WIRELESS LOCAL LOOP FORUM TRANSCRIPT


              WIRELESS LOCAL LOOP AS A NEW CONTENDER:
                       EFFECT ON COMPETITION
           MODERATOR:  DALE HATFIELD, CHIEF TECHNOLOGIST
                  OFFICE OF PLANS AND POLICY, FCC

 4              MR. HATFIELD:  Thank you very much, Joe.
 5              I really appreciate your introduction, and I'm
 6    really glad we had the chance to moderate this session,
 7    entitled Wireless Local Loop as the New Contender:  Effect
 8    on Competition.
 9              Since I have returned, as Joe indicated, to the
10    public sector I probably should issue the standard
11    disclaimer that any remarks that I will  make here today
12    are strictly my own, and do not necessarily reflect the
13    views of the commission or any of its other staff members.
14
15    However, offering that disclaimer, I will quickly say that
16    I'm not going to say anything of substance anyway.
17              I think it's probably important that we try to
18    stay on schedule, and I will try to help in that way.
19              I will say a little bit, and I think it is fair
20    to say many people are disappointed in what is at least
21    perceived as being the relatively slow pace of development
22    of competition in the division of local services.
23              While I may be a little bit too impatient
24    myself, I do feel -- I would feel an awful lot more
25    confident about the ultimate success of the Communications

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 1    Act if competition was developing more quickly on a more
 2    widespread basis.
 3              We can all speculate, I guess, a little bit on
 4    why competition has been slow to develop, and we've heard
 5    some of those reasons perhaps today, but one thing that
 6    seems pretty clear to me is that for facilities-based
 7    competition it's an expensive and time-consuming process
 8    to actually build out a second network on anything like a
 9    ubiquitous basis.  Indeed, I would speculate that there
10    may be some residual economies of scale, or economies of
11    density in the division of wired-based facilities to serve
12    the last mile between the customer and the first point of
13    traffic concentration, at least outside selective areas
14    like downtown urban business districts.
15              The hope, of course, is that the average cost
16    curve, if you look at this you draw your standard average
17    cost curves, of course, the hope is that the wireless
18    technology will have a flatter average cost curve, and
19    therefore maybe even perhaps an absolute cost advantage in
20    the long term, and therefore will facilitate development
21    of competition.
22              The task of our panel, of course, is to explore
23    whether or not wireless local loop providers will be
24    viable competitors in the local telecommunications market,
25    and as Joe indicated, we've asked each speaker to give the

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 1    bottom line assessment of his or her feeling, or his
 2    feeling of whether it will indeed be competitive on a
 3    widespread basis.
 4              Having stumbled around here, let me stop and let
 5    me introduce our first speaker, and our first speaker is
 6    David Turetsky.  David is currently vice president for law
 7    and regulatory affairs for Teligent.  In that position,
 8    David is responsible for guiding the company through the
 9    maze of State, Federal, and international law and public
10    policy issues.
11              Before joining Teligent earlier this year, David
12    was Deputy Assistant Attorney General for Civil and
13    Regulatory Affairs in the Antitrust Division of the U.S.
14    Department of Justice.  That's where I met him.
15              Before joining the Antitrust Division he was a
16    litigation partner in a New York law firm, and he received
17    his J.D. from the University of Chicago School of Law.
18              David.
19                  DAVID TURETSKY, VICE PRESIDENT,
20               LAW AND REGULATORY AFFAIRS, TELIGENT
21              MR. TURETSKY:  Thank you very much, and first,
22    before beginning I just want to extend my appreciation
23    just as a citizen to Dale Hatfield for coming back to
24    public service after so many years of fine work on the
25    outside.    Thank you,  Dale.   I  think  the FCC  and the

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 1    country will be the better for it.
 2              You all have had a long day.  One of the things
 3    I wanted to do today, instead of just talking about what
 4    wireless local loop might mean to competition, was to
 5    actually try to show you something about the wireless
 6    local loop in operation, and I'm going to try to do that
 7    now.  My finger doesn't work too well.
 8              What's happening now is, we are actually
 9    experiencing the benefits of wireless technology.  There
10    is on the top of this building a set of antennae.  This is
11    a base station for my company, Teligent, and what we are
12    doing is receiving from a number of wireless antennas
13    around the city the signal.
14              We are getting broadband digital microwave, and
15    it's coming into the National Press Club, and it's going
16    down through and connecting to wire and then going to a
17    switch.
18              What you're seeing today is something off of our
19    Web site that we have rigged up.  The signal that you see
20    is going up the wire in the National Press Club, it is
21    being sent 6 miles across the river to Alexandria, it is
22    hitting an antenna there, and it's being sent back 6 miles
23    to us here at the National Press Club.
24              This is digital microwave technology.  It is not
25    something that we're talking about  and hoping to do.   It

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 1    is something that you're watching as we speak, and partly
 2    I'm doing this because I want you to understand something
 3    about how this actually works, and that it does work.
 4              What happens is, if you've got an Internet
 5    connection that you want to have voice or video, this will
 6    connect to the building's inside wire.  It will go to an
 7    antenna on the top of the building.  It will be sent over
 8    to a base station, be received there.  It will either be
 9    sent directly to one of our switches through a further
10    microwave relay, or at that point it will connect to fiber
11    and be sent to our switch.
12              So that's the way the network is organized to
13    work, and what I want to do is, I will show you actually a
14    picture of -- this is our older technology, because it's
15    been up here for nearly a year.  It is point-to-point, not
16    point-to-multipoint technology.
17              That's the top of this building, and those are
18    the antennas that are up here.  They receive, as I said,
19    the signal from quite a number of buildings around the
20    city, and they send it out.
21              Most of our antenna, especially in the network
22    as it's being designed now, are actually quite small.  I
23    want to actually hold up a prototype of one of the
24    antennas that we're going to use for point-to-multipoint. 
25    This will  go on  top  of a  building.   This is  customer

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 1    premises equipment.  In that sense it will go on top of a 
 2    building, and it can in most instances handle all of the
 3    telephone lines that were able to sign up in that
 4    building,  this  small  antenna.    That's what  point-to-
 5    multipoint will do for us.
 6              As I said, we're using point-to-point technology
 7    for purposes of this demonstration.  We have right now
 8    rigged up in Richardson, Texas, a point-to-multipoint
 9    prototype system that we've been working with, and it's
10    been working quite successfully.
11              In order to get a scale and to see one of the
12    other pieces of point-to-multipoint equipment -- I'll tell
13    you, this is not the technology.  It is moving -- there we
14    go.  That is the point-to-multipoint equipment that we've
15    deployed at Richardson, Texas, and as you can see, the
16    size of the antenna we're using there is about the size of
17    a person's head, and it is quite light.  It is something a
18    person can lift up and put on a post.
19              Our technology uses line-of-sight, and that is
20    going to point to a node much like the one on top of the
21    National Press Club, and we will be able to beam many,
22    many, many building antennas at very, very few nodes, and
23    that is the benefit of point-to-multipoint technology.
24              So again, you're seeing all of this via two
25    links, a link all the way in Alexandria, 6 miles  down and

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 1    across the river, and coming 6 miles back, and then
 2    connecting at the base of this building to fiber.
 3              So this is what microwave digital technology can
 4    do, and this is why I think it is going to be a very
 5    important, competitive part of our future, and this can
 6    happen with voice, this can happen with Internet, this can
 7    happen with data.
 8              As you see, it moves very, very quickly.  It is
 9    a broadband technology, and I think it is really what
10    consumers want, and so I want to say that when you think
11    about the future, the future is beginning right now, and
12    it's really right in front of us.
13              So now that I've told you a little bit about our
14    digital wireless broadband technology and you've seen a
15    little bit about our network, I want to talk about what it
16    means for the marketplace.  What is the competitive
17    impact, given the competitive and regulatory landscape as
18    it exists today, 2 years after passage of the
19    Telecommunications Act?
20              Well, one thing I've learned in my 7 months in
21    business is to begin with and focus on what the customer
22    wants.  Focus on the customer.  What is it they want?
23              First, they want a choice.  Residential
24    consumers don't have it, and most small and medium-sized
25    businesses don't, either.  Only  the biggest businesses do

