” according to a summary of the meeting published by the FCC.

Martin, a Republican, remains on the fence about whether to grant the industry extra time. But FCC Chairman Michael K. Powell and fellow Republican Commissioner Kathleen Q. Abernathy are telling industry lobbyists they won’t support lengthy delays and want compliance within 12 months. Copps, meanwhile, is willing to give the industry an additional 90 days.

Contrasting Stands on Service Compliance

Dejected industry lobbyists said they aren’t optimistic they can avoid compliance much longer.

“Every time we turn around, the government is seeking to impose a new burden on the industry, and every burden they impose comes with a big price tag,” said Brian Fontes, a lobbyist for Cingular Wireless. “They seem intent on imposing the requirement this time.”

The intensity of the wireless industry’s opposition to the FCC mandates stands in contrast to traditional wire-line phone companies, which largely have implemented the technology over the last three years.

But wireless executives said their task is difficult since carriers use several competing transmission technologies. That makes it more costly and more complex to quickly introduce nationwide changes in the wireless network.

What’s more, phone executives argue that the initiatives--which are aimed at boosting competition--are not needed because, unlike the traditional phone industry, wireless already is hotly competitive, with six national carriers battling for market share.

“Why do you need the rule if it was designed to increase competition?” said Tom Wheeler, president of the Cellular Telecommunications & Internet Assn., a Washington trade group. “Our industry is already competitive. This is going to end up costing every American wireless subscriber whether or not they use these services.”

Wheeler was equally critical of having the airwave auctions next month, saying that broadcasters would hold the wireless industry financially hostage. “We’re in the position of a lottery contestant who is told, ‘Congratulations! You just won. Now you get to have an auction with the broadcasters” for your prize, he said.

“There is no excuse for broadcasters to be cheating consumers out of higher-quality services,” Wheeler added. “And there should certainly not be a billion-dollar reward for broadcasters for squatting on spectrum.”