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 1    today.
 2              Second, they want this even if they're outside
 3    of the city business district.  Today, only about 3
 4    percent of buildings have fiber connections, and most of
 5    those are obviously in central city business districts.
 6              Third, they want better capabilities broadband
 7    for data, Internet, videoconferencing, et cetera.  There
 8    really is a last model bottleneck, and part of local
 9    competition and trying to give customers what they want is
10    overcoming that local bottleneck.
11              The fourth thing they want is better service. 
12    They want not only big businesses to be treated as if
13    they're number 1 in their phone company's and
14    communications company's eyes.
15              And finally, they want all of this with
16    simplicity and savings, too.
17              And so how are they going to get it?  Well, one
18    thing I've seen, and I think the country has probably seen
19    by now, is it's sure going to be hard to get those
20    benefits from anyone else besides a company who builds its
21    own competing facilities.
22              One key problem with resale or unbundled element
23    strategies is that they depend so heavily and so
24    extensively on the cooperation of the local exchange
25    carrier monopolist.

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 1              While many believe that the long distance entry
 2    provisions of the law should have provided adequate
 3    incentives for such cooperation, for a host of reasons
 4    including just the sheer expense and time involved in
 5    creating the necessary systems, it's hard to see how
 6    adopting a competitive strategy heavily dependent on the
 7    monopolist can be or will be anything but problematic, and
 8    then beware of what happens after long distance entry.
 9              Second, another key problem with such strategies
10    is they're  heavily dependent on the activities of
11    regulators.  Regulators must get their pricing right. 
12    They must police these arrangements quickly and
13    extensively.  They must require unbundling of the correct
14    arrangements.  Again, those strategies depend on the
15    regulators getting it right.
16              The third problem is that while resale can allow
17    one-stop shopping, it doesn't provide any better or
18    innovative network services, not services like the ones
19    we're seeing today.  It's possible that unbundled
20    elements, if ever really available, might allow for some
21    innovation.  I certainly grant that.
22              A fourth problem is that the biggest proponents
23    of some of these nonfacility strategies have other
24    interests to balance, or customer bases to protect, which
25    may make them  reluctant to utilize these  strategies with

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 1    these various dependencies until there is certainty that
 2    they'll work, because, after all, they're risking making
 3    current customers unhappy.
 4              I'm no saying that these are character issues
 5    with the Bells.   It's expensive.  It's hard to do.  Well-
 6    intentioned people I think have had problems doing it. 
 7    I'm not accusing the long distance carriers of anything,
 8    either.  They've got an entrenched customer base.  I
 9    wouldn't want to put that at risk unless I knew that
10    provisioning and other parts of what's necessary to
11    provide service competently work.  So it's not a matter of
12    good people and bad people on any sides of that debate.
13              By contrast, let's look to see what a
14    facilities-based competitor does.  A facilities-based
15    competitor controls to a much greater extent their own
16    destiny.  Certainly they need the cooperation of the ILEC,
17    but to a much simpler and lesser extent.  Certainly,
18    regulation matters, but regulators will face simpler
19    issues, and are likely to afford some respect to the fact
20    that the competitor is investing millions and maybe
21    billions in a real alternative network and trying to avoid
22    dependency on the ILEC.
23              Certainly, new facilities provide the best
24    opportunities for new and innovative services and
25    attractive  pricing, although we  have to acknowledge that

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 1    this innovation will come more slowly to the smallest
 2    customers than to those who use services more
 3    consistently.
 4              Finally, most of the facilities-based
 5    competitors have few or no customers and the incentive,
 6    the only incentive they have is to build a competing high
 7    quality network as quickly as possible, no detours, and
 8    sign up customers.
 9              I might even say that the resale picture may get
10    better once there are multiple facilities choices
11    available, because after a company has signed up as many
12    customers in its own name as it can, whether it's a Bell
13    Company or some other company, perhaps it becomes in its
14    interest to encourage resale to those customers from whom
15    it would not otherwise expect to glean revenue if it has a
16    network in place.
17              It's hard to see how adopting a competitive
18    strategy heavily dependent on existing local networks
19    could create anything but problems, especially to the
20    customers that are seeking real choice, so let me move
21    toward the end of what I want to say.
22              We're looking for facilities-based competitors,
23    and I think wireless is going to be a key part of the
24    answer.  It can be deployed relatively quickly.  Capital
25    is relatively success-based.  That  means you don't have a

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 1    cost associated with a building unless you have a
 2    customer.
 3              While you need nodes or base stations, because
 4    of technology innovations like point-to-multipoint you
 5    need far fewer of them, bringing down the cost.
 6              The technology allows you to go far from center
 7    city and provide service quickly and cost-efficiently in
 8    growing suburban areas where there is no fiber, and where
 9    putting it in would involve digging up the streets in
10    many, many jurisdictions with possible sales to far fewer
11    customers than are in the center city.  Wireless today
12    often is broadband as you see in front of you, and as high
13    quality as you also see in front of you.
14              So I think I've now shown you a little bit about
15    how wireless works, a little bit about what it can do,
16    explained why it's economical and why facilities-based
17    alternatives are crucial, and I think you can see why
18    wireless is an enormously important part of our
19    competitive future.
20              Thank you very much.
21              (Applause.)
22              MR. HATFIELD:  Thank you, David.  Our second
23    speaker is Gail Garfield Shwartz, who is vice president,
24    public policy and Government affairs at TCG.  Gail is
25    responsible for TCG's national public policy  and advocacy

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 1    efforts.  Before joining that company, Gail was a
 2    commissioner on the New York Public Service Commission and
 3    served as its deputy chairman from 1987 to 1992.
 4              Earlier, she headed an economic consulting firm
 5    here in Washington and she is the author of several books
 6    and numerous articles.  She received her Ph.D in economic
 7    development at Columbia University.
 8              Gail.
 9            DR. GAIL GARFIELD SCHWARTZ, VICE PRESIDENT,
10               PUBLIC POLICY AND GOVERNMENT AFFAIRS,
11                TELEPORT COMMUNICATIONS GROUP (TCG)
12              DR. SCHWARTZ:  Thank you very much, Dale.  I
13    would like to join in welcoming you back into the public
14    sector.  I think it is very good for the country when
15    people go back and forth through the membrane, so to
16    speak.  I think they bring value to both sides when they
17    do it, and the country will be better off for you.
18              I also want to thank my dear colleague and
19    friend, Kathy Brown, and all of her colleagues for
20    inviting me to this session today.
21              I don't have a speech, and unfortunately I was
22    not able to be here for the whole forum, and so I'm very
23    worried about repeating what you've heard ad nauseam, and
24    so I will sort of rush quickly through the first part of
25    my presentation  on the assumption  you have heard  a good

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 1    bit about it, and then talk a little bit about what I
 2    think needs to happen.
 3              Let me first tell you what Teleport
 4    Communications Group is in case you don't know.  TCG is
 5    the first, the leading, and the largest facilities-based
 6    competitive local exchange carrier.  We've been in
 7    business for more than 12 years.
 8              We are now operating or will be within a month
 9    or so operating in 66 major markets.  We actually have
10    networks completed and working in 57 major markets at the
11    present moment.  We have nearly 250,000 access lines
12    providing over 6 million voice-grade equivalents -- here's
13    a nice number, over 7 billion minutes of use a year, and
14    we serve upwards of 12,000 buildings, of which about a
15    third are on our own network entirely.
16              We have 8,000-some, 8,680 actually fiber route
17    miles, and we're valued upwards of $8 billion.  I can't
18    keep track of how quickly evaluations change these days.
19              We have many, many digital switches deployed
20    throughout the country, and we offer increasingly switch
21    services through our sonnet rings to all of our countries
22    in all of the cities we operate in, so essentially we
23    started out as a fiberoptics company and we are still
24    predominantly a fiberoptics company, but in October of
25    this year we exercised our option to acquire the remaining

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 1    50 percent of Biztel, which is a 38 GHz company, so that
 2    we would also have the wireless capability.
 3              Biztel had licenses in over 200 geographical
 4    areas, including 95 of 100 top markets.  We have perfected
 5    all of those licenses, and we have operating links in all
 6    of the license areas, and including all of the markets in
 7    which TCG operates, and guess what, I forgot to give the
 8    slides to the slide gentleman, and here they are.
 9              (Slide.)
10              DR. SCHWARTZ:  I don't even know if you can see
11    the map, but the blur will give you an idea of where our
12    licenses are.
13              Why do we want a 38 GHz capability?  Well, it
14    enables us to economically connect customers to TCG's
15    fiberoptic networks, to provide network redundancy, to
16    provide direct routing, to provide quick, temporary
17    installations, to provide stand-alone broadband facilities
18    where TCG doesn't have a fiberoptics network.
19              (Slide.)
20              DR. SCHWARTZ:  As others have mentioned, the
21    recent FCC order 97-391 was a big event, because not only
22    did it lift the freeze that had existed on the use of
23    these licenses, but it also removed some uncertainties.
24              But more importantly, it clarified that spectrum
25    could  be used  to  provide point-to-multipoint  services,

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 1    which are potentially far more  economical than the point-
 2    to-point services, which is what TCG is now providing, and
 3    it is the point-to-multipoint capability that will allow
 4    us to get more bandwidth for density and to serve more
 5    customers and more buildings in more places in the future,
 6    and thus help accelerate the deployment of competitive
 7    facilities.
 8              Why is point-to-multipoint so superior?  Well,
 9    it uses single base stations with multiple remotes.  The
10    base station capacity is per antenna sector, and is
11    scalable.  That is, antenna sectors can be added.
12              It creates bandwidth on demand at the building
13    or the user level, which is a very important service that
14    TCG offers now on its fiber networks.
15              What are the economies of point-to-multipoint?
16              (Slide.)
17              DR. SCHWARTZ:  A new installation requires only
18    one new radio deployment.  This creates lower installation
19    costs in general.  There's a huge potential to lower roof
20    rent expenditures on an average per-link basis.  It is
21    quicker to install.  There are lower incremental capital
22    costs, and as David pointed out, the capital expenditures
23    for wireless are success-based.  You don't really have to
24    put in the facilities until you have a customer to start
25    paying you back some revenue to pay down the investment.

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 1              There's a potential for significant reduction in
 2    average cost per link, and it provides more bits per
 3    hertz, so it's more efficient.
 4              It  also creates  more  opportunities for  down-
 5    market penetration, which I know is something that Kathy
 6    and Larry are very, very interested in.
 7              It creates particularly strong opportunities for
 8    down-market penetration in conjunction with a fiber
 9    network.  The fiber network connectivity already exists,
10    which minimizes network  installation calls, and point-to-
11    multipoint may be immediately installed at common space
12    points, or nodes, so all of our services may be
13    immediately made available.
14              Now, what are some of the issues or problems
15    connected with point-to-multipoint?
16              (Slide.)
17              DR. SCHWARTZ:  Well, unfortunately, geometry
18    hasn't changed, and line-of-sight is still required. 
19    Distance limitations still exist, and  in many cases half-
20    mile spacing of towers or antennas is necessary, so the
21    service requirements to service low density residential
22    areas are still costly.  Also, the technology requires
23    more complex bandwidth management and point-to-point
24    technologies.
25              There are  also some problems  that policymakers

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 1    need to address, and I want to focus on those now for a
 2    couple of minutes.
 3              (Slide.)
 4              DR. SCHWARTZ:  One is the problem that TCG and
 5    many other providers have somehow managed to acquire
 6    mismatched channels, and you need channels in pairs, and
 7    so we need a way to pair up channels for providers who
 8    already own partial channels, or parts of pairs.
 9              We need the FCC to continue to existing policy
10    of allocating primary use to terrestrial wireless rather
11    than satellite wireless, and most importantly -- I'm sure
12    you've heard about this, but most importantly, for the
13    immediate ability to utilize the technology, develop it
14    and prove it out, we need everybody, everybody and his
15    sister and brother, to do something about the roof-right
16    problem, because building owners are having a field day
17    extracting rents from wireless providers to obtain roof
18    rights.
19              In many cases cellular companies have already
20    preempted the rights, which makes it difficult for
21    companies like us to get onto a roof, even though they're
22    already on.
23              The prices for roof rights can be astronomical
24    in high density areas, with sophisticated building owners
25    as  much as  $2,000 a month  per roof,  and even  in rural

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 1    areas they're seldom less than, say, $200 a month, per
 2    roof.  Furthermore, the building owners are getting more
 3    and more clever about devising ways to make it difficult
 4    to negotiate the roof rights.
 5              For example, many of them are now out-sourcing
 6    the management of their facilities, and they're not only
 7    out-sourcing them, but they're putting them in pieces so
 8    that one consultant will be negotiating the roof rights
 9    and another one will be negotiating the riser access, and
10    yet a third will be negotiating for common space, so that
11    means the poor provider not only has to spend ages and
12    ages negotiating the price, but it has to negotiate with
13    three different sets of folks, which is certainly a
14    counterproductive, anticompetitive and antipublic interest
15    state of affairs.
16              And finally, I think there are a couple of
17    regulatory decisions that need to be thought about.
18              (Slide.)
19              DR. SCHWARTZ:  One of them is that for the LEC
20    itself there need to be reasonably tariffed roof rights at
21    the LEC service wiring centers.  We have situations where
22    tariffs have been filed for connectivity with the LEC's at
23    the serving wire centers, but there's no price in the
24    tariff, so there we are, we have a tariff, but we don't
25    have a price, and we have to negotiate with the ILEC.

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 1              A technical issue which is one that we haven't
 2    yet -- at least TCG hasn't done anything about, but which
 3    seems to be a looming issue, is the question of the power
 4    limits, which control the distance that can be served from
 5    any one locus.  We need to have higher power limits so
 6    that we can serve wider areas, and that is within the
 7    purview of the FCC.
 8              Do we see wireless as a substitute for
 9    fiberoptics?  Absolutely not.  TCG continues to build
10    fiber  to  buildings,   in  part  because  the   point-to-
11    multipoint technology is not yet entirely proved, and lack
12    of line-of-sight distance from existing hub points, so we
13    see this as an adjunct and an in-fill primarily to our
14    basic core business.
15              But we also see that it has a lot of potential
16    to take us into communities and create a hub through which
17    we can operate in a new community, but the economics have
18    to be there, and if the revenue stream is not going to
19    support the investment of the equipment, and the purchase
20    of the rights to place the equipment, then there won't be
21    any deployment of this technology into especially low
22    income and rural areas as I know the NTIA would like to
23    see, and as we, too, would like to see in the public
24    interest.
25              I thank you very much for your attention.

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 1              (Applause.)
 2              MR. HATFIELD:  Thank you, Gail.
 3              Our third speaker will be Robert Frieden.  Rob
 4    is a professor of telecommunications at Penn State
 5    University, where he teaches courses in management, law,
 6    and economics.  He also provides legal management and
 7    market research services on a consulting basis in a number
 8    of diverse sectors of the telecommunications field.
 9              Rob is really a prolific author.  I have a whole
10    shelf in my office, I think, of Rob's writings, both in
11    terms of books and articles and academic and trade
12    publications.
13              Before he entered the academic life he worked 
14    here in Washington in a number of public policy positions.
15
16    He holds a J.D. from the University of Virginia.
17              Rob.
18           ROB FRIEDEN, PROFESSOR OF TELECOMMUNICATIONS,
19                   PENNSYLVANIA STATE UNIVERSITY
20              MR. FRIEDEN:  Thanks very much, Dale.  The last
21    time we chatted Dale was mentioning to me that he was
22    going to retire and move to a ranch, I believe in New
23    Mexico, Northern New Mexico, and I consulted my RBOC map,
24    and I found out that that's part of the U.S. West
25    territory, so Dale was going to be and may still  become a

                                                             245
 1    candidate for subsidies, lifeline local exchange service
 2    subsidies from his close personal friends at U.S. West.
 3              (Laughter.)
 4              MR. FRIEDEN:  An aside, before I get to my
 5    presentation, in a prior capacity I served as counsel to
 6    the Nation's first private fiberoptic submarine cable
 7    PTAB, and one of the unenviable tasks that I had was to
 8    negotiate the backhaul from the cable head where the
 9    submarine cable makes its landfall in the United States,
10    in New Jersey, and then try to engineer rights of way to
11    Philadelphia, and upwards to New York.
12              We never got to Philadelphia, in part because of
13    a bridge problem, and history repeats itself.  I heard
14    earlier today a problem about access to a bridge.  In this
15    case, they just weren't in the business of granting
16    rights-of-way over the Delaware River.  Apparently that's
17    been changed.
18              I did, however, find out that at least at that
19    time, and this was in the eighties, late eighties, the
20    most expensive piece of real estate was not Times Square,
21    or was not the Ginza, it was a tunnel.  It was a tunnel
22    owned and operated by Amtrak that linked Newark and
23    Midtown Manhattan.  On a foot-by-foot basis, that's the 
24    most expensive piece of real estate.
25              I  don't know  if it  has now  been exceeded  by

                                                             246
 1    World Trade Center footage for roof-top access to
 2    microwave towers, but I learned a lot about the value of
 3    rights-of-way, and again history repeats itself.
 4              Well, the title of my presentation is, Wireless
 5    Telephony at Adolescence, and that's a bit of a misnomer
 6    in the sense that we're having presentations from very
 7    infant new market entrants, but I did my math, and
 8    cellular for one was debuted in around 1984, so we are at
 9    adolescence, or the teen years for at least some of the
10    wireless technologies.
11              In making a presentation of this sort I'm always
12
13    mindful of advice given to me by some platform presenters,
14    and the two pieces of advice that really sort of stuck to
15    me are always, bring a prop, so David, my hat's off to you
16    for bringing a prop of that sort.
17              I have a prop.  It's a cell phone, and it didn't
18    work.  It didn't work for a large percentage of my voyage
19    from State College, Central Pennsylvania.  There are
20    places, even in this day and age, as we speak, where
21    wireless access is a goal and not a reality, and you might
22    expect that in rural New Mexico and what-have-you, but
23    this was part of the Northeast, the congested Northeast,
24    but where I live there are more cows than there are
25    cellular telephone subscribers, so there you have it.

                                                             247
 1              The other advice was to be provocative, so what
 2    I would like to pursue is a real sort of bifurcated,
 3    schizophrenic-type scenario for wireless at adolescence.
 4              (Slide.)
 5              MR. FRIEDEN:  This guy's good.  He anticipated
 6    my slide.
 7              There really are two scenarios, current and
 8    future scenarios for maturing wireless carriers, and that
 9    is one, becoming a functional equivalent of wire line
10    service.  I have heard estimates, I've seen estimates of
11    40-plus percent market penetration by the turn of the
12    century.  There are 53 million wireless subscribers in the
13    United States this year.  Other estimates predict 200
14    million globally as of 1999, and so certainly wireless is
15    a technology that has been embraced, but to what extent?
16              I'm also mindful of marketplace conditions, and
17    it's not sort of, if we build it they will come.  There
18    certainly are marketplace factors to consider.  You
19    remember that phrase, if we build it they will come.  That
20    was from a movie where a farmer, not unlike many of my
21    neighbors in Central Pennsylvania, a farmer somewhere in
22    the Midwest decided that if you reduced crop yield by
23    building a baseball field in the middle of a cornfield,
24    well, long-dead baseball players would come and play
25    baseball with  him, sort of  a suspension of  disbelief in

                                                             248
 1    that movie, Field of Dreams.
 2              But certainly a lot of dreams and a lot of money
 3    has been made in wireless, and we're really at a sort of
 4    critical inflection point, or a sort of point where the
 5    two scenarios that, I'm going to spend, may indeed start
 6    to pull away from each other.
 7              As wireless carriers penetrate markets, just
 8    like in any market conditions, the average return per unit
 9    and margins decline.  Certainly that's been the case in
10    paging, but in the case of paging companies aggressively
11    have pursued market share even as their profit margins and
12    certainly their stock prices have declined.
13              Some carriers, on the other hand, certainly not
14    the paging industry, will continue to strive to maintain
15    wireless as a luxury service, or perceived as a luxury
16    service.  They are perhaps willing to relinquish some
17    market share in exchange for a high margin.
18              We've seen to some extent that latter strategy,
19    and I'm sure this falls into the provocative, or
20    provocation mode of the presentation.  PCS "competitors"
21    for the most part have engaged in what I would consider
22    conscious parallelism.  In other words, they look at
23    incumbent cellular prices and use those prices as an
24    umbrella and price not too far below that.
25              Having said that,  the last bullet here  is that

                                                             249
 1    some price wars have broken out where the perception is
 2    maybe we shouldn't parallel price but should aggressively
 3    price, and some of these price wars have taken place in
 4    Canada, of all places, and that sort of led me to think of
 5    the sort of juxtaposition of Canadians and loquaciousness.
 6
 7    Can you envision a loquacious, talkative Canadian?
 8              But indeed, in Canada some of the most
 9    aggressive pricing opportunities exist, and here's a new
10    acronym, if you collect acronyms.   Maybe you haven't see
11    this one:  AYCE.  A-Y-C-E-, all you can eat.  That's the
12    salad bar, the buffet, and also a close to unlimited
13    usage, and sensitive pricing, but then when you look at
14    AYCE, in many instances they are just large market
15    baskets, large minute baskets, and in large part those 
16    minutes are off-peak, and we know that off-peak is
17    typically 7:00 p.m. to 7:00 a.m.
18              So let's examine quickly the scenario of
19    wireless as a luxury service.
20              (Slide.)
21              MR. FRIEDEN:  When you characterize wireless in
22    that mode, you also run the risk of being characterized as
23    cherry-pickers, or cream-skimmers.  Those words have been
24    bandied about over the years.  Lower than pond scum
25    perhaps might also be a characterization.

                                                             250
 1              On the other hand, the economist, or certainly
 2    the hired gun consultant economist would say, well, that's
 3    rational Ramsey pricing.  You're pricing on the basis of
 4    elasticity of demand, and you're going after the user who
 5    really values the service.
 6              Well, certainly you don't necessarily reach
 7    critical inflection points in mass market, 30, 40 percent
 8    market penetration with this strategy, but you can
 9    maintain relatively high margins.
10              Wireless carriers do compete.  In large part
11    their competition is on value-added services and perhaps
12    finding new niches like CDPD, cellular digital packet
13    data, and Internet access.  They have great opportunities
14    to maintain that high margin but still confer value in
15    part because they have arbitrage or opportunities to still
16    price very highly.
17              If you've got a local calling area of 33
18    counties, as I do, I can evade very, very high intrastate
19    toll calls even though I'm paying a very profitable rate
20    for the carrier.
21              The other scenario would be wireless as
22    functionally equivalent.  That is an econ-antitrust word
23    for a competitor, a full-fledged competitor of wire line
24    services.
25              (Slide.)

                                                             251
 1              MR. FRIEDEN:  That I think is increasingly going
 2    to be the scenario.  At Penn State University, where I
 3    teach, the university grounds are becoming a test bed of
 4    sorts, with Cellular 1, Vanguard and Nortel, and here's
 5    another little interesting scenario of wireless becoming
 6    more versatile and more diversified.
 7              Can you think of farmland or barnyard?  Think of
 8    the concept here of wireless local area networks extending
 9    to the barn and, indeed, there are rather intensive data
10    applications in agriculture measuring butter fat and
11    gallons produced by Bessie, and a good visual -- I've
12    learned, as I teach undergraduates, you try to hook a lot
13    of visuals.
14              Name five cow names.   Now, we can come up with
15    Elsie, right, but name four other cow names, and that will
16    take you away from the rest of the presentation, but there
17    are very creative names for cows, as I have grown to learn
18    that in my 6 years at Penn State.
19              At any rate, for those of us who are not naming
20    cows, the remainder of my couple of minutes are that I
21    think this is really the likely scenario where wireless
22    local loops are cost-competitive.  I was unfortunately in
23    transit, and I was not able to see the presentations on
24    the technology, but one scenario that I think is
25    intriguing, and one very much analogous to what Penn State

                                                             252
 1    is doing, is to sort of broker or link or integrate the
 2    cordless telephone.
 3              Unlimited usage -- we all have them -- with a
 4    home cell, perhaps usage insensitive flat-rated, and then
 5    coupled outside of that single home cell with regular
 6    conventional cellular service.
 7              Penn State is going to in effect give
 8    everybody -- well, anyone who qualifies, those with tenure
 9    or who have cow management responsibilities -- a cell
10    phone, and this cell phone will in effect provide at zero
11    cost the same kind of dialing functionality that you have
12    in your office, the same five-digit dialing, very, very
13    cost-competitive.
14              I was thinking about what that would do for me,
15    and I think, like others, I have to recall how to work the
16    Centrex, which is a technology we're still using, how to
17    camp on  phones,  how to  call forward,  a  lot of  digit-
18    dialing, and interfacing with the wire line system, and I
19    have to go back to square 1 on that.
20              I've learned to presubscribe, I've learned to
21    dial around, I've learned to program my VCR.  Now I have
22    to learn to call-forward, and I think it's doable, but
23    that's going to be the kind of thing that my colleagues
24    are going to have to embrace if you have this wireless
25    that is really the extension of a wire line network.

                                                             253
 1              (Slide.)
 2              MR. FRIEDEN:  The question really gets down, for
 3    some of the wireless carriers, what do they want to be
 4    when they grow up?  If they embrace functional equivalency
 5    I think that they're going to have to assume commensurate
 6    responsibilities, that cocarrier status, that contribution
 7    to the universal service fund.  These are the sort of
 8    flip-sides of qualifying as an eligible carrier for
 9    subsidization, and I note with interest that insofar as
10    intrastate universal service fund responsibilities
11    carriers are in effect embracing an avoidance strategy.
12              We're not the functional equivalent.  We don't
13    have ubiquity, therefore we shouldn't make that
14    contribution to intrastate universal service funding.  Is
15    that the kind of outcome you seek?  Is that the kind of
16    outcome you want to have when you reach maturation, or
17    when the industry reaches maturation, never the functional
18    equivalent and a luxury service?  Well, perhaps not.
19              In a nutshell what we have, I think, is a very
20    viable technology. I think users are pretty much
21    indifferent as between wire line and wireless.  I think
22    wireless access to the Internet and a host of intelligent
23    applications are very creative additional market niches,
24    and really the deal is what the wireless carriers want to
25    be.

                                                             254
 1              Do they want to try to play that high margin
 2    game, or do they want to look at minutes as pretty much
 3    fungible with the wire line network, and it remains to be
 4    seen which scenario will play out.
 5              Thanks very much.
 6              (Applause.)
 7              MR. HATFIELD:  Thank you, Rob.
 8              Our fourth speaker will be Joe McMonagle,
 9    director of strategic planning for SBC Communications,
10    Inc.  For the past 5 years Joe has focused on wireless
11    issues.  He was responsible for developing SBC's PCS
12    strategies for the A&B and DE&F PCS block auctions.
13              He's worked for SBC for 27 years, and holds
14    degrees from Southern Methodist University and Washington
15    University.  Currently Joe is examining SBC's potential
16    participation in the upcoming LMDS auctions.
17              Joe.
18        JOE McMONAGLE, DIRECTOR OF STRATEGIC PLANNING, SBC
19              MR. McMONAGLE:  It's always nice to be the last
20    speaker.  I hope what I have to say is worth your sticking
21    around.
22              At SBC we've spent a lot of time looking at
23    wireless local loop both as an opportunity to extend into
24    new markets, as an opportunity to augment our present
25    copper deployment plans.

                                                             255
 1              In the near future, the next 2 or 3 years, we'll
 2    probably have one of the biggest wireless local loop
 3    deployments in the world in our partnership in South
 4    Africa, and then we've also conducted trials in St. Louis
 5    of this technology, and we've also conducted a few trials
 6    in France, so we have a pretty good background in wireless
 7    local loop, and what I'd like to do in the next few
 8    minutes is share some of our knowledge about wireless
 9    local loop.
10              (Slide.)
11              MR. McMONAGLE:  When you look at and you hear
12    vendors get up and talk about how much does it cost per
13    access line, I always get kind of queasy about that,
14    because there are a lot of variables associated with the
15    design of a wireless local loop network, and I would like
16    to briefly cover a few of them.
17              Market area, for example.  Market area is
18    dictated by, maybe it's the area you want to serve, the
19    market you're focused in on.  There may be some build-out
20    requirements associated with the spectrum license.  It may
21    be coverage area that is dictated by how you intend to
22    market this, what kind of advertising, whether it's
23    television, radio, newspaper.
24              When you look at the market area you also have
25    to consider some  physical things,  like the terrain,  the

                                                             256
 1    demographics.  There's a  whole lot of things that go into
 2    the market area, deployment in terms of impacting the
 3    design of your network.
 4              The next thing is demand, what kind of demand
 5    can you project, what kind of penetration can you assume
 6    you're going to get when you bring this new technology and
 7    you go after this business, the number of users, the
 8    density?  A lot of our speakers have talked about that,
 9    and kind of skirted around that issue, but obviously it's
10    less expensive to serve high dense areas than it would be
11    more rural areas.
12              Another thing that really has a big impact on
13    design of a wireless network is how much you expect
14    customers to use it.   One of the reasons you see wireless
15    local loop used in the foreign countries and not so much
16    in the domestic markets is, basically in the U.S. we use
17    our phone a lot.
18              I think someone -- Lucent said something about
19    1,400 minutes a month kind of usage, somewhere in that
20    area, 1,000 to 1,400 minutes average usage.  The usage on
21    your network has a very big impact on the cost of the
22    network, so when you talk about how much it costs per
23    access line you have to tell me how much you expect the
24    subscriber to use it.
25              And finally,  what kind  of service  set do  you

                                                             257
 1    expect to deploy?  Are you going to emulate POTS?  Are you
 2    going to try to reproduce all the different vertical
 3    services POTS offers, or, like AT&T was talking about, do
 4    you need to have more than POTS?  Is data going to be an
 5    important part of what you want to offer?
 6              The radio technology, there's a lot of standards
 7    out there.  There's PACS, there's DAC, there's CDMA kind
 8    of technologies.  AT&T has their project, Angel, which is
 9    looking at another kind of technology.
10              One of the areas, we seem to have focused more
11    on the PCS licenses and the technologies that that
12    enables, but I think our presenter from Teligent, showing
13    you the LMDS and the broadband technology that's coming
14    along, I think that's really going to have a big impact on
15    our industry in the near future.
16              There's a lot of operational issues.  One of the
17    things that we take for granted is when we lose power at
18    your home that your phone's going to work.  Is it going to
19    work that way with wireless, you know, so there's a
20    battery backup kind of requirement.
21              Operational issues, another one is, a lot of
22    these people that want to get into the business, do they
23    have a force that they could dispatch to the premise?  I
24    mean, that has a big impact on the bottom line, and maybe
25    not so much the cost of the network, but it has  to figure

                                                             258
 1    into their considerations in terms of the technology and
 2    how they want to go about choosing the technology.
 3              Service quality.  There's a lot of different
 4    voice coders, and without trying to get more technical,
 5    the more bits incorporated in the voice coder, maybe the
 6    better quality.  Perhaps you've heard the Sprint PCS
 7    talking about their digital voice and being equivalent to
 8    voice wire line quality, but the technology is really
 9    driven by how much overhead you want to dedicate to the
10    voice quota, and that will have a big impact on your
11    service cost.
12              And finally, the available spectrum.  The price
13    you have to pay in the auction, how much is it going to
14    cost, are you going to have to spend money clearing
15    people?  You know, the available spectrum, like you said
16    earlier, we seem to focus on the PCS spectrum, but the
17    LMDS spectrum, and then the 38 GHz, 24 GHz Teligent has,
18    there's a lot of other spectrum out there that perhaps
19    will provide more meaningful services down the road.
20              When the vendor gives out a price like earlier
21    this morning -- I think one of the vendors talked about,
22    he thought the price was going to be $300 to $600 per
23    access line -- I kind of cringe, because we kind of have
24    to examine what's included.  What has the vendor left out
25    when they talk about those kinds of prices?

                                                             259
 1              The last mile kind of considerations, for
 2    example, is this all he's got included in the price per
 3    access line, or does he include backhaul, and backhaul has
 4    a big impact on the total cost of the network, and taking
 5    that back to the switch and taking it all the way into the
 6    trunking.
 7              So all of these things from a regulatory
 8    standpoint, when you're thinking about cost and access
 9    lines, it's really important that you look at and
10    understand what kind of network we're talking about and
11    what you really want to incorporate into your thinking,
12    because there's a lot of variables associated with this.
13              (Slide.)
14              MR. McMONAGLE:  So what impacts the economics? 
15    Obviously, the regulatory issues.  We talked abut the cost
16    of spectrum, the relocation, the build-out requirements. 
17    That all has a big impact on it.
18              Network design and deployment.  We've talked
19    about how the network design is going to impact the
20    economics of the business case for wireless local loop. 
21    Can we leverage assets?
22              I think one of the things the PCS folks bring to
23    this, like Sprint PCS, for example, is they're deploying a
24    network for high speed mobility, and maybe down the road
25    as they work through the  technical and operational issues

                                                             260
 1    they will be able to use that same network for wireless
 2    local loop, so maybe that's an advantage that they will 
 3    have, or power companies, for example.  They've got right-
 4    of-way, they've got telephone or power poles, things like
 5    that, so can they leverage other assets?
 6              The backhaul I've already mentioned.  When we
 7    look at one of the business cases I'm going to share with
 8    you in a minute, the backhaul really was a big driver. 
 9    Whether you go out and rent or get tariff services from
10    the telephone company to provide the backhaul, or whether
11    you go out and build your own network, this has a big
12    impact on your business case.
13              The service revenues, what is the competitive
14    landscape, and what kind of revenues will you be able to
15    charge as you provide this service, and then there's a lot
16    of operating considerations.
17              So all these things kind of impact the
18    economics.
19              What I'd like to share with you -- 
20              (Slide.)
21              MR. McMONAGLE:  -- and this is kind of a 
22    sensitivity analysis that we've looked at, and this was
23    for a business case in a market in Northeast Texas of
24    about 200,000 population, about 80,000 homes, and we were
25    doing this back about the time when the C band auction was

                                                             261
 1    underway, and we were trying to understand perhaps what
 2    some of these bidders might have in mind in terms of
 3    bidding on the spectrum and what we thought it was worth,
 4    and so we built some basic assumptions.
 5              We tried to approach this as a small company
 6    getting into the business and not as Southwestern Bell
 7    doing the business, and we had some basic assumptions. 
 8    Some of the assumptions included that over 2005 we would
 9    have a penetration of about 30 percent, and that's a
10    pretty aggressive penetration.
11              Basically we were providing POTS, we were
12    providing a limited mobility kind of a service, we were
13    using DECS technology or PACS technology, and it had
14    limited mobility.  It was not a high speed mobility.  It
15    was to replace the wire line service.
16              Our average revenue was about $45 a month on
17    this, and that was a combination of local service and long
18    distance.
19              The thing about wire line service in some of
20    these markets is they're relatively cheap.  Like, in this
21    particular market it's about $12 a month for just your
22    basic service, and then with the vertical services and all
23    it might go up to about $25 a month, but we assumed $48
24    based on bundling some services in there, and what this
25    does, or what this says  is, basically the base case  says

                                                             262
 1    that a value per POP, the 200,000 POTS for our base case
 2    assumptions was $4.6 per POP, so there was a positive NPV
 3    if we can meet our base assumptions.
 4              Then what we tried to do is vary each of our
 5    assumptions by plus or minus 25 percent to understand what
 6    the impact would be.  For example, if we varied the
 7    revenue per sub, which I said was about $48, plus 25
 8    percent, that puts it in the $60 range and increases the
 9    value to about $25 a POP, a very significant increase.
10              But if we reduce that revenue by 25 percent to
11    around $33 per POP, or per subscriber per month, then you
12    can see it actually has a negative value.
13              So we spend a lot of time talking about the
14    capital cost, but the revenue per sub really has a big
15    impact on this thing -- and I see I'm running out of time.
16              The same kind of thing, we looked at penetration
17    plus or minus 20 percent, and all the other things, and
18    you can see the capital really ranks about fourth in terms
19    of what really drives the business case.
20              So we spend a lot of time talking about capital,
21    but it's really all the other business implications that
22    really has the big impact.
23              I have one more slide, and it's kind of
24    repetitive.
25              (Slide.)

                                                             263
 1              MR. McMONAGLE:  For fixed wireless access is
 2    evolving.  I think what is there today meets certain
 3    needs.  I think the LMDS stuff is still -- we need some
 4    experience with that to see how it's really going to work.
 5
 6    It's pretty impressive, what Teligent was doing up here,
 7    but we're just going to see how the acceptance of the
 8    customer is going to develop on that stuff, but there's a
 9    lot going on in fixed wireless access that's going to
10    bring the cost down.
11              But as I showed, it's not just the cost of the
12    technology that really drives the business case.  It's all
13    these other things.
14              I've looked at a lot of business plans, and each
15    plan is different, but basically it's all one of these
16    things where there's a lot of capital requirement for not
17    only the capital for building the network, and capital for
18    acquiring the license, but also funding the losses that
19    you have, because you've got to believe that this business
20    is going to take time to develop.  You're not going to go
21    net income positive in year 1.  It's going to take time,
22    and so you have to have the financial wherewithal to take
23    care of that.
24              No one solution fits all.  What works for
25    Teligent might  not work for us.   What works  for WinStar

                                                             264
 1    might not work for somebody else.  There's a lot of
 2    technology out there, and you just need to look at the
 3    applications.
 4              If you can leverage other resources, then that's
 5    going to bring some cost benefits to you, but basically
 6    the business considerations are driving the decisions, and
 7    these business plans all look very similar, and it's very
 8    risky business.  There are payoffs in the long term, but
 9    you just need to make good decisions.
10              (Applause.)
11              MR. HATFIELD:  Joe, thank you.  I thought that
12    was an awfully important message.  Is there any
13    interaction among the panelists, first, before I turn it
14    to questions from the audience?  David.
15              MR. TURETSKY:  I will just make one point. 
16    We've been hearing a lot about bridges today.  I know
17    Jerry Salemme was talking about a bridge before.  Well, if
18    you can see where local governments have occasionally gone
19    far off in the wrong direction, let me take Jerry
20    Salemme's story and turn it around on this bridge story.
21              Jerry said in San Francisco he couldn't run his
22    wires across a bridge, so he had problems.  They couldn't
23    sell it to him.  They wouldn't charge him, and he couldn't
24    run the wires across the bridge, and he needed to.
25              Well, with our wireless technology we don't need

                                                             265
 1    to run the wires across the bridge.  We can send our
 2    signal, as we just did today, across a river without using
 3    the public right-of-way at all.  We didn't use it on the
 4    top of the building.  It's a privately owned building.  We
 5    didn't use it where the antenna was in Alexandria.
 6              But believe it or not, there are local
 7    governments who, not having sold us anything, say we have
 8    to pay for the use of the right-of-way anyway, and that's
 9    where I think public policy has gone off the track, and if
10    you think of Jerry Salemme's example, well, there are
11    cities out there who not only won't give us the bridge,
12    and we don't want the bridge, but are going to charge us
13    for it anyway.  That's one of the public policy dilemmas
14    here.
15              And I might mention, from what Gail was saying,
16    we have actually negotiated microwave colocation
17    provisions that govern central office access for several
18    Bell Companies that have prices in them and have the
19    methodology and timetables in them.
20              We've done it with PAC Bell, we've done it with
21    SBC, with Bell Atlantic, with Ameritech, and with GTE, and
22    we're as far as I know the only carrier in the country to
23    do that, but we felt if we were going to consider
24    colocation options we wanted to be able to use our
25    spectrum and we needed to be able to evaluate our business

                                                             266
 1    opportunities.
 2              So as Gail said, you need to know the price in
 3    advance so you can make sensible decisions, and we have
 4    broken new ground on that, and I think we've gotten some
 5    good agreements.
 6              DR. SCHWARTZ:  We will try to adopt them,
 7    especially in Missouri.  Are you operating in Missouri?
 8              MR. TURETSKY:  Not yet.
 9              MR. HATFIELD:  Any other comments on the panel? 
10    If not, why don't we take some comments or questions from
11    the audience.
12              VOICE:  I was interested to hear about the
13    merger between a fiberoptic company and a wireless
14    company, and I wonder if the other panelists might have
15    any views about whether that's a trend that we can expect
16    in the future, whether there will be consolidation in the
17    competitive local carrier business, or business
18    arrangements, or some kinds of deals that will make it
19    more clear that it's all the competitive carriers on the
20    one hand competing against the entrenched incumbents on
21    the other, and not the competitive carriers competing
22    against one another.
23              DR. SCHWARTZ:  You're asking for forecasts and
24    prognoses about the types of mergers that will take place?
25              VOICE:   I don't see a lot of Wall Street people

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 1    here in the audience, but I'm sort of interested in
 2    whether the panel thinks that this is the sort of thing
 3    that's going to continue, or whether this is unique.  Are
 4    there advantages?
 5              Obviously, your company decided there were
 6    advantages, but is there a general feeling that these
 7    companies which, each has its own sort of unique kind of
 8    technology and its unique frequency band, whether they're
 9    better off staying as a pure play, or whether they're
10    better off in the long run with joint ventures and
11    mergers.
12              MR. TURETSKY:  Let me first start by answering
13    that question with my prior hat.  As Deputy Assistant
14    Attorney General for Antitrust I had occasion to evaluate
15    a number of mergers and see the business plans of a number
16    of competitors.
17              Let me just say that I know that the Department
18    of Justice has as a working assumption, as it evaluates
19    mergers, that when you look at the panoply of CLEC players
20    out there and you look at the IXC's, if you counted them
21    each as one separate company you would be double counting,
22    because very many of those companies I think once they
23    show some success as a facilities-based carrier for some
24    of the reasons I was talking about in my presentation I
25    think become attractive to others.

                                                             268
 1              But I would at the same time say that any
 2    company who banks on that, or has that as part of their
 3    strategy, is nuts.  You better make a go of it.  You
 4    better prove yourself.  You better be on a track to
 5    profitability and the rest, and I know that that is our
 6    business plan.
 7              But certainly the Department of Justice, I think
 8    when it makes assumptions doesn't count, and it looks
 9    years into the future, works on the assumption that only
10    some of the players out there will remain independent, and
11    that a certain number of those today, independent players,
12    will ultimately be affiliated with larger companies, and
13    you've seen some of that.
14              Worldcom has acquired Brooks and MFS, and I
15    don't think we should be shocked to see other things like
16    that happen.
17              MR. FRIEDEN:  Just a sort of technological
18    footnote, when we were confronted with a problem getting
19    over the Benjamin Franklin Bridge we didn't even consider
20    this as PTAD in the late eighties.  We didn't even
21    consider microwave as an option, because we wanted to
22    represent that we were 100-percent fiber.
23              I think a sort of bellwether event has been this
24    migration and perception of integration of microwave
25    wireless   with  wire  line   technologies.    You're  not

                                                             269
 1    disadvantaged in the marketplace, or as to consumer
 2    perception if you run a hybrid of fiber and microwave, and
 3    that probably attests more than anything to the
 4    developments in digitization and in microwave technology.
 5              MR. HATFIELD:  Other questions or comments from
 6    the floor?  Yes, back here.
 7              VOICE:  Do any of you see being able to make a
 8    business case for wireless local loop to residential and
 9    small business in the next few years?
10              I know, for example, Joe, you must have
11    evaluated what it looks like in other regions.  Clearly
12    you're doing it in South Africa.
13              MR. McMONAGLE:  The business case I presented to
14    you was the competitor coming into our market and using
15    the spectrum.  We continue to look at it.  We have thought
16    about it for augmenting our present method of operations,
17    but it really doesn't pan out right now because there's a
18    lot of cost in terms of integrating it into our network
19    and a lot of things like that.
20              I believe -- I think like, for example, if you
21    look at Centennial in Puerto Rico, I sat in a conference
22    last week, CDMA conference, where they're using their high
23    speed mobility network and augmenting that with  wireless
24    local loop terminal in the home, and I think they have
25    sold  about  5,000 of  them,  and basically  their average

                                                             270
 1    revenue is about $80 a month, so they've picked off an
 2    itch that makes a lot of sense to them, and they're very
 3    happy about it.  If that average revenue was $30 a month,
 4    I don't think they would be so happy.
 5              So I think there are niches to look at, but I
 6    just think across the board it has got a ways to go
 7    before -- 
 8              DR. SCHWARTZ:  I think that clearly the first
 9    application of 38 GHz for residential would be for MD use,
10    multiple dwelling units, which are clusters, and often
11    tall, and sometimes in open space, so that some of the
12    barriers to the technology's efficiency and reliability
13    would be minimized, and you need to have a demand set.
14              Everybody up here has been talking about the
15    supply and the technology and the cost reduction, but you
16    have to remember that you have to have a certain level of
17    demand for the service, and if people are -- if TCG were
18    to serve an MDU with 38 gig it would be because it was
19    more economical to do it that way than fiber, but then,
20    what if someone builds a building between us and them? 
21    The whole constellation would change.
22              So it's clearly iffier.  Once you've got fiber
23    in there, you've got it in there.  It's there forever.
24    With wireless, it's there, but it might not be there
25    forever, and what if it rained today?

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 1              MR. TURETSKY:  Let me answer that.  I don't care
 2    if it rains today.  I don't care if it snows today.  We
 3    engineer our network for 99.9 percent reliability, and
 4    that takes into account rain and snow, and where there are
 5    rainier environments, then you're going to have your hops
 6    from a building to a node be a little shorter to take
 7    account of that.
 8              So I  think this  reliability is  an old  bug-a-
 9    boo, and it just isn't true, and anybody who thinks  it is
10    true is dealing with a company who is not engineering
11    their network properly, number 1.
12              And number 2, the question about small business
13    and residential, our target market is small business. 
14    It's small and medium-sized business.  It's companies that
15
16    have between 5 and 350 lines, and we're talking about
17    small business, and we're not out to serve the large
18    businesses.
19              As for residential, I think I agree with Gail
20    that multiple dwelling units are going to be the first
21    targets for fixed wireless providers.
22              AT&T has a different strategy.  It's not a
23    broadband strategy.  Their project Angel aims at providing
24    fixed wireless service to homes, but what you're going to
25    see, I think, in fixed wireless technology, just as you've

                                                             272
 1    seen in every other technology that's come down the pike,
 2    is a cost curve that declines, innovation that helps
 3    reduce the cost curve further, and I think it will be
 4    increasingly in the future an option for single family
 5    homes, but today, for a company like mine, it wouldn't be
 6    focused on single family  homes, but it does start quite
 7    small, at small businesses five lines and up.
 8              MR. McMONAGLE:  I think the wireless technology
 9    offers a way to get over the barriers to entry for the
10    customer.  It is all these other business things, though,
11    that you have to work through, your cost deployment, your
12    cost of acquisition, your operational cost.  It is all of
13    these things that really determine the business case, and
14    I'm sure folks are working through that now and trying to
15    come up with solutions.
16              MR. HATFIELD:  Any other questions?  Yes,
17    please.
18              VOICE:  We've talked a lot today about the cost
19    advantages associated with wireless over wire line
20    technology, but I still don't have a sense whether this is
21    something where the fixed wireless is of a 10-percent cost
22    advantage, or is it 60 percent?  I realize that there are
23    a lot of factors that go into that, but just in terms of
24    an estimation of the magnitude.
25              MR. McMONAGLE:  From our standpoint there really

                                                             273
 1    is no cost advantage wire over wire line, just because of
 2    the economies that we establish in terms of our copper
 3    deployment, but you really have to look at what kind of
 4    services you're delivering with the wireless technology
 5    versus the wire line technology, what kind of services it
 6    allows you to provide.
 7              It's kind of a revenue cost kind of thing, and I
 8    think that is the real question, because as I tried to
 9    show, there's just so many variables that you can't come
10    up with one, you know, 10 percent.  You have to look at
11    all those things and kind of throw that into the equation.
12              MR. FRIEDEN:  I will add a couple of variables
13    for South Africa, which I've studied.  That is, you've got
14    benchmarks deliverables as part of the tender,
15    privatization tender, and one way to get a lot of dial
16    tone and a lot of access lines out in quick order is
17    wireless.
18              And, as well, to service areas in the hinterland
19    there may not be an end office or central office with
20    embedded sunk investment, in which case the economics, the
21    finance of wireless looks a lot better because the wire
22    line isn't there, and you can't just build out from the
23    wire line.
24              MR. TURETSKY:  I agree, the cost advantage
25    varies by customer and market, but let me say this,  in no

                                                             274
 1    market, intelligent voice target market for 5 to 350 lines
 2    be offering prices that are at or above the tariffed rates
 3    of the wire line incumbent LEC.  In every case, we will be
 4    offering service at lower prices.
 5              So let me throw down the gauntlet.  Our motto is
 6    simplicity, service, and savings, and that's part of what
 7    we're out there trying to do.
 8              And before I give up the podium I would be
 9    remiss if I didn't really thank NTIA for organizing this
10    and focusing on this new technology.  So often, people
11    confuse the mobile cellular with the fixed wireless, and
12    don't include, as they look into the future, the fixed
13    wireless technologies, and I want to thank Assistant
14    Secretary Irving and Kathy Brown and Joe Gattuso and all
15    those people at NTIA who put this together and focused on
16    this.  Thank you.
17              MR. HATFIELD:  That's a good wrap-up remark.  We
18    need to shut down the panel, and Kathy, do you have some
19    final remarks?
20              (Applause.)
21              MS. BROWN:  Thank you.  I thought this afternoon
22    was an incredibly good discussion.
23              In fact, my brain is pretty saturated, and I
24    suspect yours is, too, so let me just say what I think our
25    follow-up will be.  Rather than stand here and try to give

                                                             275
 1    you an overview of everything we heard today, what we will
 2    do is take the proceedings back and on our Web site you
 3    will see a posting of as many of the presentations as
 4    people will leave with us, as well as the transcript of
 5    the day.
 6              And then I think we're going to try, with the
 7    help of Ann Stauffer -- we got smart, we lawyers and
 8    economists.  We brought an MBA on, and Ann actually keeps
 9    us pretty organized, and pretty on target, and she's told
10    me that she will take what we have and try and summarize
11    it so that you can come back onto the Web site and see
12    some of the points that were made, and perhaps point to
13    some of the speakers.
14              May I also suggest that you communicate with us
15    through our Web site so that if you think there are some
16    follow-up things that we should do, or we might do, that
17    you E-mail us and tell us about that.
18              I want to thank all of the panelists today.  I
19    think we had some really extraordinary folks from
20    industry, academia, and from the Government and policy
21    side here to talk about these issues.  I thought it was a
22    terrific discussion.
23              I want to also give a little advertisement for
24    our next forum.  This was the second.  There will be a
25    third.  Robert, what's the date?  February 4.  We  want to

                                                             276
 1    talk about new cable technologies, and after that we're
 2    going to talk about new satellite technologies, and we're
 3    going to keep talking about how these technologies can be
 4    deployed in this market and how we can ensure that this
 5    becomes an open, competitive market, and so I'm hoping
 6    that you will come back and talk with us again.
 7              Larry, you're here.  Would you like to say
 8    anything?
 9              MR. IRVING:  I just want to say thank you to
10    Kathy and to my colleagues at NTIA for the work they did,
11    and I want to thank the many people, including some old
12    friends.  I thought David Turetsky was going to announce
13    he was going to come back to Government after his comments
14    about Dale Hatfield, and you know, we can get Gail back. 
15    I see Tom and Michelle.  We could do big things this week.
16              But I do want to thank so many people I've
17    worked with, some for more than a decade, for their
18    contributions to this dialogue, and I want to thank all of
19    you for the interactive nature.
20              It's amazing, because I can sit over at my desk
21    top and watch this on my computer, and for parts of the
22    day I had the opportunity to do exactly that.  While you
23    were over here speaking, those of us who were over at
24    NTIA, right across the street, were using the Internet to
25    follow what  was going  on over  here, and  it was  really

                                                             277
 1    powerful, and that is not to encourage those of you who
 2    are thinking about coming September 4 to use that
 3    technology.  We want you to come right back here.
 4              But it really has been an incredibly important
 5    day, and I think we've had some good dialogue and some
 6    good discussion.
 7              I also want to encourage all of you to give us
 8    some ideas about how we can improve on this, do a better
 9    job in the future ones.  February 4 is going to be a good
10    one, but any suggestions you can make about things we
11    could be or should be doing better, we would like to do
12    that.
13              But the most important reason I came up here is
14    I want to thank all of you for your support and your
15    friendship over the last several years, and I also want to
16    wish each and every one of you a happy holiday season. 
17    Whatever you're celebrating, whether it's Christmas,
18    Kwanza, Hanukkah, Feliz Navidad, Bon Natale, I want to
19    wish each and every one of you a very pleasant holiday
20    season, and a great 1998.
21              We look forward to working with you.  Thank you
22    very much, and see you soon.
23              (Applause.)
24              (Whereupon, at 4:50 p.m., the meeting
25    adjourned.)




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